Home Building Act Guide

The Home Building Act 1989 (NSW) regulates the performance of most residential building work and building disputes in New South Wales. The Act also creates a number of significant protections for consumers.

The key aspects of the Home Building Act include:

• Contracting requirements including a requirement that a Contract for Residential Building Work to which the Act applies must be in writing, contain prescribed information and particulars and be signed and dated by the parties to it.
• The implication of a number of important conditions and Statutory Warranties into any Contract for Residential Building Work including a cooling-off right and mandatory warranties that go to the quality and standard of work that a Builder must achieve.
• The prohibition of residential building work or any specialist building work by or on behalf of anyone that is not the holder of a relevant Contractor Licence.
• A requirement for Builders to provide prescribed Consumer Building Guide to Home Owners before entering into a contract to do work.
• A requirement for Builders to obtain a Policy of Insurance under the Home Building Compensation Fund before carrying out any work or requesting or accepting any payment under a Contract for Residential Building Work with a price or value in excess of $20,000.00 (incl. GST).
• The giving of jurisdiction to the NSW Civil & Administrative Tribunal as the preferred forum for the resolution of home building claims with power to make enforceable rectification orders.

Significantly, the Home Building Act provides that:

• where a Contract for Residential Building Work is not in writing or does not have a sufficient description of the work the Builder is not entitled to damages or to enforce any other remedy in respect of a breach of the contract.
• where Insurance under the Home Building Compensation Fund is required a Builder is not entitled to demand or receive payment of any money or carry out residential building work unless a policy of Insurance is in place and a copy of a Certificate of Currency in respect of that insurance has been provided to the Home Owner.

The Home Building Act only applies to ‘Residential Building Work‘.

‘Residential Building Work‘ means any work involved in, or involved in coordinating or supervising any work involved in:

• the construction of a dwelling,
• the making of alterations or additions to a dwelling, or
• the repairing, renovation, decoration or protective treatment of a dwelling.

Roof plumbing work, specialist work (including plumbing and drainage work, gas fitting work and electrical wiring work) and work relating to the installing of fixtures or fixed apparatuses (for example for the heating or cooling of water, air ventilation or the filtration of water in a swimming pool) in connection with the dwelling are specifically included as “Residential Building Work“.

“Dwelling” means a building or portion of a building that is designed, constructed or adapted for use as a residence. If constructed for use in conjunction with a dwelling, swimming pools, spas, garages and car ports, decks, pergolas, workshops, driveways and paths, retaining walls, fences and gates also fall within the definition of “dwelling”.

Please note that the above definitions are not exhaustive.

The Home Building Act makes it an offence for a tradesperson to do any of the following work without a Contractor Licence:

• Residential building work where the total cost of labour and materials is more than $5,000.00,
• Electrical wiring work,
• Plumbing, draining and gas fitting work, and
• Air conditioning and refrigeration work (except plug-in appliances).

Where a Contractor Licence is required but not held the Builder or tradesperson is not entitled to damages or to enforce any other remedy in respect of a breach of the Contract.

By virtue of Section 18B of the Home Building Act, the following warranties are implied in every contract to do residential building work:

• A warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract,
• A warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new,
• A warranty that the work will be done in accordance with, and will comply with, the Home Building Act or any other law,
• A warranty that the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time,
• A warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling, and
• A warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes known to the holder of the contractor licence or person required to hold a contractor licence, or another person with express or apparent authority to enter into or vary contractual arrangements on behalf of the holder or person, the particular purpose for which the work is required or the result that the owner desires the work to achieve, so as to show that the owner relies on the holder’s or person’s skill and judgment.

These warranties are also implied in a contract under which a principal contractor enters into a contract with a subcontractor in connection with the carrying out of residential building work.

By virtue of Section 18E of the Home Building Act, proceedings for a breach of a Statutory Warranty must be commenced before the end of:

• 6 years for a breach that results in a major defect in residential building work, or
• 2 years in any other case.

“major defect” is defined to mean:

• a defect in a major element of a building that is attributable to defective design, defective or faulty workmanship, defective materials, or a failure to comply with the structural performance requirements of the National Construction Code (or any combination of these), and that causes, or is likely to cause:
  • the inability to inhabit or use the building (or part of the building) for its intended purpose, or
  • the destruction of the building or any part of the building, or
  • a threat of collapse of the building or any part of the building, or
• a defect of a kind that is prescribed by the Regulations as a major defect.

