On 5 June 2014, the Home Building Amendment Act 2014 (NSW) was passed by NSW Parliament and will formally commence on a date to be proclaimed.
The changes will affect all construction industry participants including NECA members carrying out works in NSW.
The main changes to the Act will concern the following:
- Subcontractors liability and other changes in relation to Statutory Warranties
- Penalties for unlicensed work
- Grounds upon which a person is disqualified for holding a license are broadened
- Home Warranty insurance provisions
- Residential building and sales contracts
- Director’s liabilities
Summarised below are some of the main changes to the Home Building Act 1989 (NSW)
Subcontractors liability and other changes in relation to Statutory Warranties Under the changes, a specific provision has been made stating that subcontractors are also liable for statutory warranties. This was a grey area before this amendment which has now been clarified. The new provision states that although the principal contractor is primarily responsible to the homeowner or consumer for breach of statutory warranty, subcontractors are also responsible for statutory warranties.
The homeowner or consumer who has the benefit of a statutory warranty are now duty bound to do the following:
- Homeowner to mitigate their loss arising from the breach;
- Introducing a defect notification period, within 6 months of when the homeowner became aware or ought reasonably to have become aware of the defect, they are obliged to notify the contractor;
- Homeowners are to allow a contractor reasonable access to the site to rectify the works
Further, the 6 year statutory warranty period has now been reclassified by substituting the term “structural defect” with the term “major defect”.
A further important provision is that a contractor may now raise a defence in any proceedings for breach of a statutory warranty if they have relied on the instructions of a professional who is acting for the homeowner.
Penalties for unlicensed worksHigher penalties will be imposed on persons who engage in unlicensed contracting. An individual who is convicted of a second or subsequent offence for contracting to do unlicensed residential building work, or a holder of a contractor license engages a person who does not have a license to do residential building work, the person will be liable to a maximum of $55,000 or imprisonment for a maximum period of 12 months, or both.
Grounds upon which a person is disqualified for holding a license are broadened These provisions will prevent a license being issued to a person who is or was a director or person involved in the management of a company that is under external administration. This may prevent the person applying for a new company license while the old company is being wound up. It further prevents a license being issued to a person or entity subject to an unreasonably large number of complaints, cautions, notices or claims.
Home Warranty insurance provisions Insurance provisions have also changed in relation to residential building work. Residential building work that is done under a contract must be insured in the name of the person who contracted to do the work. This insurance also extends to any residential building works that is done for the purpose of rectifying the original work.
Owner-Builders The new provisions will exempt owner-builders from obtaining the compulsory home warranty insurance. However, this does not extend to contractors; a contractor who contracts to do residential building work with an owner-builder must obtain insurance.
There will also be a requirement for a “consumer warning” in respect of a contract relating to the sale of land on which owner-builder work was carried out. This “consumer warning” must indicate the following:
- The owner builder permit was issued in relation to the land; and
- Insurance was not required for the work done by the owner-builder unless the work was done by a contractor that was contracting with the owner-builder.
Note that the consumer warning is not required if it has been more than 7 years and 6 months since the owner-builder permit was issued, the reasonable market cost of the labour and materials involved is $20,000 or more, or if the owner-builder work carried out under the permit is of a class prescribed by the regulations.
Residential building and sales contracts Residential Building contracts Once the amendments come into effect, the Home Building Act 1989 (NSW) will require residential building contracts to include details of any progress payments (unless the Building and Construction Industry Security of Payment Act (1999) applies). It will also require a statement outlining that the contract may be terminated in the circumstances provided by the general law. This statement is not exhaustive and it does not prevent the parties from agreeing to additional circumstances in which the contract may be terminated.
The cap on deposits for a contract relating to residential building work will change. Currently, a 10% deposit can be made for contracts under $20,000 and 5% for contracts more than $20,000. The Amendment Bill has introduced a maximum deposit of 10% regardless of the value of the works or the contract sum.
Sale Contracts Under section 96B of the Act, a consumer warning will also be required for the selling of certain dwellings. If the dwelling is designed, constructed or adapted for commercial use as tourist, holiday or overnight accommodation, a consumer warning must be given.
Director’s liabilities The changes impose a new “executive liability” that penalises directors and managers if the Commissioner for Fair Trading is not notified within seven days that a contractor license holder is insolvent, is winding up or deregistering. This new “executive liability offence” carries a maximum penalty of $110,000 in the case of a corporation or $22,000 in any other case.
If you have any questions or wish to discuss in further detail please contact CTI Lawyers on (02) 9744 1099.