Home Building Act for Property practitioners

June 2017

Tony Cahill

Legal Author and Commentator

1

Scope of this presentation• Why is the Home Building Act a problem for

conveyancing practitioners?

• A framework for considering the Act’s impact.

• Is there work to which the Act applies?

• Is the vendor within the reach of the Act?

• What are the consequences where a vendor breaches the Act?

• What are the remedies (if any) for a purchaser?

• Lessons from the cases.

• Loose fill asbestos insulation

• 2017 insurance amendments

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Why is the Act a problem?• Complexity

• Frequently amended (67 historical versions since

July 2000; 50 historical versions of the former Reg

between August 2004 and January 2015).

• Staggered commencement dates of amending

legislation (including some provisions which were

repealed before they commenced!)

• Lengthy and occasionally conflicting definitions of

key concepts.

• Some key terms undefined; or belatedly and

confusingly defined (e.g. completion of work)

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The Act’s impact on conveyancing

• Some (but not all) vendors have obligations under the Act.

• Breach of some (but not all) of the vendor’s obligations will (sometimes) expose the vendor to a purchaser rescission (and potentially fines).

• Some (but not all) purchasers have remedies under the Act.

• Potentially, purchasers (or even their advisers) might be exposed to penalties where a vendor has not complied with the Act (for aiding and abetting).

• Obtaining information and documentation can be difficult and needs to be approached carefully.

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Some key questions1. Is there any work to which the Act applies?

2. Is the vendor in one of the four (or possibly five)

categories mentioned in the Act?

3. If so, what does the relevant section say about the

vendor’s obligations?

4. What if the vendor is unable to comply with its

obligations?

5. From the purchaser’s perspective, is there a

remedy for non-compliance with the Act?

6. What are appropriate inquiries for a party to make,

and when are they best made?

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The 2014 amending Act• The Home Building Legislation Amendment Act 2014

received assent on 5 June 2014.

• Commenced in the main on 15 January 2015; balance

of provisions commenced 1/3/15.

• Commencement of the majority of amendments

coincided with a new Home Building Regulation 2014.

• Under the Act as it stood prior to 15/1/15, definitions,

expansions of definitions and exclusions from definitions

are scattered (haphazardly) between the Act and the

Regulation.

• The Amendment Act consolidates most of the definitions

into a single Dictionary in the Act (Sch 1).

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Approach to definitions in the 2014 reforms.

• Schedule 1 clause 2:

2(1): basic definition of residential building work.

2(2): expansion to certain roof plumbing work, specialist work and heating and cooling devices and swimming pool filters.

2(3): 12 excluded categories of RBW.

2(4) to 2(6): three types of “exclusions from the exclusions” mentioned within clause 2(3).

2(7): power to expand and contract by Regulation.

Similar restructuring of definition of a “dwelling” –Schedule 1 clause 3.

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What work is covered? –Key definition (sch 1 cl 2)

(1) residential building work means any work involved

in, or involved in co-ordinating or supervising any work

involved in:

(a) the construction of a dwelling, or

(b) the making of alterations or additions to a

dwelling, or

(c) the repairing, renovation, decoration or protective

treatment of a dwelling.

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What work is covered? –specialist work (Sch 1 cl 1(1))

specialist work means:

(a) plumbing work (other than work declared by the regulations to be roof plumbing work), or

(b) gasfitting work, or

(c) electrical wiring work, or

(d) any work declared by the regulations to be refrigeration work or air-conditioning work.

… with power to expand and restrict by regulation.

Note that specialist work in general must be performed pursuant to a licence even where the work is not residential building work.

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What work is covered? –dwelling (Sch 1 cl 3)

(1) dwelling means a building or portion of a building

that is designed, constructed or adapted for use as a

residence (such as a detached or semi-detached

house, transportable house, terrace or town house,

duplex, villa-home, strata or company title home unit

or residential flat).

It includes certain structures or improvements

constructed for use in conjunction with a dwelling

(clause 3(2)) and listed exclusions (clause 3(3).

… with power to extend and narrow that definition by

regulation.