“major element” of a building is defined to mean:

• an internal or external load-bearing component of a building that is essential to the stability of the building, or any part of it (including but not limited to foundations and footings, floors, walls, roofs, columns and beams), or
  • a fire safety system, or
  • waterproofing, or
  • any other element that is prescribed by the Regulations as a major element of a building.

Statutory Warranty Period

The warranty period starts on completion of the work to which it relates or, if the work is not completed, on:

• The date the contract is terminated, or
• If the contract is not terminated, the date on which work under the contract ceased, or
• If the contract is not terminated and work under the contract was not commenced, the date of the contract.

The completion of residential building work under the Home Building Act will occur on the date that the work is complete within the meaning of the contract under which the work was done (although there is a specific provision contained in the Act relevant to determining the date of completion of new buildings in strata schemes).

If the contract does not provide for when work is complete (or if there is no written contract), the completion of residential building work occurs on “practical completion“ of the work, namely, when the work is completed except for any omissions or defects that do not prevent the work from being reasonably capable of being used for its intended purpose. In this case, it will be presumed, unless an earlier date for practical completion can be established, that practical completion of residential building work occurred on the earliest of whichever of the following dates can be established for the work:

• The date on which the contractor handed over possession of the work to the Home Owner,
• The date on which the contractor last attended the site to carry out work (other than work to remedy any defect that does not affect practical completion),
• The date of issue of an Occupation Certificate under the Environmental Planning and Assessment Act 1979 that authorises commencement of the use or occupation of the work, or
• In the case of owner-Builder work, the date that is 18 months after the issue of the Owner-Builder Permit for the work.

If the residential building work comprises the construction of 2 or more buildings, each of which is reasonably capable of being used and occupied separately, practical completion of the individual buildings can occur at different times (so that practical completion of any one building does not require practical completion of all the buildings).

Extending Limitation Periods

There are two (2) situations in which the time for the commencement of proceedings for a breach of a statutory warranty may be extended, namely, where:

• Any person entitled to the benefit of a warranty first becomes aware (or ought reasonably have first become aware) of the breach, within the last 6 months of the applicable warranty period, in which case proceedings may be commenced within a further 6 months after the end of the applicable warranty period, and
• A building bond has been lodged for building work under Part 11 of the Strata Schemes Management Act 2015 (NSW), in which case the period of 2 years specified for commencing proceedings for a breach of a statutory warranty for that work is extended until the end of 90 days after the end of the period within which a final inspection report on the building work under that Part is required.

Significantly, the fact that a person entitled to the benefit of a statutory warranty has enforced the warranty in relation to a particular deficiency in the work will not necessarily prevent the person from enforcing the same warranty for a deficiency of a different kind in the work if:

• The subsequent claim is brought within the relevant limitation period, and
• The other deficiency was in existence when the work to which the warranty relates was completed but the person did not know, and could not reasonably be expected to have known, of the existence of the other deficiency when the earlier warranty was enforced.

Subsequent Owners

A successor in title to a person entitled to the benefit of a statutory warranty under the Home Building Act has the same rights as the person’s predecessor in title in respect of a statutory warranty, as does a person or entity who is the owner of the land but is not actually a party to a contract to do residential building work on the land.

Introduction to Contracting Requirements under the Home Building Act.

Among other things, the Home Building Act 1989 (NSW) regulates the contracting requirements for any person making a contract to undertake ‘residential building work‘. Importantly, these requirements apply equally to any contract variations.

Importantly, whilst some requirements apply to all Contracts for Residential Building work others depend on the value (or price) of the works.

The contracting requirements set out below apply to contracts entered into on or after 1 March 2015.

Consequences of Non-Compliance

Significantly, where a person contracts to do residential building work is unlicensed or fails to comply with some of the prescribed contracting requirements the Act provides that (Section 10):

• they are not entitled to damages or to enforce any other remedy in respect of a breach of the contract committed by the other party, and
• the contract is unenforceable by the person who contracted to do the work.

In addition, it is an offence that carries a fine of up to $8,800.00 for a person to contract to do work unless the requirements of Sections 7, 7AAA and 7E of the Act are complied with (Section 7A). These requirements are summarised below.

Unlicensed Contracting

Before dealing with the contracting requirements it is important to note that it is an offence to represent that an individual, partnership or corporation is prepared to do any residential building work and/or to enter into a contract to perform any residential building work unless the individual, partnership or corporation is a holder of a Contractor License authorising it to contract to do that work (Sections 4 and 5 of the Act).

