Australia: Home building laws in NSW - overview of changes

Last Updated: 11 December 2017
Article by Sara Hatcher

Following a lengthy period of public and industry consultation which started in July 2012 the Home Building Act 1989 ('HBA 1989') was the subject of an extensive update and in May 2014 the NSW Parliament passed the Home Building Amendment Act 2014 ('Amendment Act').

The Amendment Act contained in excess of 50 changes to the HBA 1989 and the changes came into effect in January and March 2015. The Amendment Act has subsequently been repealed however the changes made under that Act remain in force.

What types of amendments were made?

Changes were made across a range of areas including:

  • Changes to licensing provisions;
  • Clarifying what is defined as 'major defects';
  • Introducing a requirement for payment schedules for all contracts with a value of over $20,000;
  • Increasing the maximum deposit for work over $20,000 in value to 10% of the contract price;
  • Simplifying home building contract requirements;
  • The establishment of a public register for home warranty insurance certificates; and
  • Re-naming the home warranty insurance scheme.

Why were changes made?

The stated aim of the changes was to modernise practices within the construction industry, reduce red tape and bolster consumer confidence in the building industry and building activity generally across NSW.

The most significant of these changes are discussed in further detail below.

Changes to licensing

Previously a licence was required for all work with a value over $1,000. This threshold has been raised considerably and a licence for building and general trade work is now required for all work costing over $5,000. This figure includes labour and materials. Specialised trades work such as plumbing, electrical and even air conditioning installation still requires a licence regardless of the value of the work being undertaken.

Some types of work that are being carried out as 'stand alone' work such an internal painting, work to tennis courts, ponds and other water features no longer need a licence unless they form part of a broader scope of home building work.

A potential prison sentence of up to 12 months duration has been introduced as a sentencing option for persons found guilty of second or subsequent offences of working without a required licence or without statutory insurance.

Licensing provisions have been tightened in an effort to stop the practice of 'phoenixing'. This is where a company closes down leaving large unpaid debts and then starts up again under a new name - rising from the ashes of the old company like the mythical phoenix after a fire.

If a licensed builder ceases operating or is 'wound up' notification must be provided to the Department of Fair Trading within 7 days.

Owner-Builders

Changes for owner-builders include the requirement for all owners of land to be named on any application for an owner-builder permit. The purpose of this new requirement is to prevent people using owner-building licensing as a back door way to carry out un-licensed commercial building work.

Under the changes a permit for dual occupancy will not be granted to would be owner-builders except in special circumstances.

Owner-builders are not able to obtain statutory insurance and if a property is sold during the legislated warranty period the contract for sale must clearly state that there is no insurance. Any contractors working for an owner-builder are still required to provide a certificate for statutory insurance if their work costs in excess of $20,000.

Owner-builders must be able to show proof of having undertaken basic work health and safety training and if work is valued at over $20,000 attendance at an owner-builder course is mandatory.

Home Building Compensation Fund

The Home Warranty Insurance Scheme is now called the Home Building Compensation Fund and a public register is now available online to enable consumers to check a builder's or tradesperson's insurance. The register also provides details to the public of any previous claims on a property.

Defects, disputes and statutory warranty periods

Major defects are now covered by a 6 year warranty and any general defects that are not classified as a major defect continue to be covered by a 2 year warranty period.

Major defects are defined as being something that is a major element in a building AND which prevent all or part of the building form being either lived in or used for its intended purpose OR which threaten the collapse or destruction of the building as a whole of part of it.

Rectification should always be considered by tribunals and courts as the preferred outcome in any dispute and NSW Fair Trading Inspectors are able to issue Rectification Orders which require a consume to pay their builder any money owed under a contract. The reasoning behind this provision is that it should assist in ensuring that building rectification work does not stall. In addition, home or property owners are prohibited from unreasonably refusing a builder access to a property for the purpose of carrying out rectification work.

The definition of what is completion for strata buildings has changed so that completion will now occur only when a certificate is issued which allows the whole building to be used and occupied.

Finally, a tradesperson/licensee may have a legal defence in any proceedings for breach of statutory warranty if they relied on specialist advice of an independent professional provided that professional was engaged by the property owner.

Changes to contract requirements

More detailed contracts are now required for work with a value of $20,000 or more (previously the threshold was a much lower $5,000). Previously for work over $20,000 a maximum 5% deposit was allowed. However, builders are only able to request a maximum of 10% deposit on any project regardless of size.

The Consumer building guide which is required to be given by builders and tradespeople to consumers prior to entering into a building contract, has also had an overhaul and has been simplified to provide essential information for both builders and owners on their respective rights and responsibilities.

So while some things have not changed very much or at all other requirements particularly in respect of licensing thresholds have increased significantly. Overall the aim of less red tape and greater confidence and transparency appears to be being met. However, as with any area of construction and building work the devil is often in the detail and if you are unsure of how the changes may affect you or your building work then we recommend you seek advice sooner rather than later.

It is always better to be proactive in ensuring regulatory compliance than being reactive and leaving things until the last minute to sort out. Delays in construction cost money and can often be avoided with good advice and forward planning.

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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