Important Changes to the Home Building Amendment Act

Transcription

1 Important Changes to the Home Building Amendment Act Welcome presenter David Bannerman date 25 March 2015 Liability limited by a scheme approved under Professional Standards Legislation

2 Home Building Amendment Act 2014 Amendments to Home Building Act Amendments to the Home Building Act as a result of the Home Building Amendment Act is now commencing in 2 parts: 15 January Majority of Amendments including: Licensing, Owner Builders, Home Building Compensation Fund, Major and General Defects 1 March Amendments relating to residential building contracts including: Sections 7 & 8 Form of Contracts, Section 18B wording of statutory warranty and application to subcontractors

3 Building Insurance - History A brief history of Building Insurance in NSW * 1972 to 30 April 1992, Government administered insurance scheme. Cover for defects was set at $40K and increased to $100K in March Incomplete work was capped at $25K Dodd Inquiry. Recommended to move away from Government monopoly to private insurers. Avoidance of conflict claims with the Government acting as both insurer and arbiter on disputes. Privatised from 1 May Minimum cover was $200K, increased to $300K on 1 March 2007 and $340K on 1 February In 2001, HIH Casualty and General Insurance Limited and FAI General Insurance Company Limited went into liquidation. They held approximately 40% of home warranty insurance book. * Based upon Fair Trading NSW Factsheet January 2014

4 Building Insurance History (cont) From 1 July 2002, NSW shifted from a first resort scheme to a last resort scheme, i.e. the scheme provided cover in the event of the death, insolvency or disappearance of the builder. From 1 July 2002, with the shift to a last resort scheme, insurance liability reduced to 6 years for a loss arising from a structural defect or 2 years for loss arising from a non-structural defect. From 1 July 2010, the NSW Government through SICorp (the NSW Self Insurance Corporation), became the sole home warranty insurance agent. * Based upon Fair Trading NSW Factsheet January 2014

5 Building Insurance History (cont) From 25 October 2011, for first resort insurance claims needed to have been made during the period of cover. Owners were unable to notify and claim after period of cover as previously permitted. A grace period was given to allow matters notified during cover to be claimed before 25 April From 25 October 2011, for last resort insurance, claims need to have been made during the period of cover (or during 6 month extension period if the loss occurs in the last 6 months of the period of insurance) if the builder dies, disappears or becomes insolvent during the period of insurance (or the 6 month extension period). Owners lost the right to make a claim outside the period of cover, subject to the below point. * Based upon Fair Trading NSW Factsheet January 2014

6 Building Insurance History (cont) From 25 October 2011, for last resort insurance, if the builder does not die, disappear or become insolvent within the insurance period, and the loss was properly notified, owners can make a claim later but will not be entitled to indemnity unless they diligently pursued enforcement of statutory warranties. From 25 October 2011, owners unable to make insurance claims more than 10 years after completion of works. * Based upon Fair Trading NSW Factsheet January 2014

7 UNSW Research - Common Strata Building Defects Extracted from Easthope, H., Randolph, B., & Judd, S. (2012) Governing the Compact City: The role and effectiveness of strata management. Sydney: City Futures Research Centre

8 Building Insurance Trends Underwriting Performance 2012 $ $ $ 000 Gross Written Premium 47,588 53,156 66,667 Movement in unearned premium (37,414) (35,896) (40,868) Net Premium Revenue 10,174 17,260 25,799 Recoveries Movement in outstanding claims provision (34,679) (15,140) (796) Claims paid (16,815) (24,680) (23,677) Acquisition costs (29,651) (22,609) (28,383) Unexpired risk liability (32,209) (13,503) (2,564) Total underwriting loss (103,180) (58,672) (29,591) Source NSW Home Warranty Insurance Fund Financial Statements for years ended 30 June 2013 and 30 June 2014

9 Building Insurance Trends Claims received (by year project certificate issued) as at 31 August / / / / /15 Total Claims Received ,090 Notifications Received Source Home Warranty Insurance Fund Report as at 31 August 2014

10 Building Insurance Trends (cont) Claim payments (by year project certificate issued) as at 31 August 2014 Year Payment to Claimants & 3 rd Parties ($) Outstanding Estimate ($) Estimated Total Cost ($) 2010/11 35,632,083 6,477,293 42,109,377 73, /12 23,379,863 2,433,054 25,812,976 64, /13 5,716,656 1,856,833 7,573,489 68, /14 5, , ,397 54, / TOTALS 64,733,833 10,981,336 75,715,239 65,334 Average Cost ($) Source Home Warranty Insurance Fund Report as at 31 August 2014

