Australia: Home Building Act 1989 – don't get caught out

Do you carry out the following kinds of works or otherwise contract others to do the following kinds of works on your behalf for your customers?

  1. Plumbing work (other than work declared by the Home Building Regulations 2004 (Regulations) to be roof plumbing work),
  2. Gasfitting work,
  3. Refrigeration work or air conditioning work of the kind described in the Home Regulations,
  4. Electrical wiring work, or
  5. Installation of doors or windows or any kind of joinery or carpentry work where the reasonable market cost of labour and materials involved exceeds $1,000 (inclusive of GST).

Other than work that is easily identifiable as residential building work such as the building, construction or making of alterations to residential homes, many sole traders, small businesses and large companies doing the above kinds of work at residential buildings are not even aware that these are Residential Building Works for the purposes of the Home Building Act 1989 ('the Act').

The Department of Fair Trading NSW

From the number of queries we have received and from the number of media alerts published on the Department website, it is evident to us at Coleman Greig that the Department has become much more active in enforcing compliance with the Act stepping up its activity in monitoring a number of different industries, in particular, the solar panel, plumbing and electrical industries.   For those individuals and companies who are contracting with customers to do these works at residential premises and who are not appropriately licensed or who are not complying with the relevant provisions of the Act, the Department has to date been issuing a number of warning letters and / or penalty notices as a consequence.

Businesses caught operating without a licence can incur fines of up to $22,000 for an individual or up to $110,000 for a company.

Home Building Amendment Bill 2011

On 19 October 2011, the NSW government passed the Home Building Amendment Bill 2011 to amend a number of provisions in the Act, including those dealing with home warranty insurance, statutory warranties and contract requirements. The first round of changes under the Home Building Amendment Act 2011 No. 52 took effect 25 October 2011. These changes clarify proceedings and time limits for statutory warranty and home warranty insurance claims as well as deal with such matters as dispute resolution and the exclusion of proportionate liability for builders and developers subject of a statutory warranty claim.  The second round of changes will take effect some time around February 2012. The NSW government has indicated that it will undertake a thorough review of the Act in 2012 which will result in further amendments to be made.

So what are Residential Building Works?

Residential Building Work is defined in the Act as being any work involved in, or involved in co-ordinating or supervising of any work involved in:

  1. the construction of a dwelling, or
  2. the making of alterations or additions to a dwelling, or
  3. the repairing, renovation, decoration or protective treatment of a dwelling.

Residential Building Works includes roof plumbing work of the kind described in the Regulations or Specialist Work (which is work described in 1 - 4 above) that is done in connection with a dwelling. It also includes work concerned in installing a prescribed fixture or apparatus in a dwelling (or in adding to, altering or repairing such installation). It doesn't include work declared by the Regulations to be excluded from this definition.

Will you be caught by the Act?

Residential Building Works that is not Specialist Work

If you are carrying out works on a residential building that is not Specialist Work (which is work described in 1 - 4 above), and the reasonable market cost of the materials and labour involved in that work exceeds $1,000 (inclusive of GST), then as Residential Building Works, you must hold an appropriate contractor licence.  You must also comply with a number of existing requirements under the Act including:

  • providing your customers with a contract in the form prescribed under the Act;
  • providing your customers a checklist in the form set out in the Regulations;
  • providing your customers with the 'The Consumer Building Guide' published by the Department of Fair Trading;
  • taking no more than 10% of a deposit if the contract is under $20,000 in value and taking no more than 5% if the contract is over $20,000 in value;
  • obtaining home building warranty insurance if your contract with a customer is over $12,000 (inclusive of GST); and
  • compliance with the statutory warranties specified under the Act.

Once the second round of changes to the Act come into effect on or around February 2012, it is important to note that the current contract value of $1,000 will increase to $5,000 before the form of written contract currently prescribed by the Act is required. A shorter version of this written form of contract will now be introduced to capture what is now recognised as a 'small job' valued between $1,000 and $5,000. These 'small job' contracts will not require the Consumer Building Guide or checklist to be attached which will be reserved for contracts exceeding $5,000 in value.

Other changes to the Act will include raising the contract value threshold from $12,000 to $20,000 before home warranty insurance is required as well as raising the amount of home warranty insurance currently required from $300,000 to $340,000.

For any Residential Building Work that is Specialist Work

If you are carrying out works on a residential building (that is Specialist Work), then these works, irrespective of the value of materials and labour involved, will automatically be caught by the Act as Residential Building Works.   In NSW, you must hold an appropriate contractor licence before carrying out any Specialist Work whatsoever, regardless of the value and regardless of whether the premises are residential, commercial or industrial.  

For Residential Building Works that is Specialist Works, where the contract price does not exceed the threshold of $1,000 (inclusive of GST) there are exemptions from the number of existing obligations required to be met under the Act. Some of those exemptions include not having to provide the existing form of contract prescribed by the Act to the customer as well as not having to provide consumer information such as the Consumer Building Guide referred to above. Once the Act is amended to increase the $1000 threshold to $5,000, the exemption for those contracts involving residential building works (that is also Specialist Work) not exceeding $1,000 will be in not having to provide the shorter version of contract. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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