Proposed changes to building and construction law in NSW

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Proposed laws aim to reshape the culture of the construction industry by eliminating poor performance & improving quality of building.
Australia Real Estate and Construction
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The Building Bill 2022 (the Bill) is the key avenue through which the NSW Government has proposed to reshape the culture of the building and construction industry by eliminating poor performance and improving the quality of building statewide.

The Bill would abolish the Home Building Act 1989 (NSW) (the HBA), which has provided the foundation for residential construction law for 30 years in NSW. The HBA would be replaced with 'the Building Act'. The purpose of the amendments, as the word dropped from the name suggests, is to unify the regulation of building and construction in NSW and to ensure those in the commercial construction sector, who previously were free from the ambit of the HBA, are following similar requirements to their residential counterparts.

While several of the amendments in the Bill have already been hived off and enacted under the Building Legislation Amendment Bill 2023, a number of proposed amendments still remain to be enacted.

Licensing requirements

Under the current legislation, residential builders and specialists are required to be licensed for building work. Commercial builders and non-specialist contractors are not subject to the licensing requirements. The proposed Chapter 2 of the Bill creates a comprehensive licensing framework for those who wish to undertake 'regulated work', with regulated work including:

  • Building work;
  • Fire safety work;
  • General building design work;
  • Professional engineering work;
  • Specialist work; and,
  • Any other work prescribed by the regulations.

The Bill requires a person must not carry out the above regulated work unless the person is:

(a) licensed and the license authorises the person to carry out the regulated work; or,

(b) otherwise lawfully authorised to carry out the regulated work.

The maximum penalty for breaches of the licensing requirements for corporations is 3,000 penalty units ($330,000), and 300 penalty units ($33,000.00) for each day the offence continues. Penalties for individuals are 600 penalty units ($60,000), and 60 penalty units ($6,600) for each day the offence continues.

Expansion of Homeowners Warranty Insurance

Under the current Homeowners Warranty Insurance Scheme (HOWI), a person conducting residential building work on a building over three stories and valued at more than $20,000 must obtain insurance for the owner of the residence against non-completion and defects in their building work. As HOWI only operates upon the insolvency, death or disappearance of the contractor, many homeowners are required to undertake expensive litigation before being able to access their insurance, which is capped at $320,000.

The proposed amendment looks to expand HOWI, to allow the owner of a newly constructed home to make an insurance claim against the holder of an insurance policy arising when:

  • There is defective or incomplete work;
  • The NSW Civil and Administrative Tribunal (NCAT) or Court makes an order that the contractor pay money in respect of defective or incomplete work; and
  • The contractor doesn't pay the money within 28 days after the period for payment specified in the order.

The result of these amendments would see a better framework for homeowners, as the prospects of holding an 'empty judgment' against builders has previously deterred homeowners from pursuing claims in NCAT. Inversely for builders, insurance premiums would be expected to increase with the frequency of payouts by insurers to homeowners, opening further avenues for recovery by insurers against the builders themselves.

Expansion of the duty of care under the Design and Building Practitioner's Act 2020 (NSW) (DBPA) for all building work

Under s 37 of the DBPA, a duty of care is imposed on all persons who do building work to the owner or subsequent owners of the property to avoid economic loss caused by defects.

Since its imposition, Courts have interpreted this duty of care to encompass all forms of building and a wide range of activities which haven't traditionally been considered building work. These activities include certification, engineering works and property development.

The imposition of sections 215 and 216 to the Building Act will provide a statutory definition and explicitly expand the duty of care to all types of building work, including carrying out inspections and certification of works.

Changes to information requirements under the Building and Construction Industry Security of Payments Act 1999 (NSW) (SOPA)

Section 55(2)(m) of the Bill proposes the imposition of an obligation upon any builder undertaking work under a major works contract to provide information to their clients at the time the contracts are executed, in the approved form, which sets out the operation of the SOPA.

Failure under this section to provide the necessary information doesn't invalidate any part of the SOPA process but will attract penalties of up to $55,000 for corporations and $10,000 for individuals.

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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