APPENDIX 3
Summary of Australian building regulation and home warranty insurance
schemes
From submission 44, Insurance Council of Australia, April
2008
Introduction
A form of home builders warranty insurance is compulsory in
every State and Territory in Australia and, in general, provides for
compensation for loss or damage arising from a contractor's failure to
complete home building work or to meet certain standards of workmanship in
performing such work.
Various Acts in the States and Territories govern the way in
which this insurance is administered and underwritten. In most States, the
insurance is a prerequisite for the commencement of work. With the exception of
Queensland and the Northern Territory, home warranty insurance schemes are
privately underwritten by insurers approved under the relevant legislation.
This paper gives a general outline of operation of the
various schemes in relation to home building work done by a contractor on
behalf of another person. It should be noted that the relevant legislation in
the different jurisdictions may also set out particular provisions in relation
to developers, owner-builders and kit home suppliers.
New South Wales
The home warranty insurance scheme in NSW is privately
underwritten.
The Office of Fair Trading (OFT) Home Building Services
division is the authority responsible for administering the scheme in
accordance with the Home Building Act 1989 (HBA).
The objectives of the HBA focus on the need to ensure that
residential building work meets acceptable standards and that consumers are
protected or have avenues of recourse when builders fail to meet or complete
their obligations.
Essentially, the role of the OFT includes evaluation and
approval of licences for builders and maintenance of a register of specified
information; and approval of insurers and insurance conditions.
The majority of disputes between owners and builders or
other contractors are dealt with initially by the OFT. Disputes unable to be
resolved through the initial dispute resolution process, and appeals in
relation to residential building insurance, are dealt with by the Home Building
Division of the Consumer Tenancy and Trader Tribunal (see Part 3A of HBA).
Residential building work is essentially considered to be
the building or alteration of dwellings which, as defined in the HBA, include a
detached or semi-detached house, transportable house, terrace or town house,
duplex, villa-home, strata or company title home unit or residential flat, and
extends to include swimming pools and other structures related to the
dwelling. Highrise developments over 3 storeys are exempt (with effect from 31/12/2003).
To obtain a licence authorising the holder to contract to do
residential building work, applicants need to show the OFT that they have the
fitness, ability and capacity to carry out the contracts for which the licence
is required. Applicants must also satisfy the OFT that they have complied or
are able to comply with any insurance requirements of the HBA in relation to
the work (section 20 of HBA). The OFT must cancel licences under certain
circumstances (section 22 of HBA) and may suspend licences if the holder has
not or cannot comply with the insurance requirements (section 22A of HBA).
Section 18B of the HBA provides that various warranties by
the licence holder or person required to hold a licence before entering into a
contract are implied in every contract to do residential building work. These
warranties include:
- that the work will be performed in a proper and workmanlike
manner and in accordance with the plans and specifications set out in the
contract;
- that all materials supplied by the holder will be good and
suitable for the purpose;
- that the work will be done with due diligence and within the time
frame stipulated in the contract.
Proceedings for a breach of warranty must be commenced
within seven years from completion of the work, or if the work is not
completed, the due date for completion or the date of the contract (section 18E
of HBA). The warranties extend to immediate successors in title (section 180 of
HBA).
Insurance
Section 92 of the HBA provides that a person must not do
residential building work under a contract where the contract price exceeds
$12,000 unless a contract of insurance is in force in relation to the work, and
a certificate of insurance evidencing the contract of insurance has been
provided to the other party to the contract.
If a contract of insurance is not in force, the contractor
may not be entitled to damages in the event of breach by another party to the
contract but remains liable for damages for any breach committed by the
contractor (section 94 of HBA).
To protect home owners section 99 of the HBA requires that
the contract of insurance taken out by the builder or tradesperson must insure
the person on whose behalf the work is being done against the risk of loss:
- resulting from non-completion of the work due to insolvency,
death or disappearance of the contractor; and
- arising from a breach of a statutory warranty in respect of the
work (which extends to the person's successors in title).
The contract of insurance must be of a kind approved by the
Minister and be provided by an insurer approved by the Minister. The contract
must provide for cover of not less than $300,000 in relation to each dwelling
to which the insurance relates (section 102 of HBA).[1]
A contract of insurance must provide cover for loss arising
from non-completion of the work for a period of not less than 12 months after
failure to commence, or cessation of the relevant work. In relation to other
loss insured, cover must be provided for a period of not less than six years
for structural defects from the earlier of completion or the termination of
contract, or two years for non structural defects from the earlier of completion
or termination of contracts.
