What Is the Home Building Compensation Fund in NSW?
It used to be called home warranty insurance. It protects you when a builder can’t finish the job or fix their defects, and it follows the property when it’s sold.
The Home Building Compensation Fund (HBCF) is the NSW Government’s insurance scheme for residential building work, run by icare, that pays homeowners for incomplete or defective work when the builder has died, disappeared, become insolvent or lost their licence. It was formerly known as home warranty insurance, and if you’re buying or selling a home that’s had building work in the last few years, it affects what goes into your contract.
At a glance
- What is it? Last resort insurance for building work over $20,000 (including GST), taken out by the licensed builder before they start work or take a deposit.
- What does it cover? Major defects for 6 years, other defects for 2 years, and unfinished work, up to $340,000 per dwelling.
- Does it pass to a buyer? Yes. The cover follows the property, so a buyer inside the cover period gets the same protection the original owner had.
- What do sellers need to do? Tell your conveyancer about any building work before your contract is drafted. Depending on who did the work, a certificate of insurance or an owner-builder warning may have to go in the contract.
What the Home Building Compensation Fund actually is
Any licensed builder or tradesperson doing residential building work in NSW worth more than $20,000 (including GST) must take out HBCF cover before they start work or ask for any money, including a deposit. The homeowner receives a certificate of insurance showing the work is covered.
It isn’t home and contents insurance, and it isn’t a way around a builder who simply won’t cooperate. It’s a last resort. You can only claim once one of these has happened to the builder:
- They have died
- They have disappeared
- They have become insolvent, for example bankrupt or in liquidation
- Their licence has been suspended because they didn’t comply with an NCAT or court order to pay you
If the builder is still trading, they’re still responsible under the statutory warranties in the Home Building Act, and the path is NSW Fair Trading and NCAT, not icare.
“HBCF isn’t home insurance. It’s the safety net for when the builder is gone.”
What HBCF covers and for how long
Cover runs from completion of the work, and the $340,000 limit applies to the whole policy for each dwelling (policies issued before 1 February 2012 have a $300,000 limit).
| What went wrong | How long you’re covered | Limit |
|---|---|---|
| Major defects (structural, waterproofing, fire safety) | 6 years from completion | Up to $340,000 per dwelling |
| Other defects | 2 years from completion | Within the same $340,000 |
| Work left unfinished | Claim within 12 months after the work stops | 20% of the contract price, within the same $340,000 |
In plain English
If the builder who did your extension goes broke two years later and the roof starts leaking, HBCF steps in to pay for the fix. If the builder is still in business, they have to fix it themselves, and HBCF stays in the background.
And if you bought the house from the person who paid for that extension, you’re protected the same way they were. The cover belongs to the property, not just the person who signed the building contract.
Selling a home that’s had building work
This is where HBCF lands in your contract. When we prepare a contract for sale, one of the first things we ask is whether any building work has been done in the last 7 and a half years, and who did it. The answer decides what has to be attached.
What goes in your contract, depending on who did the work
A licensed builder under a contract. The builder’s certificate of insurance goes in the contract so the buyer can see the work is covered for the rest of the period. Buyers’ conveyancers will ask for it if it’s missing.
An owner-builder permit. Owner-builders haven’t been able to get HBCF cover since 15 January 2015. Instead, if you sell within 7 years and 6 months of the date the owner-builder permit was issued, the contract must include a conspicuous consumer warning stating the permit date and that owner-builder work isn’t required to be insured. This carries over to anyone who inherits the property. Any trade you hired to do work over $20,000 still needed their own HBCF cover, so their certificate goes in too.
Work done without a building contract. A licensed builder building their own home, for example, doesn’t sign a contract with themselves, but the Act still requires insurance. If the property sells within 6 years of completion, the certificate must be attached.
A developer. Developers selling within 6 years of completion must attach the builder’s certificate of insurance to the contract.
What happens if it’s left out
If a required certificate or owner-builder warning isn’t in the contract, the buyer can generally rescind (cancel) the contract at any time before settlement and get their deposit back. The seller can also face fines of up to $22,000 for an individual or $110,000 for a company.
A buyer walking away weeks after exchange, when you’ve already committed to your next purchase, is the real cost. That’s why we want to know about building work before your property goes on the market, not after a buyer’s conveyancer raises it. If some of the work was never approved, our article on selling a house with unapproved building works covers that side of it, and whether you need an occupation certificate to sell covers the final sign off.
Renovated, extended or built in the last 7 and a half years? Tell us before the contract is drafted.
Buying a home that’s had building work
For buyers, HBCF is a protection worth checking rather than assuming. Here’s how we approach it.
Find out what work has been done
Your building and pest inspection, the council records and the contract itself will show new extensions, granny flats, pools and major renovations. Anything recent and substantial should have a certificate of insurance or an owner-builder warning with it.
Check the certificate
If a certificate is attached, check the builder, the address and the completion date line up with the work you can see. icare keeps a public register where you can confirm a policy exists for the address.
Read an owner-builder warning carefully
An owner-builder warning means there’s no HBCF behind that work. That doesn’t make it bad work, but it puts more weight on your building inspection, and it’s worth raising with us before you exchange or while you’re still in the cooling-off period.
Know when the clock started
Cover runs from completion of the work, not from when you buy. A 5 year old extension has 1 year of major defect cover left and no cover for other defects.
The short version
The Home Building Compensation Fund is NSW’s last resort insurance for residential building work over $20,000. It covers defects and unfinished work when the builder can’t, and it passes to the next owner. Sellers need to disclose recent building work so the right certificate or warning goes in the contract. Buyers should check what’s attached and how much of the cover period is left.
More questions? Our seller questions hub and buyer questions hub cover the rest of the process.
Selling after a renovation, or buying something recently built?
Talk to Justin, Julie, Amanda or Nicole. We’ll check what’s been done, what’s covered and what needs to go in the contract.