Are the Contracting Requirements Always the Same?

While some contracting requirements apply to all contracts for residential building work, other requirements and the effect of various provisions of the Act differ depending on the price or estimate of costs of the works to be performed.

As set out below, the requirements vary depending on whether the price of the works will be:

• not more than $5,000.00 (inclusive of GST),
• more than $5,000.00 (inclusive of GST) but not more than $20,000.00 (inclusive of GST), or
• more than $20,000.00 (inclusive of GST).

Exemptions from Contracting Requirements

The requirements for contracts for residential building work detailed below do not apply:

• where there would likely be a hazard to the health or safety of any person or to the public or to be damage to property if the work were not done promptly and the work could not be done promptly if the contracting requirements were to be complied with before commencing the work (Section 6(2)), or
• to a contract that is made between parties who each hold a Contractor License where each of the parties’ Contractor Licenses authorise the party to contract to do that work or a Contract to do specialist work that is not also residential building work (Section 7(8), Section 7AAA(5)).

The following contracting requirements apply to all contracts for residential building work under the Home Building Act 1989 (NSW) (subject to applicable exemptions).

Deposit

The maximum amount of a deposit that may be demanded or lawfully received for residential building work is 10% of the contract price (Section 8).

Statutory Warranties

The following warranties are implied in every contract to do residential building work regardless of the contract price (Section 18B(1)):

• A warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract,
• A warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new,
• A warranty that the work will be done in accordance with, and will comply with, this or any other law,
• A warranty that the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time,
• A warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling,
• A warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes known to the holder of the contractor licence or person required to hold a contractor licence, or another person with express or apparent authority to enter into or vary contractual arrangements on behalf of the holder or person, the particular purpose for which the work is required or the result that the owner desires the work to achieve, so as to show that the owner relies on the holder’s or person’s skill and judgment.

Charges Over Land

A contract may not create an interest in any land, and a provision in a contract is void to the extent that it purports to create such an interest (Section 7D(1)).

However, a clause in a contract that creates a charge over the land will not be void if:

• The charge relates to the land non which the contract work is or was to be carried out, and
• The charge is created to secure the payment to the holder of the Contractor License of money found to be due under the Contract by a Court or Tribunal that has made an Order or Judgment that such a payment be made (Section 7D(3)).

Arbitration Clauses

A provision in a Contract that requires a dispute under the contract to be referred to arbitration will be void (Section 7C).

The following contracting requirements apply to contracts to do Residential Building Work where the contract price or (if the contract price is not known) the reasonable market cost of the labour and materials involved exceeds $20,000.00 (inclusive of GST) by virtue of the Home Building Act 1989 (NSW).

Consumer Building Guide

Before entering into a contract the holder of the Contractor License must give the other party to the contract prescribed information that explains the operation of the Home Building Act and the procedure for the resolution of disputes under the contract or for the resolution of disputes relating to insurance (Section 7AA(1)). The prescribed information is the Consumer Building Guide March 2015.

Contracting Requirements

1. The contract must be in writing and be dated and signed by on behalf of the parties to it (Section 7(1)).
2. The contract must also contain the information and details required by Section 7(2) of the Act.
3. If the contract price is known, it must be stated in a prominent position on the first page of the contract (Section 7(4)).
4. If the contract price is not known or may be varied, the contract must contain a warning to that effect and an explanation of the effect of the provision allowing variation of the price. The warning and explanation must be placed next to the price if the price is known (Section 7(5)).
5. The contract must also include a checklist in the form set out in Schedule 2 of the Home Building Regulation 2014 (Section 7(3)) and Regulation 8(b)).
6. The contract must include (and is taken to include) each of the terms set out in Part 1 of Schedule 2 to the Act (Section 7E(1)). If the Contract contains a term that is inconsistent with a term set out in Part 1 of Schedule 2 it will be unenforceable to the extent of the inconsistency.
7. The contract must contain a statement relating to the cooling off period (see below) and the other party’s rights to rescind the contract during the cooling off period complying with Section 7(2)(g) of the Act. If the contract does not contain such a statement the other party to the contract may by notice in writing rescind the contract within seven (7) days of becoming aware that the contract should have contained such a statement (Section 7BB(2)).
8. It is also essential that the contract make provision for the payment of one or more authorised progress payments (see below) (Section 8A).

