By and -
  • The Home Building Amendment Act 2014 makes substantial changes to some parts of the Home Building Act 1989
  • Many of the provisions have retrospective application and will apply to proceedings and insurance claims not brought before the commencement of the amendments
  • A general exception to any retrospective operation is provided for with respect to proceedings brought or insurance claims made prior to the amendments commencing
  • As with past experiences, only time will tell how the provisions are interpreted by the courts

On 28 May 2014, the Home Building Amendment Act 2014 (Amendment Act) passed through the NSW Parliament and received assent on 5 June 2014. It will commence on a date to be proclaimed.

The Amendment Act introduced some key changes to the Home Building Act 1989 (NSW) (the Act).

Amendments to the Statutory Warranties framework

  • Work required to be done with due care and skill

    Under the Act, certain warranties are implied into every contract to do residential building work. The former warranty that work be performed “in a proper and workmanlike manner” has been amended to a warranty that the work be “done with due care and skill”. It is yet to be seen whether this is treated as a higher or lower standard of care.

    The Amendment Act also clarifies the extension of the statutory warranties to subcontracts. This may lend support to principals seeking to directly pursue subcontractors (as well as, or instead of, head contractors) for defective works.

  • Proceedings for breach of warranties

    Under previous amendments applying to contracts entered from 1 February 2012, proceedings for a breach of statutory warranty must be brought within six years of completion of the works for structural defects, or two years in any other case (for contracts entered into before 1 February 2012 the Act provides seven years in all case).

    The Amendment Act replaces the “structural defect” concept with a new “major defect” provision. The definition of “major defect” is substantially similar to the previous definition of “structural defect”.

    However, the threshold for what kind of risks a “major defect” must pose in order to be classified as such has been substantially raised, by reason of the removal of the previous minimum requirement that the defect at least cause physical damage. While the new section seems to intend that waterproofing failures be treated as “major defects” (by reason of the specific mention of waterproofing in part of the definition), the removal of the lower “physical damage” threshold nevertheless may mean that waterproofing defects are not considered “major defects” in some circumstances.

  • Defence

    The amendment to section 18F creates a defence in proceedings for breach of a statutory warranty where the defects complained of arose from reasonable reliance by the builder on instructions given by a relevant professional who was independent of the builder and acting for the person for whom the work was done.

    This substantially expands on the previous defence, which was limited to the instructions of the principal only, contrary to the written advice of the builder.

  • Duty to mitigate

    The new section 18BA imposes a duty on the party having the benefit of a statutory warranty to mitigate its loss. This amendment expressly adopts and expands upon the common law principles of mitigation of damage in respect of contracts.

    The amendments also impose a duty on the party with the benefit of a statutory warranty to make reasonable efforts to give written notice of a breach of statutory warranty to a person against whom the warranty can be enforced, within six months of becoming aware of that breach (or when they ought to have become aware).

    The person with the benefit of the statutory warranty must also allow reasonable access to the person in breach of the statutory warranty for the purpose of rectifying the breach, although no provision is made addressing what “reasonable” access might be, or what rights and obligations arise at law in respect of such rectification works.

  • Residential building work

    The definition of “residential building works” has been amended to exclude works comprising the construction of concrete tennis courts, ponds, water features, internal paintwork (if a stand-alone project), and off-site work to fabricate a manufactured home. This means that works excluded from the definition will not have the benefit of the statutory warranties.

  • Completion date

    The introduction of section 3C provides that the date of completion of a new building in a strata scheme (but not part of the scheme that is not a “building”) will be the date an occupation certificate is issued that authorises the occupation and use of the whole building, or the occurrence of some other event prescribed by the regulations (no regulation yet exists).

    The section permits different buildings constructed under the same contract to have different dates of completion as if they had been built under separate contracts.

  • Dispute resolution

    Section 48MA introduces a principle that the preferred outcome in proceedings alleging defective residential building work is rectification of the defective works by the responsible party, and provides that a court or tribunal is to have regard to this principle when determining a building claim involving an allegation of defective residential building work.

    The amendment does not, however, expressly create any new cause of action on which such an order could be based, nor does it specify what rights or obligations might arise in respect of such rectification works.

  • Insurance

    The amendment to section 92 provides that rectification work done by the person who completed the original residential building work is covered under the original contract of home warranty insurance.

    There is no consequential provision to deal with the warranty periods in relation to the rectification works, which may mean that by the time any rectification works are completed (or even before they are started), the period of cover under the insurance may have expired.

    Additionally, no provision is made to deal with precisely how those existing policies might apply – and to what extent their terms are to be varied, if at all – to accommodate this statutory “extension” to rectification work.

    Section 102A creates a register of home warranty insurance certificates for certificates issued after 1 July 2010.

    Home warranty insurance is to be restyled “insurance under the Home Building Compensation Fund”.

  • Going forward

    Lawyers practising in this area should be familiar with the terms of the transitional provisions as the amendments introduced by the Bill apply retrospectively in many respects.

    A general exception to any retrospective operation is provided for with respect to proceedings brought or insurance claims made prior to the amendments commencing. As with past experiences, only time will tell how the provisions are interpreted by the courts.

Daniel Russell is a partner and Katherine Flynn is an associate at Chambers Russell Lawyers