Industry News

Changes to home building laws in NSW

April 6, 2015

contractSliderIn NSW there have been important changes to contracts, licensing and insurance under the Home Building Compensation Fund, disputes, defects, statutory warranties and for owner-builders.

As of 1 March 2015:
• The more detailed contract is now only needed for work over $20,000, helping to reduce red tape. Contracts between $5,000 and $20,000 still require a ‘small jobs’ contract.
• Progress payment schedules must be included in all contracts over $20,000. This will help builders to ensure the contract makes clear when they are due to be paid as the job progresses. It will also ensure that home owners only pay for work as it is completed throughout the project. This will help builders and home owners manage their finances throughout the project. There are restrictions on the kinds of progress payments that may be included, so it is important to understand this change. View our Home Building contracts FAQs for more details.
• The maximum deposit for work over $20,000 will increase to 10%, improving cash flow for the building project. This means the maximum deposit for all contracts, irrespective of value, is capped at a flat rate of 10%.
• A termination clause must be included in contracts for work over $20,000.

Revised consumer building guide
When you contract to do residential building work worth more than $5,000 you must give consumers a copy of the Consumer building guide before they sign the contract.

The updated guide reflects the new laws. Old versions of the guide are now out of date and should be deleted or destroyed. You should use the updated guide and update your contracts as soon as possible.

NSW Fair Trading will not take action against traders using out-of-date versions of the guide in the first half of 2015, giving time to adjust to the changes.

To download and print copies of the new guide visit the Consumer building guide page on the Fair Trading website. Some contracts sold commercially or available through industry associations already include the Guide – check to make sure you are using up-to-date versions of those contracts that include the latest Guide.

Earlier changes from 15 January 2015 

Licensing
The threshold for requiring a licence for building and general trade work has been raised from over $1,000 of work to over $5,000 (including labour and materials). Specialist work (such as plumbing, electrical and air conditioning) still needs a licence regardless of the cost of work.

Stand-alone contracts for internal paintwork as well as work related to tennis courts, ponds and water features no longer need a licence, unless done as part of other home building work.

Up to 12 months in prison is a new sentencing option for a second or subsequent offence for unlicensed contracting or not having the required statutory insurance.

Licence eligibility has been tightened to stamp out ‘phoenixing’; where a company closes down leaving large unpaid debts, only to re-emerge as a new company trading under a different name.

Fair Trading needs to be notified within 7 days if a licensed builder is ‘wound up’.

Owner-builders
Owner-builders are required to name all other owners of the land on an application for an owner-builder permit. This is recorded on the permit to prevent people using this system to carry out commercial unlicensed building work. Any owners named cannot apply for another owner-builder permit for a different property for 5 years.

Owner-builders are prohibited from getting a permit for a dual occupancy except in special circumstances.

Owner-builders are not able to get statutory insurance although contractors working for the owner-builder still need to provide certificates for work over $20,000. If the property is sold within the warranty period, the contract for sale must clearly state that there is no statutory insurance on the property.

The threshold for requiring an owner-builder permit has increased to work valued over $10,000. All owner-builders must provide evidence of having done basic work health and safety training, and for work over $20,000 they will need to do an owner-builder course.

Home Building Compensation Fund
The Home Warranty Insurance Scheme has been renamed as the Home Building Compensation Fund.
Consumers are able to check their builder’s or tradesperson’s insurance and previous claims on a property through a new public register on www.hbcf.nsw.gov.au.

Disputes, defects and statutory warranties
The new laws help to clarify what is a major defect, which is covered by a 6-year warranty. General defects that don’t meet the ‘major defect test’ will continue to be covered by the standard 2-year warranty.
Major defects are defects that:
are in a ‘major element’ of the building AND
prevent all or part of the building from being lived in or used for its intended purpose OR threaten the collapse or destruction of the building or part of it.

For disputes relating to defects, tribunals and courts need to consider rectification as the preferred outcome. Builders who seek to fix defects can’t be unreasonably refused access to a property by the home owner.

To prevent rectification work being stalled, Fair Trading Inspectors, through a Rectification Order, can oblige consumers to pay the builder any money owed under the contract.

The definition of completion for strata buildings has changed so that completion occurs on the issue of an occupation certificate allowing the whole building to be used and occupied.

Licensees have a legal defence in proceedings for a breach of the statutory warranties if they reasonably relied on the written specialist advice of an independent professional engaged by the owner.

For more information go the Fair Trading website.



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