NSW builders better protected from indefinite insurance claims, but home owners lose some recourse
The recently unveiled NSW state government reforms to the Home Building Act aimed at pumping some adrenalin in the industry will benefit builders, developers and insurers, but leave home buyers with less recourse to pursue faulty workmanship claims.
The legislation reduces warranties offered to home buyers from seven years to two for non-structural defects.
It’s been argued that the bill will assist builders, developers and insurers of new houses and apartments by taking away the unrealistic expectation that builders are perpetually liable for wear and tear in homes they have constructed.
NSW Fair Trading Minister Anthony Roberts is correct to argue it is inappropriate to have a seven-year warranty period for painting and possibly the plastering.
The minister notes a result of a 2008 Supreme Court ruling and subsequent amendments to the act in 2009 that there was potential for a claim against home warranty insurance to be made at any time.
“In effect, this means that insurers face the real risk of unending liability for home warranty insurance claims,” he advises.
Some insurers are not releasing bank guarantees provided by builders as security against their home warranty insurance policies, and this means that builders, many of whom are small business owners, are continuing to pay interest on securities being held. This was affecting the ability of these builders to take on new jobs, as their capital was tied up.
But the proposed changes could make some legitimate claims practically impossible to pursue through the courts.
Many defects do not emerge in the initial two years of a newly constructed building.
Not only is time against the home buyers. As strata lawyer David Bannerman suggests, strata flat buyers could be particularly without remedy given that to launch a claim an apartment owners’ meeting needs approval to engage costly professionals in resolutions approved by the owners’ corporation at a time when possibly unsold apartments mean the developer has effective control of the decision making of the owners’ committee.
The legislation reduces warranties developers must offer home buyers from seven years to six for the more serious structural defects. Some states offer up to a decade for claims to emerge.
The bill allows for the practical completion of each building in a multi-building project to be considered independently.
Even the legal definition as to what’s structural and non-structural is not clear-cut.
At present "structural defects" are defined in clause 71 of the Home Building Regulation 2004, which provides that a structural defect is one that causes physical damage or prevents, or is likely to prevent, the continued practical use of the building or any part of the building. Every component of the external walls or roof, including weatherproofing, is considered to be a structural element of the building.
"Non-structural defects" are, by default, anything that does not fall into the just-mentioned definition. The bill does not propose any change to the current definition of "structural defect".
But some industry groups have strong views that the current definition was too wide and requires urgent revision, which the Fair Trading Department is still considering.
Roberts says the bill will “pump some adrenalin in the industry".
"We want to remove the dead hand of government off as many small tradespeople and builders as possible," he says.
Roberts says since 2002 only 7% of claims and notifications relating to structural defects were lodged six years after the issue of the insurance certificate and that data collected by Fair Trading’s Home Building Service since 2007 shows that more than 82% of complaints about structural defects are made within six years.
Claims data produced by the Home Building Service dating back to July 2007 shows that more than 80% of non-structural defect complaints are made within the first two years.
But NSW opposition spokeswoman Linda Burney says the opposition will be seeking to amend the bill.
“Whatever the reason that the government has put forward for this change it cannot be argued that it will maintain the current level of consumer protection,” she says.
“The reduction of the time frame within which a consumer can collect on a warranty is something that the opposition cannot support.
“While we agree that burdensome regulation and red tape in the construction industry is inappropriate, improvements on this front should not come at the expense of consumers,” Burney says.
One likely outcome of the bill is that builders and developers will no longer be able to use proportionate liability laws to shift responsibility to their subcontractors for warranty breaches.
Until 2010 it was considered that the provisions of the Civil Liability Act did not apply to statutory warranty claims under the Home Building Act. However, in July 2010 the Supreme Court allowed a builder to use the rules of proportionate liability to defend himself in a statutory warranty claim.
A significant amendment raises the threshold for home warranty insurance from $12,000 to $20,000.
Industry stakeholders have expressed concern that the $12,000 does not represent the increases in building and labour costs that have occurred since 2004.
It is suggested the requirement has had a negative effect on small to medium builders and tradespeople as in order to be eligible for home warranty insurance, builders and tradespeople must meet stringent prudential requirements.
Builders and tradespeople had also raise concerns about the cost, time and effort required to obtain home warranty insurance for small-scale building works
The bill will increase the threshold at which written contracts are mandatory from $1,100 to $5,100.
