Blog

Builders’ licensing, statutory warranties and insurance

Dennis Martin

03 Sep 2019

Topics

  • Building & Construction
  • Property

There has never been an easy guide to builders’ licensing or builders’ statutory warranties and insurance. In light of the growth of building defects and complaints, Dennis Martin has set out a simple overview of some of the important aspects of building licensing and relevant statutory warranties and insurance.

Legislation

The ACT government’s website (www.planning.act.gov.au) outlines builder responsibilities in relation to licensing and insurance. However, what it doesn’t do is ‘walk’ you through the two key pieces of legislation:

  • Building Act 2004 (BA) (including the Building Regulations (BR))
  • Construction Occupations (Licensing) Act 2004 (COLA).

This leaves you to do the learning yourself.

It’s through the licensing process that the obligation to hold insurance arises. Then, through a series of provisions in each Act and the regulations, certain other obligations are placed on the builder.

Let’s take that ‘walk’

The following definitions are provided in COLA:

  • a person who provides a ‘construction service’ is quaintly defined as a ‘construction practitioner’ (s 6(1))
  • a ‘construction service’ is the doing or supervision of work in a ‘construction occupation’ (s 6(2))
  • a ‘builder’ is a ‘construction occupation’ (s 7)
  • a ‘builder’ is one that provides or proposes to provide a ‘building service’ (s 8(1))
  • a ‘building service’ is the doing or supervising of building work (defined in s 6 BA) (s 8(2)).

Licences

Importantly, a person commits an offence if not licensed in a construction occupation (s 81(1)(a) COLA). This means that a builder must be licensed to complete work that requires building approval. This includes subcontractors.

Warranties

Every contract for the sale of a residential building and every contract to carry out residential building work to which the builder is a party is deemed to contain a series of statutory warranties (s 88(1) BA).

Under s 88(2) BA, the warranties in relation to residential building work are that the building work:

  • complies with the BA
  • has been or will be carried out properly according to the approved plans (including involving the handling or removal of asbestos and the BA)
  • uses or will use good and proper materials
  • will be completed in a reasonably prompt time (where there are incomplete works and the contract doesn’t specify a completion date).

Furthermore, where the owner expressly discusses with the builder the desire for a particular purpose or outcome, and the owner is relying on the builder’s expertise, then the building work and materials must be reasonably fit for that purpose, or of such a nature and quality that they might reasonably be expected to achieve the result.

The statutory warranties continue for the benefit of successors in title of the owner (s 88(3) BA). They do, however, have a limited life (s 88(4) BA):

  • structural elements: 6 years after the completion day for the works
  • non-structural elements: 2 years after the completion day for the works.

Insurance

Before providing a construction service, a licensee must give the ‘client’ evidence of what insurance the licensee holds relating to the service to be provided (s 47(1) COLA).

Section 90 of Building Act 2004 (2004) sets out requirements for insurance:

  • An insurance policy for insurable residential building work must be issued by an authorised insurer and be for the minimal amount prescribed by the BR (currently $85,000 or, if lesser, the cost of each dwelling forming part of the work). However, if the cost of the residential work is less than $12,000, the requirement for warranties and insurance don’t apply.
  • The whole of the insurance premium must be paid.
  • The policy covers risks unable to be recovered under the building contract because of the builder’s insolvency, disappearance or death of the builder and the risks covered must result from a breach of a statutory warranty, including builder’s negligence and land subsidence.
  • The claim must be made within the period specified in the BR.

It’s important to note that there are different insurance obligations for residential building work done by a developer.

Code of Practice

Although the members of the Master Builders Association are bound by a Code of Conduct, there is no legislated code. However, the government intends to legislate for the first time later this year a Builder’s Code of Practice which likely will lead to further regulatory changes (read more about this here).

What next?

We recommend that, before choosing your builder, you undertake extensive due diligence, including arranging to speak with owners of residences built by the builder.

How can we help?

Our experienced Property team can help you with any aspect of commercial or residential property. You can contact us on 02 6285 8000 or by email.