11 Amendments that Started 15/1/15 Amendments that started on 15 January 2015 matters included- Completion date for strata buildings Statutory Warranty changes major defect 6 month notification after breach of statutory warranty apparent Extension of 18F defence Duty to mitigate loss Court/Tribunal to have regard to the principal that rectification is the preferred outcome Duty not to unreasonably prevent rectification work Home warranty insurance extends to rectification works by original builder Home warranty insurance exemption clarified

12 Date of Completion of Residential Building Work Date of Completion of residential building work that is not new buildings in strata schemes section 3B Completion is when work is complete within the meaning of the contract; If the Contract doesn t define completion, when the work reaches practical completion = completed except for omissions or defects that do not prevent the work from being reasonably capable of being used for its intended purpose; Practical completion presumed (unless an earlier date is established ) on the earlier of: 1. Hand over of possession; 2. Last attendance onsite to carry out work (other than to remedy defect that doesn t affect practical completion); 3. Issuance of occupation certificate that authorises commencement of use of occupation of the work Where 2 or more individual buildings that are reasonably capable of being used and occupied separately are constructed practical completion can occur at different times.

13 Date of Completion of New Buildings in Strata Schemes Date of Completion of New Buildings in Strata Schemes section 3C (commenced 15 January 2015 with retrospective effect). Except where proceeds commenced on insurance claims made and not applying to private insurers Home Owners Warranty Insurance Completion occurs on: 1. Date of issue of an occupation certificate that authorises the occupation and use of the whole of the building; 2. The occurrence of an event prescribed in the regulations (currently none prescribed

14 Amendments that Started 15/1/15 6 year statutory warranties change from Structural Defect to a 2 Element Test Major Defect in a Major Element. Generally applies retrospectively to:- Building contracts entered into from 1 February 2012 Insurance contracts entered into from 1 July 2002

15 Amendments that Started 15/1/15 Retrospective Application of the changes to the Statutory Warranties and claims against builders and developers can be avoided only if before the amending legislation commences:- Court or Tribunal proceedings are commenced; or A claim is made under a Home Warranty Insurance contract of insurance

16 Amendments that Started 15/1/15 First Element of 6 year Statutory Warranties Major Defect in a Major Element causing, or likely to cause:- An inability to inhabit or use any part of the building for its intended purpose; or The destruction of any part of the building; or A threat of collapse of any part of the building; or A defect prescribed by the regulations (currently none are prescribed).

17 Amendments that Started 15/1/15 Second Element of 6 year Statutory Warranties Major Element:- Load bearing components essential to the stability of the building (e.g. foundations, floors, walls, roofs, columns, beams); or A fire safety system; or Waterproofing; or Other elements prescribed by the regulations (currently none are prescribed)

18 Amendments that Started 15/1/15 Previously 6 year warranties were for a Structural Defect in a Structural Element Structural Defect was defined as a defect in a Structural Element that: Results in, the building or part of the building being closed; Prevents, or is likely to prevent, the practical use of the building or part of the building; Results in, or is likely to result in, the destruction or physical damage to the building; Results in, or is likely to result in, threat of imminent collapse

19 Amendments that Started 15/1/15 Structural Element was defined as: Any internal or external load bearing component of the building essential to the stability of the building or any part of it Any component (including weatherproofing) that forms part of the external walls or roof of the building

20 Amendments that Started 15/1/15 Extension of Section 18F Defence Addition to Section 18F Defence for Builders for new contracts where there is reasonable reliance upon instructions given by the owners independent expert. Previously had to provide warning in writing to get protection under 18F Independent Expert = 1. Not recommended or referred by the Builder; or 2. Not a close associate of the Builder within the past 3 years.

21 Amendments that Started 15/1/15 Close Associate = 1. Business partner, employee or agent 2. Corporation/Partnership/Joint Venture in which Builder has a beneficial interest 3. Subsidiary Corporation 4. Is entitled to exercise any other relevant financial interest, relevant position or relevant power 5. Spouse/De facto (or ex), child, grandchild, sibling, parent or grandparent

22 Amendments that Started 15/1/15 Duty to mitigate loss for contracts entered into after the amendments commence. Duty to not unreasonably prevent a builder from performing rectification works. Court/Tribunal to have regard to the principal that rectification of defective work is the preferred outcome This effects all proceedings commenced after the amendments commence Home warranty insurance in force extends to any rectification work performed by the original builder Applies with retrospective effect but not to any proceedings on foot or home warranty insurance claims already made when the amendments commence

23 Amendments that Started 15/1/15 Under the Act the position that Home Warranty Insurance is not required for a building that has a rise in storeys of more than 3 and contains two or more separate dwellings. There is a change to the definition of storey to having the same meaning as in the BCA Existing definition of storey in clause 74 of the Home Building Regulation excludes a space which includes accommodation only intended for vehicles