Insurers
Section 103A of the HBA provides that the Minister may
approve a kind of insurance, or an insurer for the purposes of the Act. An
approval may be subject to conditions, and the Minister may, by written notice
to on insurer, revoke or vary an approval.
Five insurers are currently approved -with one providing
insurance for owner builders only.
If a liquidator or provisional liquidator has been appointed
in respect of an insurer, or an insurer has been dissolved, the insurer may be
declared insolvent by the Minister (section 103G of HBA). Subject to certain
provisions, section 103I of the HBA provides that the State will indemnify any
person who would have been covered by an insolvent insurer's policy.
Victoria
The builders warranty insurance scheme in Victoria is
privately underwritten.
The operation of the scheme is governed by the Domestic
Building Contracts Act 1995 (DBC) and the Building Act
1993 (BA). Overall supervision of the BA is assigned to the Building
Commission (BC). The Building Practitioners Board (BPB) is responsible for the
administration of the registration system and oversight of the conduct of
registered building practitioners.
The Victorian Civil and Administrative Tribunal resolves domestic
building disputes and disputes relating to insurance claims concerning domestic
building work.
The objects of the DBC under section 4 are:
- to provide for the maintenance of proper standards in the
carrying out of domestic building work in a way that is fair to both builders
and building owners;
- to enable disputes involving domestic building work to be
resolved as quickly, as efficiently and as cheaply as is possible having regard
to the needs of fairness; and
- to enable building owners to have access to insurance if domestic
building work under a major domestic building contract is incomplete or
defective.
The DBC applies to the erection or alteration of a home and
any associated work such as driveways and swimming pools (section 5). Subject
to qualifications, a home means any residential premises and includes any part
of commercial or industrial premises that are used as residential premises
(section 3(1)).
Section 29 of the DBC provides that a builder must not enter
into a major domestic building contract unless registered under the BA (see
section 169 of BA). Major domestic building contract means a contract for which
the price for the work is more than $12,000 or any higher amount fixed by
regulation (clause 6, Domestic Building Insurance Ministerial Order (No. S 98 Friday 23 May 2003)).
If the applicant for registration is required under Part 9
of the BA to be covered by insurance, the applicant must include proof of such
insurance with the application. The BPB must register an applicant if satisfied
that, among other things, the applicant has satisfied the requirements of
section 169 of the BA, and that he or she holds an appropriate qualification
and is of good character (section 170 of BA).
A building contract must not be entered into unless it
contains all relevant details, including details of registration, implied
warranties and insurance required under the BA (section 31 of DBC).
Under section 8 of the DBC, the builder warrants that, in
general, work and materials will meet certain standards of workmanship and
fitness for purpose and other legislative requirements and that work will be
carried out with reasonable care and skill and within certain timeframes. The
warranties transfer to successors in title (section 9 of DBC) for a period of
10 years after completion of the home (section 134 BA).
Insurance
Section 135 of the BA provides that the Minister may by
order published in the Gazette require building practitioners to be covered by
insurance. It is an offence for a building practitioner to carry out work
unless covered by the required insurance (section 136 of BA). Such required
insurance may cover losses resulting from:
- breaches of warranties implied into the major domestic building
contract for that work under the DBC;
- non-completion of the domestic building work (section 137A)
Under clause 35 of the Domestic Building Insurance
Ministerial Order, insurers' liability is a minimum of $200,000 per dwelling.
Insurers
Five insurers are currently underwriting this class of
insurance in Victoria.
South Australia
The building indemnity insurance scheme is privately
underwritten.
The Commissioner for Consumer Affairs is responsible for
administering the scheme, in accordance with the Building Work Contractors
Act 1995 (BWCA). The scheme is designed not only to give consumers
protection but also to ensure high standards of accountability in the building
industry.
All builders and tradespeople are required to be licensed by
the Commissioner of Consumer Affairs (section 6 of BWCA) and must possess the
standards of qualification and experience set out in the Regulations, including
sufficient business knowledge and experience and financial resources for the
purpose of properly carrying on their business.
Licensed builders are required (section 12 of BWCA) to
ensure that their work is properly supervised by a Registered Building
Supervisor (section 15 of BWCA).
For domestic building work, a "house" means a
building intended for occupation as a place of residence but does not include
such things as hotels, motels and the like. Domestic building work includes
associated work such as swimming pools.
Under section 32 of the BWCA, certain warranties are implied
on the part of the builder in every domestic building work contract. These
warranties include that the work will be performed in a proper manner to
accepted trade standards, that materials will be good and proper, and that the
work will be performed with reasonable diligence. Proceedings for a breach of
warranty must be commenced within five years after completion of the work.
