The Home Building Compensation Fund provides a safety net for home owners in NSW faced with incomplete and defective building work carried out by a builder or tradesperson (it was formerly known as Home Owners Warranty Insurance).
If you are selling a property that has had residential building works completed in the last 6 years, there are statutory vendor disclosure obligations under the Home Building Act 1989 (NSW) that you need to be aware of.
It is important to disclose whether any building works have been undertaken to the property so that the Contract for Sale of Land can be prepared correctly.
Building work under contract or otherwise
A vendor who has completed residential building work under a contract valued at more than $20,000 (inclusive of GST) in the last 6 years is required to obtain a certificate of insurance for the work.
This includes work when the work was carried out under a contract between the person who contracts to do the work and an owner builder.
The requirement to obtain a certificate of insurance extends to a vendor who is ‘a person who does residential building work otherwise than under a contract’. The intention being to capture ‘do-it-yourself’ builders who will rarely enter into a contract but do not meet the definition of an owner-builder.
The relevant timeframe is 6 years after practical completion of the building work. The Act contains detailed provisions to assist in determining the date of practical completion. Notably, if an Occupation Certificate was issued in respect of the work, that will generally be the practical completion date.
A vendor is obligated to provide a certificate of insurance to a purchaser in relation to owner-builder work where such work was completed prior to 15 January 2015. After that date, owner-builders are no longer able obtain insurance under the Act.
Owner-builder vendors who completed work valued at $20,000 or more after 15 January 2015 must include a specifically worded conspicuous note in the contract for sale which acts as a consumer warning for the purchaser that building work which has been completed at the property was not required to be insured under the Act.
Importantly, this obligation applies to owner-building work completed within seven years and six months prior to the date of sale (not 6 years as is the applicable timeframe for residential building work that is not owner-builder work).
The obligations contained in the Act for owner-builders apply to any successor in title (anyone who inherited the property).
Penalties for not complying with the with the Home Building Act
If a vendor of a property does not comply with disclosure obligations the purchaser can rescind (cancel) the contract at any time prior to settlement. This means the purchaser can recover their deposit and walk away.
Statutory penalties also apply in the form of fines of $110,000 for a corporation and $22,000 for an individual or other entity.