24 Amendments that Started 15/1/15 New Definition of storey: a space within a building which is situated between one floor level and the floor level next above, or if there is no floor above, the ceiling or roof above, but not (a) space that contains only (i) a lift shaft, stairway or meter room; or (ii) a bathroom, shower room, laundry, water closest, or other sanitary compartment; or (iii) accommodation intended for not more than 3 vehicles; or (iv) a combination of the above; or (b) a mezzanine

25 Amendments that Started 15/1/15 Renamed from the Home Warranty Insurance Fund (HWIF) from 15 January 2015 onwards. The NSW Self Insurance Corporation (SICorp) is the sole government insurer since 1 July Certificates Register: pensation_fund/347

26 Amendments that Started 15/1/15 Presumption that Owner Builder work completed 18 months after owner builder permit issued No longer require HOW Insurance - Need to disclose in contracts for sale that Owner Builder works and no insurance Owner Builder permits for dual occupancy work prohibited Owner Builders only allowed one permit every 5 years

27 Amendments that Started 15/1/15 Concluding 15/1/15 Amendments: Statutory Warranty change to Major Defect in a Major Element will have retrospective application to building contracts entered into after 1 February 2012 where proceedings are not commenced or home warranty insurance claims are not made prior to 1 December month notification period for breach of a statutory warranty period Owners will have a duty to provide access and mitigate their losses Rectification is the preferred outcome Section 18F defence is extended to provide builders with a defect where they reasonably rely upon instructions given by owner s independent expert Clarified exemption for Home Owners Warranty Insurance (HOWI) Register of HOWI certificate Owner builder cannot obtain HOWI

28 Negligence recent decisions On 8 October 2014, the High Court in Brookfield Multiplex Ltd v Owners Corporation Strata Plan [2014] HCA 36 ( the Brookfield case ) found that a builder did not owe a duty of care to an owners corporation in a serviced apartment complex (not residential building works) where sophisticated parties had negotiated rectification clauses. The High Court held that a duty of care continues to exist if the principles in Bryan v Maloney are satisfied. The decision is not conclusive with respect to negligence claims for: Residential building works; Claims where the builder and developer are the same party; or Claims against designers or certifiers.

29 Recent case law on certifiers The Owners Corporation of Strata Plan v Rockdale City Council [2008] NSWSC 392 Council incorrectly certified the building Council, as principal certifying authority, found to owe owners corporation a duty of care Council liable for negligence and breach of statutory duty The Owners, SP75903 v Dix & Anor [2011] NSWSC 245 Whether building has a rise in storeys of more than three Certifier incorrectly provided advice to the developer that rise in storeys was greater than 3 Issue of negligence a matter for the trial judge

30 Changes From 1/3/15 that will impact Contracts Key Contract matters that will be discussed:- Deposits increased from 5% to 10% for contracts over $20,000 Progress Payments Milestone or Invoiced Costs 5 days cooling off period doesn t apply universally to all contracts Consumer information not required for developers and contractors Termination provisions requirement that contract state that it can be terminated as provided by general law Changes to the wording of Statutory Warranties due care and skill Subcontractors liable for Statutory Warranties

31 Changes From 1/3/15 that will impact Contracts Contract Thresholds changed for contracts on and from 1 March 2015 Small jobs - threshold pre 1/3/2015 = $1,000 - threshold on and from 1/3/2015 = $5,000 Note: ss 7AAA, 7B, 7C, 7D, 7E, 8 apply Large jobs - threshold pre 1/3/2015 = $5,000 - threshold on and from 1/3/2015 = $20,000 Note: ss 7, 7AA, 7B, 7BA, 7BB, 7C, 7D, 7E, 8 apply

32 Changes From 1/3/15 that will impact Contracts If non-compliant contracts are entered into there is a possibility that: Builders will be unable to claim progress payments; Contracts or part of those contracts may be unenforceable under section 10 of the Act; or Builders may be liable to pay fines arising from offence proceedings

33 Changes From 1/3/15 that will impact Contracts New Section 8 Maximum 10% deposit for all residential building works contracts (previously 5% deposit for contract works over $20K) Doesn t apply to Contracts between licence holders (subcontracts) Penalty For Breach $110,000 for Corporation /$22,000 Penalty Units Otherwise

34 Changes From 1/3/15 that will impact Contracts New Section 8A Progress Payments Applies only to: new contracts over $20K and which the Building and Construction Industry Security of Payment Act 1999 (SOP ACT) does not apply. SOP Act does not apply to properties in which the contracting party intends to reside

35 Changes From 1/3/15 that will impact Contracts Problem: New Progress Payment restrictions won t apply to contracts with developers May apply to : single residences - if not investment property dual occupancies - if all parties sign contract and will reside in all dwellings

36 Changes From 1/3/15 that will impact Contracts New Form of Progress Payment Schedule- either Progress Payment Schedule Specified amounts or percentages at completion of specific stages described in a contract in plain language fixed milestone payments ; or Fixed Intervals Supported by Invoices/Receipts - On an as invoiced basis for labour and materials in respect of work already performed at intervals set out in a contract and supported by invoices, receipts etc. Invoices for labour, materials + margin at fixed payment intervals.

