In brief - Proposed reforms relate to statutory warranties, dispute resolution and home warranty insurance

The reforms to the Home Building Act are due to be introduced in 2014 and are intended to address areas of ambiguity within the Act that have generated significant controversy to date.

Recommendations for reform follow period of consultation

In September 2013, the NSW government published a position paper, Review of the Home Building Act 1989 - Position Paper September 2013, regarding its key recommendations for reform of the Home Building Act 1989 (NSW) (HBA). The position paper represents the culmination of a review process that commenced with the release of an issues paper in July 2012 by NSW Fair Trading, focussing upon six key areas of proposed reform followed by a period of consultation.

The government currently anticipates introducing a bill to give effect to the many of the recommendations later this year, with the balance to be addressed through a revision of the Home Building Regulation 2004 (NSW), with all reforms commencing together in 2014.

Summary of key reforms to the Home Building Act

Some of the key reforms contemplated by the position paper are:

Statutory warranties

• allowing builders to limit liability for loss caused by a breach of statutory warranties to the extent that the breach is the result of the builder acting on instructions from a professional engaged solely by the principal

• clarifying that principals have an obligation to take reasonable steps to mitigate loss arising from breaches of statutory warranties

• expanding the warranties required to be given for six years by replacing the definition of "structural defect" with the concept of "major defect" – which would include defects having a severe effect on the safety, use and performance of a building, such as fire safety and waterproofing

Dispute resolution

• introducing a pilot expert determination model to enable technical issues about building defects to be determined quickly, cost-effectively and conclusively at the beginning of a dispute resolution process

• requiring principals to give builders access to properties to rectify defective works

• requiring principals to notify builders of defects within six months of when the principal became aware (or ought reasonably to have become aware) of the defect. A failure to notify in accordance with this requirement would not bar the claim, but be a matter that a court or tribunal could take into account when considering whether losses arose or were made worse by the failure to notify

• making it an offence to fail to comply with a rectification order issued by a Fair Trading inspector

Home warranty insurance

• clarifying that original home warranty insurance covers rectification work and that a new policy is only required for new work not included in the original contract or where the work is undertaken under a new contract by a new builder

• maintaining the exemption for high-rise developments and aligning the definition of "storey" and "rise in storeys" with the National Construction Code

• prohibiting builders from entering into a contract as an entity that is not the entity insured under the home warranty insurance scheme

Impact of reforms on building industry remain to be seen

A number of the proposed reforms will address issues with the drafting of the HBA that have, to date, been unclear or ambiguous and have generated significant controversy. It will be interesting to see, for instance, precisely how the reform associated with the new definition of "major defect" and the reform limiting the liability of builders for reliance upon principals’ consultants, will be drafted. These reforms may have far reaching consequences for industry participants and the way disputed claims are litigated.

It is not yet clear how the amending legislation will approach issues of retrospectivity. CBP will issue a further alert once the draft bill has been released.

This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2024.

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