Changes to residential NSW Building Laws

What are the changes that I need to know about?

On 5 June 2014, the Home Building Amendment Act 2014 (NSW) (Act) received Royal Assent and will come into force once a commencement date has been proclaimed. The changes are extensive, and will have a wide impact on the residential building industry in NSW.

Changes to statutory warranties

The distinction between ‘structural’ defects (6 year statutory warranty) and ‘non-structural’ defects (2 year statutory warranty) has been discarded. Instead the statutory warranty period will depend on whether the defect is a ‘major’ defect, which requires the defect to be both:

  • a defect in a major element of a building (which expressly includes not only structural load bearing elements but also fire safety systems and waterproofing); and
  • likely to cause the building to be uninhabitable or unusable, or threaten the destruction or collapse of the building.

The amendments also help protect builders by:

  • broadening the defences available where a builder has reasonably relied on instructions given by a professional (e.g. an architect) acting for the owner;
  • expressly requiring home owners (and owners corporations) to mitigate their loss by making reasonable efforts to notify the builder in writing of an alleged breach within 6 months of the breach becoming apparent;
  • imposing a duty on home owners not to unreasonably refuse a builder access to the site to rectify defective work; and
  • extending the application of statutory warranties to subcontracts.

Previously the statutory warranties were only implied into the contract between the builder and the owner, but now the builder will be able to pursue a subcontractor for breach of a statutory warranty.

Changes to the home warranty insurance scheme

The home warranty insurance scheme will be renamed the Home Building Compensation Fund. The insurance has always protected home owners where the builder has died, disappeared or become insolvent (and also in the case of certain license suspensions) but the meaning of ‘disappeared’ has never been clear. The amendments expressly state that ‘disappeared’ means ‘cannot be found within Australia’.

Claimants will now also be able to make a claim on the insurance when the builder was a partnership and one of the partners becomes insolvent. As a result of increasing fraud in relation to insurance certificates, the amendments also set up a public register of certificates which can be searched by home owners and potential purchasers.

Restrictions on progress payments

There will now be a blanket 10% cap on deposits (previously 5% for contracts under $20,000 and 10% for contracts over $20,000). In addition, there is now a requirement for any contract over $20,000 to include a progress payment schedule, and builders are restricted to claiming either:

  • milestone payments linked to completion of specified stages of work, which stages must be described in clear and plain language in the contract; or
  • payments for work performed, and the claim for payment must be supported by invoices, receipts or other documents to support the claim, (called ‘authorised payments’).

It will be an offence to ask for a payment that is not an ‘authorised payment’.

Other contract changes

In addition to the existing written requirements for the contract, builders are also now required to include a statement in their contracts that the parties have a right to terminate the contract in circumstances provided by the general law (in addition to any other express rights of termination).

Increased licensing penalties

There will also be greater penalties not only for individuals who undertake residential or specialised building work and are not licenced to do so, but also more serious consequences for builders and developers who hire unlicensed persons, including potential imprisonment.

What do I need to do?

The legislative changes to required contract terms apply from any contract entered into after the amendments take effect. If you are using a standard HIA or MBA building contract for NSW, you need to make sure the relevant body has updated the contract, and that you are using the updated version when the amendments take
effect. If you have your own building contract, you should seek legal advice now to make sure your contract terms are compliant, and that your progress payment schedules will be authorised.

If your contract does not comply with the legislation you could be fined up to $110,000 — plus you risk committing an offence by unintentionally making unauthorised claims for payment.

We will notify our construction clients of the commencement date once the changes take effect.

Contact our team if you require advice on whether your contracts are compliant, or if you would like more information about your rights and obligations in respect of defects, or any licensing issues.

For more information contact the Construction Dispute Resolution Team:

Alisa Taylor — Partner — Construction
(02) 6279 4388