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Expanded definition –sch 1 cl 3(2)

The following structures and improvements are declared to form part of a dwelling when constructed for use in conjunction with a dwelling:

(a)Swimming pool or spa

(b)parts of a building containing more than one dwelling … being stairways, passageways, rooms, and the like, that are used in common by the occupants of those dwellings, together with any pipes, wires, cables or ducts that are not for the exclusive enjoyment of any one dwelling

(c)access ways where a dwelling is part of a larger building partly used non-residentially

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Expanded definition –sch 1 cl 3(2)

(d) major elements of the non-residential parts giving

support or access to the residential parts,

(e) cupboards, vanity units and the like fixed to a

dwelling,

(f) detached garages and carports,

(g) detached decks, porches, verandahs, pergolas

and the like,

(h) cabanas and non-habitable shelters,

(i) detached workshops, sheds and other outbuildings

(but not jetties, slipways, pontoons or boat ramps and

any structures ancillary to these exceptions),

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Expanded definition –sch 1 cl 3(2)

(j) (some) concrete tennis courts and the like,

(k) driveways, paths and other paving,

(l) retaining walls,

(m) agricultural drainage designed or constructed to

divert water away from the footings of a dwelling or a

retaining wall,

(n) fences and gates,

(o) ornamental ponds and water features, and other

structural ornamentation, the construction or

installation of which requires development consent.

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“Non-dwellings” – Sch 1 cl 3(3)

(a) a boarding house, guest house, hostel or lodging

house,

(b) all residential parts of a hotel or motel,

(c) any residential part of an educational institution,

(d) accommodation (other than self-contained units)

specially designed for the aged, persons with a

disability or children,

(e) any residential part of a health care building that

accommodates staff,

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“Non-dwellings” – Sch 1 cl 3(3)

(f) A house or unit designed, constructed or adapted for commercial use as tourist, holiday or overnight accommodation,

(g) any part of a non-residential building that is constructed or adapted for use as a caretaker’s residence,

(h) a moveable dwelling … within the meaning of the Local Government Act 1993 that is, or is capable of being, registered under the Road Transport Act 2013 (such as a caravan or a motor home),

(i) a residential building for the purposes of which development consent can be granted only because of SEPP No 15—Rural Landsharing Communities.

Most (but not all) concrete tennis courts, ponds, water features.

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Home warranty insurance*• Whether or not work is covered by the Act is a

separate issue from whether the work needs to be insured.

• The threshold issue governing home warranty insurance is the value of work done.

• As from 1 February 2012 the relevant figure is $20,000.

• Between 2002 and January 2012 the relevant amount was $12,000 (increased from the original $5000).

*On commencement of the 2014 amendment Act, has been renamed “insurance under the Home Building Compensation Fund”, and likely to be renamed “Part 6 insurance”.

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Vendors with HBA obligations

on sale prior to 15/1/15• s 95 imposed obligations on an owner-builder

(defined by an analysis of ss 3, 29 and 90)

• s 96 imposed obligations on a person who does

residential building work otherwise than under a

contract (not defined in the Act, but presumably

covering those who do owner-builder work without

a permit or a “spec builder”)

• s96A imposed obligations on a developer (defined

in s3A).

• If a vendor is “none of the above” the vendor had

no obligations under the HBA when selling.

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What were the obligations imposed by the Act?

• Prohibition on an owner-builder entering into a

contract for sale unless insurance in force (s95(1)).

• Requirement to attach a certificate of insurance to

the contract for sale (s95(2), 96(2), 96A(1)).

• For an owner-builder, attaching a “conspicuous

note” to the contract (s95(2A)).

• For the other two categories, providing a FTNSW

brochure (s96(2B), 96A(1A)).

• These primary obligations were subject to some

exemptions within the section, and occasionally by

regulation.

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What consequences may flow from vendor breach?• Some (but not all) of the primary obligations can

ground a right of rescission in the purchaser – check

the relevant section carefully.

• The right of rescission is itself qualified (ss 95(4A),

96(3B), 96A(3A)).

• A particular risk for purchasers, as an unjustified

purported rescission is likely to be treated by the

vendor as a repudiation of the contract.

