Why is Home Warranty Insurance so important?
Home Warranty Insurance (HWI) is a statutory scheme to indemnify homeowners for loss or damage caused while undertaking residential building works in NSW. The Home Building Act 1989 provides statutory warranties against breaches contained in Part 2C of the Act and will hold builders and developers liable to front the costs for rectifying defective works.
Unlike other types of insurance where the beneficiary pays an upfront premium, HWI is obtained by a builder for the benefit of the homeowner where the works will be undertaken. The insurance is a safety net for any last resort problems that take place within six years of the completion of work. If there are unfinished, defective, or unreasonably slow works, poor quality finishings, or the builder has become financially insolvent, HWI will provide protection. Builders must take out a policy when conducting work for $20,000 or more.
Warranties for residential building work
Section 18B of the Act specifies warranties that builders, developers, contractors and sub-contractors must give. These include:
- a warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract;
- a warranty that all materials supplied will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new;
- a warranty that the work will be done in accordance with, and will comply with, all laws;
- a warranty that the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time;
- a warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling; and
- a warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result.
Builders who have contracts in excess of $20,000 must have an HWI policy prior to commencing the relevant works. It is compulsory to provide a copy to homeowners, and we recommend homeowners retain a copy of the policy. It is the builder’s responsibility to provide a valid certificate of HWI to the homeowner prior to asking for any money under the terms of the contract, including the deposit. To do so, is a breach of the Act.
This is important as homeowners without cover will be unable to make a claim in the event their builder becomes insolvent, disappears, passes away or has a suspended licence.
HWI covers for all losses arising from defective and incomplete work of residential building work in NSW.
Making a claim
If there are breaches under the Act, homeowners may make take appropriate action to have the builder complete and/or rectify the work under HWI.
However, homeowners may only make a claim within certain timeframes. These include:
- within 6 years from the date of completion for major defects;
- within 3 years from the date of completion for general defects; and
- within 12 months for losses resulting from incomplete works commencing from the date of the ceased work or failure to commence.
If the claim falls within the relevant time limit, homeowners may:
- lodge a complaint with NSW Fair Trading;
- lodge a claim with NCAT or a Court (depending on value) for the builder to finish or rectify any defective work;
- make a claim under the HWI; or
- notify the insurer of a “trigger event” which you become aware of such as the builder becoming insolvent, passing away, disappearing or having their building licence suspended.
Please contact a member of the Cheney Suthers team if you would like advice relating to making a claim, or any further information relating to Home Warranty Insurance.