The Act: Home Building Act 1989 (NSW)
The Regulation: Home Building Regulation 2014 (NSW)

Who is a Developer?
Section 3A of the Act

A person, partnership, or corporation who contracts to have residential building work done on their behalf where:

  • the work is done in connection with an existing or proposed dwelling in a building or residential development where four or more of the dwellings are to be owned by the party; or,

  • the work is done in connection with an existing or proposed retirement village or accommodation specially designed for disabled occupants where all dwellings are to be owned by the party.

Where the work is done under these circumstances, the landowner will also be considered a developer, even when the work is done on behalf of another person.

eg. Work done on behalf of a party to a joint venture agreement with the landowner – both parties are considered developers.

Statutory Warranties
Part 2C of the Act

An owner’s right to rely on the warranties under the Act in bringing a claim against builders for defective work is well-engrained in the residential building industry.1

But did you know that residential building work done on behalf of a developer is taken to have been done by the developer? This means that an owner may not only bring a claim for building defects against the builder but also against the developer.2

Developers also need to be aware that their warranties for the builder’s work, extend to any subsequent purchaser of the property within the warranty period3, not just the original purchaser.4

Critically, where a claim is brought by an owner for breach of the statutory warranties, the developer can be found liable for any damages suffered by the Owner, regardless of whether the builder is still trading or in liquidation and the extent of such liability is not predicated upon or limited by the terms of any contract between the developer and the builder.5

Developer’s Other Obligations

Contractor Licensing

Developers may be liable to pay a fine of up to $110,000 (or $22,000 for an individual) if they enter into a contract with a contractor that is not appropriately licensed.6

Insurance
Section 96A of the Act

Developers are prohibited from entering into a contract to sell land on which residential building work has been (or is to be) carried out on their behalf, without attaching a Home Building Compensation Fund (HBCF) Insurance Certificate to the contract for the sale of the land. The maximum penalty for breaching this provision is $110,000 for a corporation and $22,000 for an individual. If an insurance certificate is not provided, the contract may also be voided prior to completion, at the purchaser’s option.

Before entering into a contract to sell land on which residential building work is being carried out (or has been completed less than 6 years before the sale) on their behalf, a developer must provide the potential purchaser with a brochure (currently the Consumer Building Guide produced by NSW Fair Trading) explaining the operation of the HBCF Insurance that is in place in respect of the works. The maximum penalty for breaching this provision is $4,400 for a corporation and $2,200 for an individual.

The Act provides that an insurance policy under the HBCF is not required to cover a developer on whose behalf residential building work is done7. While a purchaser and the purchaser’s successors are covered, once the property is sold, the developer will no longer be a beneficiary of the relevant HBCF policy.

Exemptions from Insurance Requirements
Section 97 of the Act, and
Sections 56 & 61 of the Regulation

Certain developers are entitled to apply for exemptions from the standard insurance obligations provided under section 96A. These include developers that:

  • Have entered into a contract for the sale of land on which residential building work relating to the construction of a multi-storey building has been done, or is to be done8;
  • Have entered into a contract for residential building work but that work has not commenced when a contract of sale is entered into for the sale of the land on which the work is to be done, provided that the contract of sale contains provisions:
  • Informing the purchaser that the exemption applies;
  • Informing the purchaser that the Act requires residential building work to be insured;
  • Requiring the developer to provide a certificate of insurance in respect of any residential building work to the purchaser within 14 days of the contract of insurance being made; and
  • Enabling the purchaser to rescind the contract if the developer fails to provide the insurance certificate within 14 days9.

Practical Tips

  1. Consult your accounting and legal advisers in structuring your development prior to signing building contracts.

  2. Contracts between developers and builders are not required to contain the same cooling off period as required under contracts between owners and builders – if you require a cooling-off period it must be added to your contract.

  3. If you are entitled to an exemption from the insurance requirements, be sure to make an application to the Executive Director, Workers and Home Building Compensation Regulation Division, State Regulatory Authority.

  4. Some developments, such as new high-rise construction, may be exempt from HBCF insurance and will instead be subject to the strata building bond scheme. Further details for developers in that category can be found on the State Insurance Regulatory Authority website and the NSW Fair Trading website.

  5. Be sure to check that the builder you intend to engage is appropriately licensed and insured via the NSW Licence Check website.

 


[1] Home Building Act 1989 (NSW) s18B
[2] Home Building Act 1989 (NSW) s18C(2)
[3] Home Building Act 1989 (NSW) s18E
[4] Home Building Act 1989 (NSW) s18D(1)
[5] The Owners – Strata Plan No 66375 v King [2018] NSWCA 170
[6] Home Building Act 1989 (NSW) s4(4)
[7] Home Building Act 1989 (NSW) s96A(2) & 103I(2)(b)
[8] Home Building Regulation 2014 (NSW) s56(2)
[9] Home Building Regulation 2014 (NSW) s61

 

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