Insurance
Section 34 of the BWCA requires that prior to commencing
building work builders must take out insurance, and (in relation to domestic
building work) provide the owner with evidence of Building Indemnity Insurance.
A policy of building indemnity insurance is necessary where the building work
costs over $12,000 and requires council approval.
The policy of insurance complies with the Act:
- if it insures each person who may become entitled to the benefit
of a statutory warranty against the risk of being unable to take the benefit of
the warranty because of the insolvency, death or disappearance of the builder;
and
- in the case of work being performed on behalf of someone, it
insures that person against the risk of loss resulting from non-completion of
the work because of the insolvency, death or disappearance of the builder
(section 35 of BWCA).
The Regulations under the BWCA require a minimum cover of
$80,000.
Insurers
Four insurers are currently underwriting this class of
insurance in South Australia.
Western Australia
The home indemnity insurance scheme (HII) is privately
underwritten.
The Consumer Protection Division of the Department of
Consumer and Employment Protection is responsible for administering the home
indemnity insurance scheme in accordance with the Home Building Contracts
Act 1991 (HBCA).
The Builders Registration Board (BRB) is established under
the Builders' Registration Act 1939 (BRA) and is responsible for the
administration of, and compliance with the BRA.
Home building work is defined in the HBCA to include the
construction or alteration of a dwelling or multi-unit grouped homes or
high-rise developments including associated work such as landscaping and
swimming pools.
Under section 4 of the BRA, builders must be registered with
the BRB, which compiles and keeps a register containing the names, addresses,
qualifications, and other prescribed particulars of persons who are admitted to
the register. It has the power to cancel or suspend registration or take
proceedings for offences against the BRA (section 8). The BRB will need to be
satisfied with the skill and experience of applicants and may require evidence
of material and financial resources (section 10 of BRA).
Under section 12A of the BRA, the Disputes Tribunal (see
section 26 of BRA) has the power to order a builder to remedy any faulty or
unsatisfactory building work within specified time frames or order payment of
suitable compensation to the owner. Complaints must be made within six years of
completion of the dwelling.
Insurance
The HII provisions were incorporated into the HBCA in 1996
to protect home owners against financial loss.
Under the regulations, all residential building work
exceeding a value of $12,000 including new dwellings, extensions and
alterations and associated work such as swimming pools must be covered.
The HBCA (section 25C) requires that builders must obtain a HII
policy before performing residential building work.
Section 25D of the HBCA provides that a policy of insurance
for residential building work performed on behalf of another person under a
residential building work contract complies if it insures that person and the
person's successors in title against:
- the risk of loss of deposit; and
- the risk of loss from non-completion by reason of insolvency,
death or disappearance of the builder.
In the case of such work to be performed by a builder on
behalf of another person, whether or not under a residential building work
contract, a policy of insurance complies if it insures that person and the
person's successors in title against the risk of being unable to take advantage
of an entitlement to, or to enforce or recover under, a remedy under section
12A of the Builders' Registration Act 1939 because of the insolvency,
death or disappearance of the builder.
A policy of insurance must also provide that claims may be
made under it at any time before the expiration of 6 years from the day of
completion (section 25D of HBCA).
A minimum cover of $100,000 applies or the cost of the
building work if less than this amount (section 25D of HBCA).
Insurers
Five insurers are currently providing home indemnity
insurance in Western Australia.
Tasmania
Housing Indemnity Insurance in Tasmania is privately
underwritten.[2]
The Department of Justice and Industrial Relations is
responsible for administering the scheme in accordance with the Housing
Indemnity Act 1992 (HIA) and its Regulations.
Under section 3 of the HIA, a residential building means a
building intended primarily for occupation as a place of residence but excludes
buildings comprising three or more separate dwellings situated directly one
above the other, or residential flats. Building work includes the erection or
alteration of a residential building and additions thereto.
The HIA does not apply to building work that is valued at
less than $12,000 or such other amount as prescribed by the regulations
(section 5).
For building work covered by the HIA, certain warranties are
implied in a building work contract, namely:
- that the work will be carried out in a skilled and proper manner
in accordance with the plans and specifications agreed to by the parties;
- all materials supplied by the builder will be good and suitable
for the purpose and unless specified in the contract will be new;
- work will be performed in accordance with requirements of this or
any other Act;
- where the contract does not stipulate a period for completion,
that the work will be performed with reasonable diligence (section 7 of HIA);
and
- building work will be reasonably fit for the purpose expressed by
owner.
Proceedings for a breach of a statutory warranty must be
commenced within 6 years after completion of the work (section 9 of HIA). The
warranties also extend to successors in title (section 8 of HIA).
