NSW: Home Building Act Statutory Warranties – What is the Two Year Warranty for Non Structural Defects Worth?

This article about the Home Building Act has been written and supplied by David Bannerman and Mark Pollinger, Bannermans Lawyers.

Amendments to the Home Building Act 1989 (“HBA”) which took effect on 1 February 2012 significantly reduced the scope of the statutory warranties available in relation to residential building work. The warranty period for breaches resulting in structural defects was reduced from seven years to six years and the warranty period for breaches resulting in non-structural defects was reduced to two years. The worth of the second category is doubtful.

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The Home Building Amendment Bill 2014 proposes a radical overhaul of the “structural defect” warranty scheme in favour of a “major defect” in a “major element” that is tantamount to a severe defect in lay terms. If passed this will impact upon whether defects fall within a 6 year warranty period or a 2 year warranty period.

The key points to note under the current scheme are:

• There are a broad range of works in relation to which no statutory warranties are available.
• There are a broad range of defects to which a warranty period of only two years applies.
• To rely on the statutory warranties, a lot needs to be done within the warranty period and it may prove difficult or impossible to do those things if left too late. These include convening meetings, engaging lawyers and expert consultants and notifying the homeowner warranty insurer.
• If statutory warranties are not available, an owner may still have a claim based on breach of contract or negligence and should obtain legal advice about that.

The statutory warranties under section 18B of the HBA are broad in scope, dealing with matters such as workmanship, materials, fitness for purpose and compliance with laws. They are applicable to all “residential building work”, including remedial work, not just new construction work.

Residential building work is defined broadly to mean any work involved in carrying out, coordinating or supervising the construction of a dwelling or in relation to a dwelling, alterations, additions, repairs, renovations, decoration or protective treatment. However, there are significant exclusions under the HBA and the Home Building Regulation 2004 (“HBR”), in relation to which no statutory warranties apply, including work having a cost not exceeding $1,000, demolition work, work involved in the installation of flooring materials not involving structural changes to the floor and work that involves the installation or maintenance of any fixed apparatus such as a lift, escalator or garage door.

The warranty period is limited to 2 years, rather than the 6 year period which would otherwise apply, for breaches causing a defect which is not structural. Regulation 71 under the HBR identifies a structural defect in terms of the following concepts:

1. It must involve a defect in a “Structural Element of a Building”, defined as any internal or external load-bearing component of the building that is essential to the stability of the building, such as foundations, floors, walls, roofs, columns and beams and any component (including weatherproofing) that forms part of the external walls or roof of the building.
2. It must be attributable to defective design, workmanship or materials.
3. It must result in or be likely to result in specified consequences, which include destruction, physical damage or threat of collapse of the building or part of it or other circumstances which prevent use of the building or part of it.

As a result, “non structural defect” encompasses a broad range of defects, which most would consider serious, such as defects in fire measures, waterproofing in bathrooms, non load bearing walls, plumbing, air conditioning and fixed apparatus.

The warranty period operates from the date of completion of the work (if it was completed), from the date of termination of the contract (if the work was not completed), from the date on which work ceased (if the contract was not terminated) or the date of the contract (if work was not commenced). However, if the defect becomes apparent during the final six months of the warranty period, the owner is in effect given an additional six months to commence proceedings. The Act includes a complex definition of “completion of the work”, much of which is unclear and likely to require court proceedings to clarify.

For a claim based on breach of the statutory warranties, involving a breach causing a defect which is not structural, an owner must commence proceedings within the period specified in the previous paragraph. Within that period, the owner needs to become aware of the defect, assess the defect, deal with the builder and/or developer in relation to remedial works, deal with approvals and other processes required in order to commence proceedings and deal with lawyers and expert consultants to obtain the advice and to prepare the documentation required in order to commence proceedings. That is a lot to do, especially if the owner is an owners corporation and needs to arrange meetings and approvals. Depending on how long it takes to become aware of that defect, this time limit can be difficult or even impossible to achieve.

Further, a builder can become insolvent, die or disappear, necessitating a claim on homeowner warranty insurance. For that purpose, the owner must:

• notify the home owner warranty insurer, Regulations 103BA to 103BC of the HBR in general terms requiring that this occur during the warranty period; and
• enforce the statutory warranties, Regulation 58A of the HBR permitting an insurer to exclude liability resulting from failure to enforce the statutory warranties and the only available method for an owner to enforce the statutory warranties being commencement of proceedings.

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***The information contained in this article is general information only and not legal advice. The currency, accuracy and completeness of this article (and its contents) should be checked by obtaining independent legal advice before you take any action or otherwise rely upon its contents in any way.

David Bannerman and Mark Pollinger
Bannermans Lawyers

Read next:

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• Fair Trading NSW: Statutory warranties

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