Commentary on Home Building Amendment Act 2011

The amending Act commenced on 25 October 2011.

1. The definition of developer has been amended so as to include both the owner of the land on which development as well as the individual, partnership or corporation on whose behalf the residential building work is done.

The amendment affects the circumstance where an owner enters into a third party arrangement for the development, such as a joint venture agreement, and the third party then contracts with the builder to have the residential building work conducted. Both the owner and the contracting party will now give the statutory warranties in addition to the builder’s warranties.

2. The date of completion of residential building work has been redefined and the new definition will now apply for all purposes in the Act including establishing the date of commencement of the statutory warranties and the period in which insurance claims can be made.

3. The date of completion is the date that residential building work is complete within the meaning of the contract under which the work was done and if the contract does not provide for when work is complete, or there is no contract, when the work is completed except for any omissions or defects that do not prevent the work from being reasonably capable of being used for its intended purpose.

4. There is a rebuttable presumption that the date for practical completion occurred on the earliest date of the following:

a. The date on which the contractor handed over possession of the work to the owner;
b. The date on which the contractor last attended the site to carry out work other than defect rectification which does not affect practical completion;
c. The date of issue of an occupation certificate; and
d. In the case of owner/builder work 18 months after the issue of the owner/builder permit for the work.

5. The introduction of a uniform completion date eliminates the uncertainty that existed in the cases, however, the date of completion is now a date referable to the contract between the original developer and the builder. For the purposes of strata schemes this information is rarely known. It is information which will be known to both the developer and the builder, both of whom are likely protagonists in any dispute. The drafters of the legislation have overlooked or disregarded the difficulties which will be faced by successors in title to the developer, including owners corporations, in establishing the date of completion.

6. The Act has created a presumption which is the earliest of four dates. Two dates are fixed and easily ascertainable, the date of issue of the occupation certificate and 18 months after the issue of an owner/builder’s permit, but the other two dates being the date on which the contractor handed over possession of the work and the date of the contractor’s last attendance at the works, are dates which will rarely be known to anyone but the developer. Ascertaining these dates poses significant difficulty for an owners corporation. As the presumption relates to the earliest of the four alternative dates, a plaintiff cannot simply produce an occupation certificate but must produce some evidence to show that the date of that certificate is earlier than the other alternative dates thereby requiring some evidence of the date on which the contractor handed over possession or last attended the site to carry out work. Obtaining that evidence will be difficult.

7. The requirement for a written contract dated and signed by or on behalf of both parties in accordance with s7 now only applies to works which exceeds $5,000 in value.

8. Contracts for more than $1,000 up to $5,000 will still require to be in writing but no longer require the inclusion of the statutory warranties nor a statement in relation to the cooling off period, which no longer applies to contracts for $20,000 or less.

9. The warranty period has been reduced to 6 years for a breach that results in a structural defect (the definition of structural defect has not been changed) and 2 years in any other case commencing from the completion of the works.

10. If the work is not complete the warranty period starts on the date the contract is terminated or if the contract was not terminated a date on which work under the contract ceased or if the contract was not terminated and the work did not commence, the date of the contract.

11. Proceedings must be brought to enforce the warranties before the end of the warranty period unless the breach of warranty becomes apparent within the last 6 months the warranty period in which case proceedings may be commenced within a further 6 month period from the end of the warranty period. A breach of warranty becomes apparent when any person entitled to the benefit of the warranty first becomes aware or reasonably to have become aware of the breach.

12. The amendments to the warranty period do not apply in respect of contracts for residential building work entered into before the commencement of the amendments.

13. This is a significant reduction to the current warranty period which is 7 years for both structural and non-structural defects. If non-structural defects are not fixed within 2 years from the date of completion beneficiaries rights will be lost if legal proceedings are not commenced within that period (6 years for structural).

14. This is of considerable concern to owners corporation which will not know the precise date of completion and usually comes into existence after the commencement of the warranty period. It will usually have only one general meeting during the non-structural warranty period being the first annual general meeting. In extreme cases the non-structural warranty period may expire before registration of the strata plan or before the first annual general meeting. Owners corporations will need to do the following things as soon as possible:

a. Ascertain the date of the issue of the occupation certificate;
b. Seek to obtain from the developer a copy of the building contract;
c. Advise all lot owners of their rights and the limitations on those rights as contained in the Home Building Act;
d. Generate a list of all defects and in particular all non-structural defects;
e. Request the builder to rectify the defects within the 2 year period;
f. Notify the home warranty insurer, if any, of the defects;
g. If non-structural defects are no rectified within the 2 year warranty period, commence legal action for damages against the builder.

15. If the owners corporation wishes to preserve its rights both against the builder and in relation to its insurance policy (see below) where defects are not fixed within the warranty period, legal action must be commenced against the builder and/or developer on a date which is not more than 2 years after the date of completion of the building work for non-structural defects and six years for structural defects. Once that is done all legal rights are preserved.