Other Contract Requirements

A signed copy of the contract in the form in which it was made must be provided to the other party to the contract not later than five (5) clear business days after the contract was entered into (Section 7B).

Authorised Progress Payments

It is also an offence to demand or receive payment of a progress payment under a contract or to enter into a contract pursuant to which the person is entitled to demand or receive payment of a progress payment unless the progress payment is authorised by Section 8A(4).

Whilst a contract can provide for more than one (1) kind of authorised progress payment, it is essential that the contract at least provide for the payment of one (1) or more of the following authorised progress payments (Section 8A(2)):

• A progress payment of a specified amount or specified percentage of the contract price that is payable upon completion of a specified stage of the work and where the work that comprises that stage is described in clear and plain language in the Contract, and
• A progress payment for labour and material in respect of work already performed or costs already incurred (and which may include the addition of a Builder’s margin), where provision for a claim for payment to be supported by such Invoices, receipts or other documents as may be reasonably necessary to support the claim and where payment intervals are fixed by the Contract or stated as an “as invoiced” basis.

Cooling Off Period

Generally, a party to a contract for works over $20,000.00 (incl. GST) will be entitled to cool off or rescind the contract by giving a notice in writing at any time before the expiration of five (5) clear business days after the person has given a copy of the contract or becomes aware that they were entitled to be given a copy of the signed contract (Section 7BA(1)).

This cooling off right may be shortened or avoided by a provision in the contract, however, the provision will not take effect unless or until the other party to the contract gives a Certificate under Section 7BA(5) of the Act signed by an Australian Legal Practitioner (Section 7BA(4)).

Insurance under the Home Building Compensation Fund

Before any work is carried out under the contract, a Contract of Insurance under the Home Building Compensation Fund (formally known as the Home Warranty Insurance Scheme) must be in force and a Certificate of Insurance evidencing the Contract of Insurance must have been provided to the other party to the contract (Section 92(1)). It is an offence to demand or receive payment under a contract where the requirements of Section 92(1) have not been complied with.

Significantly, where a Contract of Insurance under the Home Building Compensation Fund is not in force in relation to any residential building work done under a Contract the contractor who has performed the work:

• is not entitled to damages, or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, and
• is not entitled to recover money in respect of that work under any other right of action at law (including on a quantum meruit basis) unless a Court or Tribunal considers it just and equitable (Section 94(1) and (1A)).

The following contracting requirements apply to contracts to do Residential Building Work where the contract price or (if the contract price is not known) the reasonable market cost of the labour and materials involved exceeds $5,000.00 (inclusive of GST) but not $20,000.00 (inclusive of GST) by virtue of the Home Building Act 1989 (NSW).

Contracting Requirements

A contract must be in writing and be dated and signed by on behalf of the parties to it (Section 7AAA(2)).

The contract must contain the information and details required by Section 7AAA(3) of the Act, namely:

• The names of the parties, including the name of the holder of the Contractor Licence shown on the Contractor Licence,
• The number of the Contractor Licence,
• A description of the work to which the contract relates,
• Any plans and specifications for the work, and
• The contract price if known.

The contract must include a copy of the Consumer Building Guide March 2015 (Section 7AAA(4), Regulation 6).

The contract must also include (and is taken to include) each of the terms set out in Part 1 of Schedule 2 to the Act (Section 7E(1)). If the Contract contains a term that is inconsistent with a term set out in Part 1 of Schedule 2 it will be unenforceable to the extent of the inconsistency.

Other Contract Requirements

A signed copy of the contract in the form in which it was made must be provided to the other party to the contract not later than five (5) clear business days after the contract was entered into (Section 7B).

There is no prescribed contracting requirements where the contract price or the reasonable market cost of the labour and materials involved is less than $5,000.00 (inclusive of GST). However, it should be noted that Australian Consumer Guarantees will still apply.

Notwithstanding that there is no requirement for the contract to be in writing, it remains a recommended practice to make a written contract to:

• avoid disputes in relation to the price or agreed scope of works,
• include important contractual terms that create additional rights where recovery action is required (for example to recover interest and legal costs), and
• limit or exclude liability for consequential losses to the maximum extent permitted by law.

To avoid disputes about variations, including in relation to the extra costs of variations, a written form of contract variation should be documented and signed by the parties whenever the scope of works are varied.