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The changes to s 95.Former section 95 has been repealed. New section:

• Abolishes statutory cover for owner-builder work (s 95(1))

• Disclosure by way of a conspicuous note of details of the owner-builder permit and the absence of owner-builder insurance (s 95(2))

• Section does not apply where sale occurs more than 7 years and 6 months after date of the permit (s 95(3))

• Consumer warning requirement applies not only to the owner-builder but to successors in title (s 95(4)) –a first for sale obligations under the Act.

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New category of HBA vendor disclosure

• New section 96B(1) : A contract for the sale of land comprising a house or unit excluded from the definition of dwelling because it was designed, constructed or adapted for commercial use as tourist, holiday or overnight accommodation must contain the warning required by this section if work has been done on the land in the previous 6 years that would have been residential building work had the property not been excluded from the definition of dwelling.

• Warning is a “prominent statement” to the effect that the property does not have protection under the Act.

• Prohibition on entering into the contract unless statement attached; contract voidable if no statement in contract.

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Savings and transitional issues

Insurance obligations of owner-builders

Section 95 (and sections 97 and 101 in their operation in respect of that section) as in force before being amended by the amending Act continues to apply to and in respect of the following contracts:

(a) a contract of insurance or a contract for the sale of land entered into before the commencement of the amendment of section 95,

(b) a contract for the sale of land entered into after that commencement if a contract of insurance that complies with this Act is in force in relation to the work concerned when the contract is entered into.

Contracts for sale of exempt dwellings

Section 96B (Obligations of sellers of excluded dwellings (houses and units used for commercial purposes)) does not apply to a contract for the sale of land entered into before the commencement of that section.

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Other significant 2014 Act amendments

• Completion date defined where new building in a

strata scheme (new section 3C)

• Distinction between structural and non-structural

defects replaced with concepts of “major defects”

and “major elements of a building” (s 18E(3) and

(4))

• Clarifying a “rise in storeys” for the multi-storey

exemption.

• Increased thresholds for Act to apply (from $1,000 to

$5,000), and for need to owner-builder permit (from

$5,000 to $10,000).

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When should HB Act inquiries be made?

• Ideally before exchange, not left until a party is making

(or replying to) post-contractual requisitions.

• From the vendor’s perspective, it is vital to identify

whether the vendor has obligations under ss 95, 96 or

96A, to prepare the contract to meet those obligations.

• From the purchaser’s perspective, the right to rescind for

a lack of insurance will not arise independently of the

Act, so the purchaser’s position should be assessed

before contractually bound.

• Further, where a purchaser has a right to render the

contract void, the purchaser needs to be aware of that

right.

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Key cases• Festa Holdings Pty Ltd & anor v Adderton & ors

[2004] NSWCA 228 – non-compliance with the

licensing and insurance provisions of the Act goes

to quality rather than title, so if there is no remedy

under the HB Act (specifically ss 95, 96 or 96A) there

is no remedy available.

• Livingstone v Mitchell [2007] NSWSC 1477 - A solicitor

who failed to advise their purchaser clients of a right

to rescind under s 95 was held liable in damages.

The solicitor failed to verify the accuracy of details

of insurance provided in replies to requisitions.

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Key cases (2)• Tudor Developments Pty Ltd v Makeig [2007] NSWSC

1116; [2008] NSWCA 263. Young CJ in Eq held (and

the CA affirmed by majority) that estoppel could

not validly be pleaded against a defendant for a

plaintiff’s non-compliance with s 96A of the Act. In

that case, the fact that the purchaser knew that

insurance had been effected did not preclude the

purchaser from rescinding the contract on the

grounds of a failure to provide a certificate of

insurance in the prescribed form.

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Common law liability of builder to later owner

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• Bryan v Maloney (1995) 182 CLR 609 is authority for the proposition that a builder can be liable in tort to a subsequent owner of a dwelling where the subsequent owner suffers economic loss.

• In Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16 the High Court held there was no cause of action in negligence against the builder where the improvements were a warehouse and office complex.

• However, the High Court indicated that the basis for finding for the builder was not as simple as finding a distinction existed between residential dwellings and commercial premises.

• Any attempt to draw what is described as a ‘bright line’ between the principle in Bryan and the circumstances in Woolcock was flawed.