37 Changes From 1/3/15 that will impact Contracts Not Allowed: Claiming variable % complete at end of each month Penalty For Breach $110,000 for Corporation /$22,000 Otherwise Recommend : Err on side of caution when dealing with houses and dual occupancies and comply with new progress payment requirements unless clearly developer

38 Changes From 1/3/15 that will impact Contracts Section 7AA - under new amendments: 5 Day Cooling Off Period doesn t apply to residential building contracts between: builders and developers, builders and other licences contractors owners who fully prepare contracts No requirement to give consumer information for a contract to do residential building work between: a builder and a developer builder and licensed contractor

39 Changes From 1/3/15 that will impact Contracts The Fair Trading Consumer Guide published by Fair Trading NSW which must be included in residential building contracts will be updated from 1 March Fair Trading NSW has published a preview of the March 2015 update on its website (Consumer Building Guide) and has stated that while builders should use the updated guide it will not take any enforcement action against builders who use older version of the guide during the first half of 2015.

40 Changes From 1/3/15 that will impact Contracts Section 7(2)(i) Termination Statement - a new contract over $20K must contain a statement that the contract can be terminated as provided by the general law. Parties will, however, still be able to negotiate additional circumstances in which a contract may be terminated. Maximum penalties for failing to comply are $8,800 for a corporation and $4,400 for an individual Practical Effect minimal, termination at general law always existed, now just needs to be specifically stated in the contact

41 Changes From 1/3/15 that will impact Contracts Section 7E - Terms in Contract - Only for Owner/Occupiers - For Contracts which Section 7AA applies plans and specifications: All plans and specifications and variations forms part of contract, All variations must be in writing signed on behalf of each party All Contracts Quality of Construction work will comply with: Building Code Australia Codes, standards and any law Development consent or complying development certificate Contract may limit liability for design and spec by owner or warned against by builder

42 Changes From 1/3/15 that will impact Contracts Section 18B Changes to the wording of Statutory Warranties Works be performed in a proper and workmanlike manner now becomes works be done with due care and skill Maximum penalties for failing to include wording are $8,800 for a corporation and $4,400 for an individual Practical Effect - Department of Fair Trading says change in order to use consistent language with Australian Consumer Law Section 51 Improper Conduct to perform work without due care and skill and Section 56 - grounds for taking disciplinary action

43 Changes From 1/3/15 that will impact Contracts Certain works included in the definition of residential building work in the Home Building Act (i.e. now apply to contracts entered into from 1/3/15) Installation of floor tiles Certain works excluded from the definition of residential building work in the Home Building Act (i.e. no longer apply to contracts entered into from 1/3/15) Stand alone contracts for internal painting Stand alone contracts for concrete tennis courts Stand alone contracts for water features

44 Changes From 1/3/15 that will impact Contracts Expect Principals/Owners to request Contracts contain a mechanism for identifying subcontractors Subcontractors bound by statutory warranties 6 month notification period for breach of a statutory warranty.

45 Changes From 1/3/15 that will impact Contracts Concluding Home Building Act amendments starting 1 March % deposit for all residential building contracts Contracts must be updated to include: termination provisions; changes to the wording of statutory warranties plans & specs (if necessary) and Quality of Construction Progress Payments for contracts signed after 1 March 2015 must accord with the new progress payment provisions (for applicable contracts) Subcontractors bound by statutory warranties

46 Changes From 1/3/15 that will impact Contracts Other interesting aspects arising in remedial works include: Asbestos management Strata insurance management Exempt or complying development Interim payments with SOPA Variations to contracts

47 Disclaimer This is not a legal advice and you should seek legal advice regarding any of the issues referred to. This area of law is regularly amended and new cases decided, requiring updated information. This presentation does not include all possible steps, remedies and time limitations.

48 Thank you Legal advice should be sought in relation to any matters relating to the contents of this presentation or these slides. T (02) F (02) M E dbannerman@bannermans.com.au A Suite 702, 2 Elizabeth Plaza, North Sydney, NSW 2060 PO Box 514, North Sydney, NSW 2059 Liability limited by a scheme approved under Professional Standards Legislation