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The rules and regulations relating to home building can be tricky, and navigating the Home Building Act can be a challenge for builders, owners and other players in the construction of residential dwellings.
The rights and entitlements of different players in a construction scenario have been explored by the Supreme Court of NSW in the recent case of Gardez Nominees Pty Ltd [“Gardez”] vs NSW Self Insurance Corporation [“NSW Self Insurance”]  NSWSC 532. In that case the developer of a residential strata complex, engaged a builder to build the complex. The plaintiff (Gardez) loaned money to the developer and secured the loan with a mortgage over the property containing the building complex.
The developer took out home warranty insurance with defendant insurer (NSW Self Insurance). The builder’s work was defective and the builder entered into liquidation. The developer then defaulted on their loan repayments to Gardez, so Gardez took possession of the complex on 27 June 2014 and the property under the terms of the loan agreement and the mortgage.
Gardez claimed they were entitled to make a claim under the home warranty insurance for the defective work and insolvency of the builder.
Hammerschlag, J decided that by becoming mortgagee in possession:
This case provides some guidance to parties wanting to secure a new residential building as security for loans to builders and developers and even new home owners. In these circumstances it may be prudent to check the quality of workmanship and completeness of works during construction, or as soon as is possible once the loan and security arrangement is anticipated, as the entitlement of a secured lender to the builders compensation fund for defective or incomplete work is limited or non-existent.