16. Contractors may now notify the Director General of disputes persons who is not another contractor. This section will allow contractors to notify the Director General in relation to building disputes with owners.

17. Home warranty insurance need only be taken out where the contract price or the value of the works exceeds $20,000. This is an increase from the previous threshold of $5,000.

18. Insurance will now provide for cover of not less than $340,000 in relation to each dwelling to which the insurance relates and the maximum excess is reduced to $250.

19. First resort policies (entered into between 1/5/1997 and 30/6/2002) will only provide insurance cover if a claim is made during the period of insurance, that is, within 2 years of the date of completion for non-structural defects and within 6 years of the date of completion for structural defects. The period is extended by 6 months for any losses which become apparent in the last 6 months of the period of insurance. There is no extension if the claim arises from non-completion of work.

20. It is necessary to make a claim in the period of cover. This will mean lodging a claim form and meeting the statutory requirements for making a claim. Previously notification was all that was necessary.

21. Last resort policies (entered into after 1/7/2002) will only provide insurance cover if a claim is made during the period of insurance, that is, within 2 years of the date of completion for non-structural defects and within 6 years of the date of completion for structural defects. The period is extended by 6 months for any losses which became apparent in the last 6 months of the period of insurance. There is no extension if the claim arises from non-completion of work.

22. Where an insurance claim cannot be made under a last resort policy because the builder has not become insolvent, died, disappeared or failed to meet a judgment, the claim can be made after the period of insurance and upon the insolvency, death, disappearance or default of the builder if the loss was properly notified to the insurer during the period of insurance or an extended 6 months for a loss which becomes apparent in the last 6 months of the period of insurance. The notice must provide such information as may be reasonably necessary to put the insurer on notice as to the nature and circumstances of the loss. The regulations may provide for the form and content of the notice but there is currently no regulation.

23. The beneficiary under the contract of insurance must diligently pursue the enforcement of the statutory warranty after the loss becomes apparent otherwise the beneficiaries rights under the insurance policy will be lost.

24. The requirement to notify is effectively the same as the current requirement to notify on a last resort policy. The requirement to diligently pursue the builder will mean that within a reasonable time after any failure of the builder to meet reasonable demands to rectify, the beneficiary must commence proceedings and if the beneficiary fails to commence proceedings within the statutory period so that the beneficiary loses its rights to sue the builder then the beneficiary will also lose its rights to claim under the insurance policy. The regulations may make provision for what constitutes diligent pursuit of the enforcement of the statutory warranty but there are currently no such provisions.

25. There is a 10 year limitation on all claims under existing policies entered into before 1 July 2010. Claims must be made within 10 years after the insured work was completed. This reflects the 10 year limitation on bringing any building claims which is contained in s109ZK of the Environmental Planning and Assessment Act and makes a parallel provision for insurance policies.

26. The amendments extend to residential building work commenced or completed before the commencement of the amendment, any contract of insurance entered into before the commencement of the amendment, any loss or liability arising before the commencement of the amendment and any notification of a loss made before the commencement of the amendment.

27. The amendments do not apply to matters which are already before a court or tribunal.

28. The amendments to the statutory warranties do not apply in respect of contracts for residential building work entered into before the commencement of the amendments. This means that existing 7 year warranties will not be reduced but the new definition of the date of completion of the building work will be applied to those claims.

29. The new thresholds relating to insurance and the form of contract to be entered into, if any, do not apply to contracts entered into before the amendments commenced.

30. The provisions which require the making of a claim on a policy during the period of insurance do not apply to policies of insurance where claims were made before the commencement of the amendments but they will apply where proper notification was given and no claim was made subject to a period of grace whereby any claim which was properly notified to the insurer during the period of insurance and in respect of which no claim was made may be the subject of a claim within a period of 6 months after the commencement of the amendments. The notice must provide such information as may be reasonably necessary to put the insurer on notice as to the nature and circumstances of the loss.

31. In relation to last resort policies notifications which have already been given will be notifications for the purpose of the amended Act and any notification which has not been made in writing may be made in writing within 6 months after the commencement of the amendments.

32. Proportionate liability under the Civil Liability Act 2002 will not apply to an action for damages arising from a breach of statutory warranties brought by a person having the benefit of those warranties.

33. After the observations of Justice Young in the MJA case this is a positive step for owners and will remove the practice which has developed of builders naming sub-contractors as co-wrongdoers and developers naming the builder and effectively avoiding the developer warranty.

34. The Regulations continue to provide that a loss must be notified to an insurer within 6 months after the beneficiary first becomes aware or ought reasonably to become aware of the loss and such notice is taken to include notice of every loss that was caused by the same defect as caused the notified loss.

35. A notification under this regulation will not be proper notification for the purpose of making a claim under the amended sections of the Act, unless it provides such information as may be reasonably necessary to put the insurer on notice as to the nature and circumstances of the loss.