Australia: The Grand Finale: NSW residential building law reforms from 2014

Clayton Utz Insights

Key Points:

A contractor is now required to warrant that its work will be "done with due care and skill", and contract thresholds have been raised.

The final tranche of amendments to NSW home building laws enacted by the Home Building Amendment Act 2014 (NSW) commenced on 1 March. The amendments are designed to regulate residential building contracts in a manner proportionate to the risks associated with the work carried out.

The latest round of changes to the Home Building Act 1989 (NSW) has seen:

  • the easing of contractual requirements for residential building works valued under $20,000;
  • the inclusion of an implied warranty given by the contractor that work will be "done with due care and skill"; and
  • a requirement for the a termination clause to be written into all contracts valued over $20,000.

Who do the changes impact?

The reforms to NSW home building laws affect a range of parties, including property investors, developers, builders, subcontractors, tradespeople, owners, strata corporations and owner-builders.

Implied warranties in effect from 1 March 2015

A contractor is now required to warrant that its work will be "done with due care and skill"; mirroring the language used in the Australian Consumer Law and supplanting the warranty previously required that work be "performed in a proper and workmanlike manner".

The statutory warranties contained in the Act are now implied into all subcontracts for residential building works.

Contractual requirements in effect from 1 March 2015

The threshold for when a "small works" written contract is required has been increased from work valued at $1,000 to $5,000.

The threshold for when more extensive "general works" contract requirements apply to residential building works has been increased from $5,000 to $20,000.

Contracts for work valued at over $20,000 must include a progress payment schedule which provides for progress payments to be made at the completion of specified stages of the work, or for labour and materials performed or costs already incurred.

The cap on deposits for work over $20,000 has been increased from 5% to 10%.

Residential building contracts for works valued at over $20,000 must now contain a termination clause stating, as a minimum, that the contract may be terminated in accordance with general law.

Offence of improper conduct in effect from 1 March 2015

A holder of a contractor licence, supervisor or tradesperson certificate (or an endorsed contractor licence or supervisor certificate) will be guilty of "improper conduct" if the holder does not deliver the work it has been contracted to perform with "due care and skill".

Other key changes effective since 15 January 2015

These changes follow on from amendments introduced in January 2015, which include:

  • the replacement of the six-year warranty for "structural defects" with a warranty for "major defects";
  • a separate date of completion for building work for the construction of strata buildings (being the date an occupation certificate is issued for the occupation and use of the whole building). This change means owners corporations now have an evident date from which to calculate warranty periods;
  • a relaxation of licensing requirements for residential building work. A licence is no longer required for work valued under $5,000 (previously a licence was required for all work over $1,000). Specialist work, including plumbing, electrical wiring and air conditioning, still requires a licence despite the cost of the work; and
  • the inclusion of a new defence of "reasonable reliance" for contractors against claims brought by consumers for defective works. The contractor can raise such a defence in circumstances where the defective work results from a "reasonable reliance" on the written instructions of a professional engaged by and acting for the consumer prior to commencement of the work (eg. an architect, surveyor or engineer).

The amendment introducing the concept of a "major defect" into the home building regime significantly affects those seeking to invest in new residential complexes.

To recap, although contractors are required to warrant the entirety of their work (ie. structural and non-structural work) against defects for a period of two years after completion, the six-year warranty for "structural defects" has been replaced with a warranty for "major defects". This has narrowed substantially the types of defects residential property owners are entitled to have fixed following expiry of the general two-year defect rectification period.

A "major defect" is only considered a defect if it occurs in a "major element" of the building (eg. an internal or external loadbearing component, fire safety system or waterproofing) causing or potentially causing:

  • the building or part of it to be uninhabitable;
  • the building to be incapable of use for its intended purpose; or
  • the partial or total collapse or destruction of the building.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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