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Home Building Act – a summary

Construction Law News | June 2016

The laws relating to residential construction are unique and builders and other service providers in the construction industry are well advised to distinguish their obligations when performing services in residential construction from their obligations under other forms of construction, to avoid claims by owners and other contractors and substantial penalties and court proceedings.

Here we provide a summary of these unique rights and obligations under the Home Building Act [NSW] (“HB Act").

Licences for tradespeople and service providers

Trades professionals and other providers of building and construction services require a specialised licence under the HB Act. All plumbing, electrical and air conditioning work must be provided by a licensed tradesperson. All other providers of works for residential construction over $5,000 in value must have an appropriate licence issued by the Department of Fair Trading.

Licences can be checked on the NSW Department of Fair Trading website at www.fairtrading.nsw.gov.au

Statutory warranties under section 18B of the HB Act 

The Warranties contained in section 18B of the HB Act and which are implied in every residential building contract [“Contract”] in NSW include:

  • A warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the Contract;
  • A warranty that all materials supplied by the holder of a contractor licence [“Holder”] or a person who is required to hold a contractor licence [“Person”] will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the Contract, those materials will be new;
  • A warranty that the work will be done in accordance with, and will comply with, this or any other law;
  • A warranty that the work will be done with due diligence and within the time stipulated in the Contract, or if no time is stipulated, within a reasonable time;
  • A warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling; and
  • A warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes known to the Holder or Person, or another person with express or apparent authority to enter into or vary contractual arrangements on behalf of the Holder or Person, the particular purpose for which the work is required or the result that the owner desires the work to achieve, so as to show that the owner relies on the Holder’s or Person’s skill and judgment. 

Defects under the Act

The 2015 amendments to the HB Act removed references to “structural” and “non-structural” defects and introduced the concepts of “major” and “minor” defects in residential building works.  Section 18E of the HB Act requires a claim for a breach of the Warranties under section 18B to be made within 6 years for major defects and 2 years for minor defects. 

Major defects

A major defect is described under section 18E of the HB Act as a defect in a major element of a building that is attributable to defective design, defective or faulty workmanship, defective materials, or a failure to comply with the structural performance requirements of the National Construction Code (or any combination of these), and that causes, or is likely to cause:

  • The inability to inhabit or use the building (or part of the building) for its intended purpose, or
  • The destruction of the building or any part of the building, or
  • A threat of collapse of the building or any part of the building. 

A major element of a building is described under section 18E of the HB Act as an internal or external load-bearing component of a building that is essential to the stability of the building, or any part of it (including but not limited to foundations and footings, floors, walls, roofs, columns and beams), or a fire safety system, or waterproofing.

Minor defects

Minor defects are those which do not fall within the description of major defects under the HB Act. This means that if a major element of the building was defective, but was not threatening to collapse the building or make the building uninhabitable, only a 2-year Warranty period will apply to the building works. 

It is important to be aware that the Warranty period under the HB Act begins on the date that the building works are completed. Where building works have been performed for a strata scheme the Warranty period runs from the date that the Occupation Certificate for the premises is issued, which authorises the use and occupation of the entire building.

The date of completion of the building work under the HB Act will usually be the completion date specified in the Contract. If no date is specified in the Contract or if there is no Contract, the completion date will be the date of practical completion, which occurs when the work is complete except for any omissions or defects that do not prevent the work from being reasonably capable of being used for its intended purpose. The Warranties contained in section 18B of the HB Act apply to residential building contracts regardless of the value of the building works.

Home Building Compensation Fund

The Home Building Compensation Fund (“the Fund”) – formerly known as the Home Warranty Insurance Fund – is a statutory compensation scheme for residential building work and is a requirement for residential building works with a value of over $20,000 (except certain painting and other works).  The Fund is designed to protect consumers in circumstances where a builder does not complete the work or has performed defective work and the home owner cannot recover compensation or the builder has become insolvent, or for some reason is unable to perform the works.  

Insurance under the Fund is not required where the building works are undertaken by an owner-builder or are otherwise exempt. The Fund does not apply to a building of more than 3 storeys of living space [subject to qualification] and comprises 2 or more dwellings [as in 2 or more home units] within the building. The Fund is required for all types of residential building works valued at over $20,000.00.    

Possible defences for breaches of the Warranties under section 18B of the HB Act

Where a claim has been raised that a builder has breached the Warranties under section 18B of the HB Act, the builder may be able to defend this claim where it can be proven that the defects referred to in the claim have arisen as a result of the builder’s reasonable reliance upon:

  • Written instructions given by the person for whom the work was contracted that is contrary to the advice of the builder, or the person who did the work, being instructions given prior to the work commencing; or
  • Written instructions given by an independent professional [for example, an architect or engineer] acting for the party who has contracted the building work, being instructions given prior to the work commencing.

It is important for builders and consumers in home building, including owners of strata plan units, to familiarise themselves with the Warranties and defects periods contained in the HB Act. When undertaking residential building work, builders may wish to keep diaries for work sites and regularly check the quality of workmanship and completeness of the building works during construction. Any instructions, variations to the building works or any other type of agreements between parties should be made in writing to avoid potential disputes further down the track.

Forum Law advises and assists builders, subcontractors, architects, engineers and consumers in home building and commercial construction law. If you have any questions or concerns contact us at Forum Law for an obligation-free 30-minute phone chat on (02) 9560 3388 or arrange a time to visit us in the Italian Forum in the inner west Sydney suburb of Leichhardt.

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