Insurance
A builder must not perform building work unless a complying
insurance policy is in force in relation to the work, and in the case of work
to be performed under a building work contract the owner has been furnished
with a certificate as evidence of the insurance policy (section 11 of HIA).
Section 12 of the HIA provides that a policy in relation to
building work complies with the Act if:
- the policy insures each person who is entitled to the benefit of a
statutory warranty in respect of the building work against the risk of being
unable to enforce or recover under the statutory warranty because of the
insolvency, death or disappearance of the builder;
- where the work is performed on behalf of some other person, the
policy insures that person against the risk of loss resulting from
non-completion because of the insolvency, death or disappearance of the
builder;
- the policy provides that it will remain in force for a period of
six years after the date of completion of the relevant work;
- the policy provides for the prescribed insurance cover or the
cost of the building work, whichever is the less;
- the policy is in a form that has been approved in writing by the
Minister and is granted by an insurer so approved; and
- the policy complies with any other requirements prescribed by the
regulations.
The prescribed insurance cover is defined to mean cover of
at least $200,000 or such other prescribed amount (section 3 of HIA).
Insurers
Insurers issuing policies must be approved by the Minister
(section 20B of HIA).
Currently four insurers are issuing Housing Indemnity
Insurance policies.
Queensland
Under the Queensland Building Services Authority
Act 1997 (QBSA), the Building Services Authority (BSA) is the provider of home
warranty insurance under a statutory insurance scheme.
The objects of the Act are:
- to regulate the building industry to ensure the maintenance of
proper standards in the industry and to achieve a reasonable balance between
the interests of building contractors and consumers;
- to provide remedies for defective building work;
- to provide for the efficient resolution of building disputes; and
- to provide support, education and advice for those who undertake
building work and consumers.
The QBSA requires building contractors to be registered in
order to carry out professional building services. The QBSA (section 31)
restricts registration to persons considered fit and proper for the purpose,
having certain qualifications and or professional experience and a minimum
financial standing as determined by the Board of the BSA. The BSA handles all
licensing matters and is responsible for ensuring all licensees continue to
meet the required standards.
The General Manager of the BSA is also responsible for assessing
and approving the payment of insurance claims as well as advising consumers on
insurance claims (section 18 of QBSA).
For domestic building work above $3,300, the Domestic
Building Contracts Act 2000 stipulates that the builder
warrants that: the work will be carried out diligently; in an appropriate and
skilful way; materials will be suitable for the purpose and work will be in
accordance with the contract and any relevant laws. The warranties transfer to
successive owners of the building (section 49). A proceeding for a breach of a
warranty must be started within 6 years and 6 months after the work is
finished, or if the work is not finished, the stated completion date or period
(section 51).
Insurance
Under section 68 of the QBSA, a building contractor must,
before commencing residential construction work pay to the QBSA the appropriate
insurance premium for the work in accordance with the regulations.
The Insurance Scheme insures the construction of a House,
Duplex, Townhouse, Villa unit, any residential unit (provided it is not a
multiple dwelling of more than 3 storeys) and residential outbuildings.
Under the Queensland Services Board Policy (Edition 5 - parts
1-3), the BSA will pay for loss for:
- non-completion due to contract termination resulting from licence
suspension or cancellation, death or legal incapacity of the contractor or
insolvency;
- defective construction; and
- subsidence or settlement of the insured work.
Payment for loss arising from non-completion will only be
made if the insured has properly terminated the contract with the contractor
within two years from the date of payment of the insurance premium or the date
of entering into the contract, whichever is the earlier.
Payment for loss arising from major defective work will be
made if the defect first becomes evident within six years and six months after
date of payment of premium, or the date of the contract, whichever is the
earlier (see Parts 1 and 2 of the Queensland Services Board Policy).
The maximum liability for each residence is the replacement
value of the insured work or $400,000 whichever is the lesser. Cover also
includes alternative accommodation, removal and storage costs up to $5,000
(Part 4 of the Queensland Services Board Policy).
Insurance claims are made to the QBSA and any disputes over
decisions can be referred to the Queensland Building Tribunal (section 86 of
QBSA).
Northern Territory
A limited form building warranty insurance protection is
mandatory in the Northern Territory. It is underwritten by the Northern
Territory Insurance Office (a statutory authority).
