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Claiming under the Home Building Compensation Fund

Construction Law News | May 2016

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”] [2016] 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:

  • Gardez was not developer's successor in title under the Home Building Act [ss18D(1) & 99(1)(b)];
  • nor was Gardez capable of becoming a non-contracting owner in relation to the building contract between the developer and the builder under ss3, 18D(1A) &s 99(2A) of the Home Building Act;
  • nor was Gardez able to be classed as a “developer” in relation to work done prior to 27 June 2014 under s3A(1) of the Act.

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.

Forum Law can advise and assist builders, sub contractors, architects, engineers and consumers in home building and commercial construction law. If you have any questions or concerns about legal matters regarding building and construction law give us a call for an obligation free chat for up to 30 minutes on the phone or make a time to visit us in Leichhardt on 02 9560 3388.

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