Home Warranty Insurance

What Is It?

If a builder goes out of business, leaving unfinished or defective homes, the liability and potential cost to home owners is very high and a builder is unlikely to be able to cover the costs of all claims. Home warranty insurance is designed to provide protection to consumers in the event of a builder being unable to complete or rectify their work where the builder dies, disappears or becomes insolvent. It is required and regulated by Part 6 of the Home Building Act 1989 . Building contractors, tradespeople and owner-builders are required to take out insurance which complies with the Act. It is essential that they understand their obligations under the legislation. It is also important that homeowners and people buying land understand the legislation and the rights and obligations they have.

Home Warranty Insurance is taken out by the builder on behalf of the homeowner to cover the homeowner for loss due to non-completion and defective works. The policy is in the name of the purchaser/consumer (not the builder) and the builder passes the cost of the insurance on to the consumer as a legitimate building cost. This means that builders have a responsibility to protect the consumers they work for, but are not left with an unreasonable burden.

Homeowners are able to lodge a claim for loss or damage resulting from non-completion of the work, or non-supply of kit home, because of the insolvency, death or disappearance of the supplier. In certain circumstances, homeowners can also lodge a claim if they cannot recover compensation from the contractor or have the contractor rectify because of the insolvency, death or disappearance of the contractor.

What Does It Cover?

Home warranty insurance is required for any residential building work or the supply of a kit home where the work requires a licence and the value of the work is over $12,000. The insurance must be taken out prior to taking any money on the contract and prior to commencing the work, or supplying the kit.

To comply with the Act the insurance must cover the following:

The insurance must provide at least $200,000 cover for the home owner.
Structural defects will be covered for six years from the completion of work.
All other defects will be covered for two years from completion of work.
Incomplete work will be covered up to 12 months after the builder fails to commence work or ceases of work.

If a valid contract of insurance does not exist, the contractor who did the work is not entitled to damages or to recover money in respect of that work under any other right of action.

How Does It Apply to Owner-Builders?

Part 6 of the Home Building Act 1989 also applies to owner-builder work.

Owner-builder work is work done under an owner-builder permit, which involves:

(a) the construction of a dwelling, or

(b) the alteration of, or additions to, a dwelling, or

There are three main situations in which the requirement for insurance will affect owner-builders:

where there is contracted work to be done for the owner-builder;
where there is a supply of a kit home;
where there is to be a sale of land on which owner-builder work has or will been done.

Any work done under a contract must be insured. This provision does not apply if the contract price does not exceed $5,000. If there are multiple contracts between the same parties, the contract price is taken to be the sum of the prices of the contracts. An owner-builder must ensure a proper contract of insurance in place in relation to the work before entering into any contracts for work to be done. The supply of a kit home must also be covered by insurance.

An owner-builder must not enter into a contract for the sale of land on which owner-builder work is to be or has been done by or on behalf of the owner-builder, unless there is proper insurance which complies with the Act. This provision does not apply where the land is being sold more than six years after the completion of the work or if the reasonable market cost of the labour and materials involved did not exceed $5,000.

Why do you need legal advice?

Legal advice is important if you want to make sure you are complying with the requirements relating to home warranty insurance or if you want to make a claim. If you are an owner-builder, or if you are entering into contracts for building work to be done, or if you are buying or selling land which has had building work done on it, you need to be aware of your rights and obligations in relation to home warranty insurance. There are penalties for failing to comply with the provisions of the Home Building Act.

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The information you obtain at this site is not, nor is it intended to be, legal advice.
You should consult a lawyer for individual advice regarding your own situation.