In New South Wales (NSW), a home owners warranty insurance or domestic building insurance covers homeowners in case a licensed builder contractor goes bankrupt, passes away, disappears, or is suspended. This helps homeowners receive compensation in unfortunate events involving their builders or contractors.
Moreover, this is a compulsory insurance that each and every builder must obtain for projects over $20,000. This insurance was implemented in New South Wales in 1997 and replaced a government-managed insurance program with a commercially controlled insurance framework for contractors doing residential construction.
Builders or contractors must provide their clients proof of home owners warranty insurance before beginning projects valued at more than $20,000. Homeowners should also receive any payment under the building contract for that project, including a deposit.
Homeowners have the right to have their homes built properly and on time. Moreover, they also have the right to have compensation if ever things don’t go their way during building or construction (homebuilding). This article will help homeowners learn more about home owners warranty insurance and domestic building insurance.
Home Owners Warranty Insurance: Home Building Act 1989
The law governing the home building sector in NSW is the Home Building Act 1989. It gives homeowners a measure of protection against the dangers involved in constructing or upgrading a home. Before home-building projects start, the Act mandates that contractors and tradespeople obtain the necessary licenses for their residential building work.
This includes implementing appropriate contracts and home owners warranty insurance before they start with home-building projects. Section 92 of the Home Building Act 1989 states that a builder must not start working on a home unless there is a home owners warranty insurance that covers the work. However, the home owners warranty insurance is not effective unless the builder is bankrupt, has passed away, or becomes unreachable.
Relevant Sections of the Home Building Act
Other obligations include notifying the insurer who provides the home owners warranty insurance of potential claims. Both the builder and the homeowner must follow all requirements in the Home Building Act after the acquisition of the insurance. Part 2C subsection 18B (1) guarantees that the builder will:
- Take precautions in completing the residential building work while adhering to the established plans
- Only purchase new materials that will function as intended, unless agreed otherwise, comply with the Home Building Act.
- Work with due diligence while following the deadline
- Ensure that the residential building work is suitable for occupants living in the nearby residence of the project
- Ensure that every material is suitable for its intended use
Legal Obligations of the Home Owner
The homeowner also has certain obligations with regard to bringing a claim against the builder about homeowners warranty insurance. This is if the contractor fails to obey any of the aforementioned factors. These obligations are outlined in the Home Building Act in Section 2C Subsection 18BA, which are:
- The owner must make an effort to mitigate the loss.
- The contractor also has the burden of proving any claims that the homeowner failed to take the necessary actions to minimise the damage.
What If There Was A Breach Of Contract?
The owner of the statutory warranty has the authority to make a contract to lessen the loss. As a result, the home owner may decide to sign a new contract with a different builder in order to lessen the financial impact of the first builder’s breach of the original contract. The homeowner has 60 days from the time of the discovery of the breach to notify the contractor in writing of the builder’s warranty breach.
In order to correct the statutory warranty violation, the homeowner must grant the contractor reasonable access to the property. The Act also offers procedural remedies if a builder’s warranty insurance breach occurs and if both parties cannot cooperate on a resolution. Here are the procedures:
- The following claim must start prior to the warranty’s expiration.
- The homeowner has six years to submit a claim if it relates to a significant flaw. On the other hand, the homeowner has two years to bring their claim if it relates to a minor concern.
- The warranty period begins when the alleged structural defects are corrected.
Let’s suppose that the work was not completed and has structural defects in its unfinished state. When will the warranty period start? In this case, the builder’s warranty period may start at the date the contract was completed or at the completion date. The warranty period begins on the date of the contract if the agreement was not terminated, but the work was never started.
What If Builders Can’t Obtain Home Owners Warranty Insurance or Domestic Building Insurance?
For compelling reasons, some builders or contractors find it difficult to obtain or increase their home warranty insurance. One reason is that they may not have the financial means or position to gain a home warranty insurance. Another reason is they weren’t meeting some of the eligibility requirements like:
- A contractor licence for building, trade, or specialist work
- Australian Business Number (ABN) or Australian Company Number (ACN)
- Finding an insurance broker for insurance services
- Completing a builder eligibility application
- Personal and business financial details such as assets and liabilities
- Tax returns and/or profit and loss statements
- Number, type, and value of proposed residential building projects at any time
- Contractor licence details
- Financial performance
- Equity exposed to the building operations
- Technical capabilities
- Home owner warranty insurance claims history
The Victorian Managed Insurance Authority (VMIA) is a significant provider of domestic building insurance in Victoria. If builders continue to struggle to obtain builders warranty insurance or meet these requirements, they may ask for help from a solicitor so they can cover all legal matters involved with homeowner warranty insurance.
Getting things right and keeping up with eligibility requirements is imperative if builders and contractors want to continue their work. Meeting eligibility requirements can help builders and contractors start new work or sign new contracts.
What To Do When Having Disputes About A Homeowners Warranty Insurance
Homeowners may file claims against a builder or a contractor if they breach a contract about homeowner warranty insurance. They may do this if the builder or contractor abandons their work or if they used low-quality materials for their clients. Surely, no homeowner would want an unfinished house or a house built using low-quality materials.
That’s why JB Solicitors is here to handle all legal matters that may arise before, during, or after the homebuilding process. We can help settle disputes between homeowners and builders with our civil litigation services. Our conveyancing solicitors also know the ins and outs of the legalities around homebuilding and how insurances work for homeowners.
Contact a lawyer today for all your legal matters about home building and issues with home warranty insurance services.