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Home Building Act (NSW) amendments explained

Construction Law News | February 2015

As of 1 January 2015 the first stage of amendments to the Home Building Act 1989 (NSW) came into effect. The second stage of the amendments is due to take effect on 1 March 2015. It is important for builders and homeowners alike to familiarise themselves with the changes, most particularly if they are currently involved in building or renovation projects as some of the key amendments involve changes to statutory warranties, builder's licenses and the creation of the Contract itself.

Changes which came into effect on 1 January 2015

A New Statutory Warranty Regime

It is no longer necessary for a defect in a building to be a "structural defect" in order for it to be covered by the 6-year warranty under the defects liability regime. Instead, the new "major defect" test will be applied. A "major defect" is a defect that affects a "major element" of the building AND either prevents all or part of the building from being occupied or used for its intended purpose OR threatens the collapse or destruction of the building or part of it.

Any defect which does not fulfil these criteria is deemed to not be a major defect and is covered instead by the standard 2-year warranty.

It is also important to note that the changes to the statutory warranties will have retrospective effect for all building contracts entered into on and after 1 February 2012 UNLESS the owner has commenced proceedings prior to 15 January 2015.

Insolvency of Building Companies

Builders operating as sole traders/partnerships and directors or officers of building companies will be forced to disclose the details of any bankruptcy, deregistration or winding up of their company within 7 days' of the event or face harsh penalties ($110,000 for a corporation or $22,000 for an individual).


Builders will be prevented from renewing their licenses if they or a company of which they were a director or manager have been the subject of an unreasonable number of complaints, penalty notices or insurance claims or where they were the director, partner or manager of an organisation that was disqualified from holding a building licence within 12 months before the date of an application for a licence.

Furthermore, if a builder goes into bankruptcy or their company goes into external administration and there is a risk that they won't be able to complete contracts and all reasonable steps to avoid the bankruptcy or external administration weren't taken the builder or company could face 3-year exclusions from being issued with a licence.

Changes which are to come into effect on 1 March 2015

Further change to the Statutory Warranties

As of 1 March 2015 subcontractors will be liable to the builders for the same statutory warranties for which the builder is liable to the owner, with those warranties being implied into subcontractor's contracts.

Owners must notify builders and subcontractors in writing of a defect in a building WITHIN 6 months of the defect becoming apparent or risk the dilution of any claim which is brought before a court or the Tribunal. Similarly, owners are not able to reasonably refuse a builder access to the property to rectify a defect.

Cash flow and payment

Maximum 10% deposits will apply to all residential building contracts. Further, builders will only be able to claim payment if it can be evidenced by reference to a stage of work which has been described in clear and plain language in the Contract OR supported by invoices, receipts or other documentation for work already performed or costs already incurred. Failure by a builder to comply with these requirements will result in $110,000 fines for a corporation or $22,000 for an individual.

It is important that builders and owners understand their respective rights and obligations in relation to building work. Forum Law can advise and assist owners and builders on their rights and obligations under the Home Building Act and at common law.

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