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Defects FAQs

by David Andrews
22 October 2015
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1. There are defects in our residential property after it was completed, who is responsible for fixing them?

The simple answer is the builder who did work.   The builder will have provided statutory warranties in relation to the residential building work it did, and provided the builder is licensed to do building work, and you are still within the warranty periods, you can seek to have the builder fix the defects.  In certain circumstances, a developer may provide the same warranties as the builder, as though it did the work.

2. What are the statutory warranties and when do they apply?

Every building contract to do residential building work will contain the statutory warranties set out in section 18B of the Home Building Act, 1989.  They apply in relation to every building contract where the value of the work is over $5000 (for contracts entered into after 1 March 2015).

The statutory warranties only apply to residential work as defined in clause 2 of Schedule 1 to the Home Building Act, 1989.

3. What are the statutory warranty periods?

For building contracts entered into after 1 February 2012, there are 2 statutory warranty periods. For major defects, the warranty period is 6 years. For other defects, the warrant period is 2 years.

For building contracts entered into before 1 February 2012, the statutory warranty period is 7 years

4. When do the statutory warranty periods commence?

The statutory warranty period generally commences from the date the residential building work is completed.

For owners corporations, the date of completion for new buildings will generally be equivalent to the date of issue of an occupation certification.  There may be different dates of completion for different parts of the building, and there may be various occupation certificates issued (including interim occupation certificates), so it is important you get legal advice.

For other work, completion will generally be determined by reference to the building contract under which the work was done.  The Home Building Act, 1989 provides guidance as to when completion occurs when the building contract does not. Again, it is important to get legal advice about this.

5. Is there an insurance policy that covers defective building work?

Yes, in some circumstances. For any residential building work over $20,000, insurance under Part 6 of the Home Building Act, 1989 is required. This is called insurance under the Home Building Compensation Fund, and was previously called Home Owners Warranty Insurance. The builder should have obtained the insurance prior to commencing the residential building work. If the building being constructed is over 3 storeys, then there is no requirement for this insurance.

The insurance is referred to as an insurance policy of "Last Resort". A claim can only be made on the insurance when the builder is dead, insolvent, has disappeared or where the builder has not paid a monetary order.

6. What are the periods of cover for the insurance under the Home Building Compensation Fund? 

There are three periods of cover provided:

  1. For a claim concerning incomplete work - 12 months
  2. For a claim concerning major defects - 6 years
  3. For a claim concerning defects which are not major defects - 2 years.

In certain cases, a claim can be made after the period of cover has expired, provided proper notification of the claim is provided to the insurer within the period of cover. A claim must be made within 10 years of the date of completion of the residential building work.

7. What are major defects?

The concept of 'major defects' was introduced earlier this year (2015) into the Home Building Act, 1989, and replaced the concept of 'structural defects'.  Section 18E of the Home Building Act, 1989 defines 'major defect'.  What is defined as a 'major defect' is currently unclear, and will require judicial interpretation to provide clarification.  The NSW Government did not take the opportunity to identify particular categories of defects as 'major defects'.

8. How can I get the builder (or developer) to fix our defects?

The first step is to notify the builder and developer of the defects (you must generally do this within 6 months of becoming aware of the defects), and seek to have them rectify the defects.

If this does not work, you can consider making a building complaint to the Office of Fair Trading, and seek a rectification order.  However, seeking a rectification order may not be appropriate in all cases, for example, where the builder is not licensed, or where a statutory warranty period is about to expire.  Because of the 2 year statutory warranty period for defects which are not 'major', there may be insufficient time to obtain a rectification order.

Lastly, legal proceedings can be commenced to enforce the statutory warranties.  Depending on the size of the claim, these proceedings might be commenced in the NSW Civil & Administrative Tribunal, the District Court or the Supreme Court of NSW.  Legal advice should always be sought in relation to commencing legal action.

It is important to note that legal proceedings to enforce the statutory warranties in relation to defects which are not 'major defects' must be commenced within the 2 year warranty period.  Because it is not yet clear what will constitute a 'major defect', it is advisable that proceeding be commenced before the expiration of the 2 year warranty period.

Insurance under the Home Building Compensation Fund (if applicable) provides cover for the cost of seeking to have the builder rectify defects, including the cost of legal proceedings.  In fact, you have an obligation under the insurance to enforce the statutory warranties, and if you fail to do this, the insurer can reduce its liability.

9. Do I need a building consultant to assist me?

Yes. In fact, you may need a number of different experts in various disciplines such as structural, mechanical ventilation, hydraulic, electrical, fire protection and Building Code of Australia compliance.  If you have a defect claim, the success of your claim will depend upon the quality of your reports concerning the defects.  It is very important that before you engage a consultant, that you consider whether the person is an 'expert'.  Ask for a detailed CV, and if in doubt obtain legal advice from an experienced building and construction lawyer.

It is important that your consultants be provided with all relevant information to assist him or her prepare a report.  Your consultant should be able to tell you what information they need.

10. Should I get legal advice before settling a defect claim with a builder or developer?

Yes.  In most cases, a builder will try and obtain some form of release from further claims, and this should be carefully considered particularly where you have time left on the warranty periods.  If you have insurance under the Home Building Compensation Fund, care should be taken as to how a defect claim is settled, to avoid any prejudice to the insurance if a claim is later required to be made.

How a defect claim can be settled is up to the parties. It could involve the payment of money, the rectification of defects or both.  Where the rectification of defects is involved, you should consider how those works will be supervised and completed.

There are various alternative dispute resolution processes available to the parties to facilitate settlement, including mediation and expert determination.

This guide provides a summary only of the subject matter covered, without the assumption of a duty of care by Makinson d’Apice Lawyers. This summary is not intended to be nor should it be relied upon as a substitute for legal or other professional advice.