The Government's role in building control is undertaken by
the Building Advisory Services Branch of the Department of Lands, Planning and
Environment. The general functions of the Branch are to:
- provide an advisory service to industry, government and the
public;
- maintain a central Building Records System;
- develop and implement Regulations and policies;
- provide administrative and technical support to statutory
bodies.; and
- monitor, audit and enforce the requirements of the Building
Act 1993 in the Northern Territory
The Building Act 1993 (BA) and its Regulations
provide the framework for the control and standards for building. The Act
provides for the establishing of technical standards for buildings, the
registration of building practitioners and certifiers, the regulation of
building matters, the granting of building and occupancy permits and the
establishing of a building appeals process, and for related purposes.
The Building Practitioners Board is established under the
Act to maintain acceptable building standards and to ensure practitioners are
suitably qualified. Building Practitioners are registered by the Board if they
meet the qualification standards (section 24 of BA). Building and occupancy
permits are issued by private sector Building Certifiers who are authorised by
the Board.
Regulations establish standards and requirements for
buildings and the carrying out of building work which include standards for
performance and materials or methods of construction.
Insurance
An owner or his agent can apply to a building certifier for
a building permit but, under section 61 of the BA, work cannot commence unless:
- the person holds a type or class of approved policy of insurance
against failure to carry out the building work due to negligence or reasons
beyond his or her reasonable control; and
- the building work, when complete, is covered by an approved
policy of insurance against non-compliance with the Regulations.
Insurance is supported by the Home Building Certification
Fund, which is managed by the Territory Insurance Office (TIO).
The TIO policy does not include cover, for example, for
non-completion due to insolvency, poor workmanship or lack of due diligence,
defects etc. unless there is a breach of the Regulations.
NB: The Building Act was amended late 2004 to provide for
stricter licensing requirements (implementation 2005) and compulsory, privately
underwritten home warranty insurance. The provisions relating to private
underwriting were originally intended to be implemented in 2006. To date these
provisions have not been activated and the commencement of these provisions is
now expected to be early-mid 2008, subject to competitive insurance products
being available in the Territory.[3]
Insurance scope and limits will be similar to NSW.
Australian Capital Territory
The residential building insurance scheme in the ACT is
privately underwritten.
The Department of Urban Services is the statutory authority
responsible for regulating the home building industry and the scheme in
accordance with the Building Act 2004 (BA). The BA provides for the
appointment of a Building Controller whose responsibilities include:
- supervision of the Act and its Regulations;
- registration and maintenance of builder licences;
- approval of building permits.
The objectives of the BA focus on the need to ensure that
residential building work meets acceptable standards and that consumers are
protected or have avenues of recourse when builders fail to meet or complete
their obligations.
The BA (section 88(2)) incorporates statutory warranties on
the builder of a residential building that, in general, require that the work
will be carried out in a proper and workmanlike manner, in accordance with the
plans and any requirements, that the materials will be good and proper and that
the work will be completed with reasonable diligence.
The warranties expire at the end of five years from the date
of the certificate of occupancy (section 88 of BA and refer Regulations).
Each of the owner's successors in title succeeds to the
rights of the owner in respect of the statutory warranties (section 88(3) of
BA).
Insurance
Approval for residential building work valued at more than
$12,000 will only be granted if the Building Controller (or an appointed
Certifier) is satisfied that the required insurance, in approved format, is in
place.
Section 90 of the BA provides that an insurance policy in
respect of residential building work complies if, among other things:
- it is issued by an authorised insurer;
- it provides for a total amount of insurance cover of the
prescribed amount, or an amount equal to the cost of the work, whichever is
less;
- it insures the owner and successors in title for a specific
period;
- it insures the owner and successors in title against the risk of
being unable to enforce or recover under the contract because of the
insolvency, disappearance or death of the builder;
- it insures the owner and successors in title against the risk of
loss resulting from a breach of a statutory warranty;
- it insures the owner and the successors in title against the risk
of loss resulting from the builder's negligence or from subsidence of the land;
- it provides that a claim may only be made within the prescribed
period after the claimant becomes aware of the existence of the grounds of the
claim; and
- the form of the policy has been approved in writing by the
building controller.
Under the regulations, the minimum cover per dwelling is
$85,000.
Insurers
An 'authorised insurer' is defined in the BA to mean a body
corporate that has been granted authority to carry on insurance business under
the Insurance Act 1973 (Cth) (section 12).
If an insurer ceases to be in the business of issuing
residential building insurance policies, or if the insurer's authority to carry
on insurance business is cancelled under the Insurance Act 1973 (Cth),
the insurer must notify the building controller within 7 days of either event
occurring (section 95 (1) of BA).
Insurers are required to provide annual claims statistics to
the construction occupations registrar (section 95(4) of BA).
Currently five insurers are providing home building warranty
insurance in the ACT.
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