Brookfield Multiplex• The Brookfield litigation raised the question again: Builder

successful at first instance - Owners Corporation Strata

Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219.

• Appeal upheld: The Owners - Strata Plan No 61288 v

Brookfield Australia Investments Ltd [2013] NSWCA 317.

• Special leave granted and appeal heard by High Court

18 June 2014: Brookfield Multiplex Ltd v Owners

Corporation Strata Plan 61288 and Anor S66/2014: [2014]

HCATrans 126.

• High Court held no duty of care to owners corporation:

Brookfield Multiplex Ltd v Owners Corporation Strata Plan

61288 [2014] HCA 36.

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Loose-fill asbestos insulation

• Response to the activities of ‘Mr Fluffy’

• Fair Trading is lead agency for NSW response

• Amendments to the Home Building Act (ss119A to 119C) to create a register of affected properties. Register is searchable online by property address at no charge.

• Free inspections in 63 LGA’s (offer closed 1 August 2016).

• Residential Tenancies Regulation 2010 amended to make listing on the register a ‘material fact’ (cl 7(b1)).

Schedule 4 EPA Regulation amended effective 20 June 2016 –‘If the land includes any residential premises (within the meaning of Division 1A of Part 8 of the HB Act) listed on the register, a statement to that effect.’

Conveyancing (Sale of Land) Regulation 2017?

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Loose-fill asbestos – the details in the Act.

• Part 8 Division 1A (ss 119A to 119C) inserted with

effect from 5 November 2015.

• Maintenance of a register of residential premises

that contain or have contained loose-fill asbestos.

• To be listed if presence of asbestos has been

verified.

• Partially anonymised – names of owners or

occupiers are not to be included.

• Affected premises must have a warning sign

displayed.

• Clauses 68A to 68C Home Building Regulation 2014.

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Home Building Compensation Fund

• Since 1 July 2010, NSW Government has been sole

supplier of coverage (via State Insurance

Regulatory Authority).

• Government concerns about operation of Fund.

• $95 million losses in Fund since 2013.

• Accruing unfunded liabilities at rate of over $1.7

million per week.

• Options for change included increased premiums,

reduced coverage, reduction in administrative

costs.

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Home Building Amendment

(Compensation Reform) Bill 2017• Introduced into Parliament 24 May 2017.

• Passed Legislative Assembly 30 May 2017.

• Key features:

➢ Reopening the home building insurance market to

private insurers.

➢ Allowing coverage to be provided in two as well as

one insurance contract – non-completion

coverage and breach of statutory warranty

coverage.

➢ Prohibiting claims more than 10 years after work

completed.

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Home Building Amendment

(Compensation Reform) Bill 2017➢ Regulatory functions over private insurers via SIRA

including licensing of insurers.

➢ Sets up indemnity scheme where licensed insurers

become insolvent.

➢ Allowing development of approved “alternative

indemnity products”.

➢ Enabling regulations to exempt builders doing work

on behalf of the Crown or State owned

corporations from insurance requirements.

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Home Building Amendment

(Compensation Reform) Bill 2017• New terminology:

➢ Construction period insurance contract: must cover a person for whom work is done and the person’s successors in title against the risk of loss arising from non-completion of work, and breaches of statutory warranty, where the contractor becomes insolvent, dies or disappears before completing the work

➢ Warranty period insurance contract: must cover a person for whom work is done and the person’s successors in title against the risk of loss arising from a breach of statutory warranty where the contractor becomes insolvent, dies or disappears.

➢ One policy can cover both classes of risk.

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How are sections 95 to 96B affected?

• References to “the Secretary” (Commissioner for Fair

Trading) are changed to “the Authority” (that is, SIRA).

• A Note added cross-referencing Part 6B (which deals

with alternative indemnity products).

• Reference in s95 to insurance under the HBCF changed

to insurance under this Part.

• Query whether these changes go far enough:

➢ Should ss 96 and 96A refer to “one or more” contracts of

insurance being disclosed in contracts for sale?

➢ No attempt to clarify the “conspicuous note / prominent

statement” dilemma.

• More detail to come in amended Regulation.

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Questions?

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