NSW: Q&A Does my Strata Building have Home Warranty Insurance?

This article covers a selection of Q&As about NSW Home Warranty Insurance, whether a basement car park counts as a level and who is responsible for building defects when the builder is bankrupt.

Table of Contents:

• QUESTION: Is Home Owners Insurance (HOI) required for a contractor who completes work on common property in multiple units within a strata complex, particularly when these works are subject to varying opinions on their quality and satisfaction among individual unit owners?
• QUESTION: We’ve been declined insurance for the second year due to the number of defects in our building. How do we know which defects to repair first?
• QUESTION: We purchased our brand new apartment after the building’s minor defects warranty had expired. Or had it?
• QUESTION: Our fairly new building has leakage issues. The builder is now bankrupt and the leaks have started again. Who should be responsible?
• QUESTION: Doing a web search I discovered that the builder/developer has gone into administration. Can you please tell me what ramifications this has for an owner?
• QUESTION: We moved into our newly built apartment in December 2017. There are 20 apartments on 3 levels above ground and our garages basement underneath. Is this considered a 3 or 4 level apartment block?

Question: If a contractor does work on common property in three units within a strata complex, and each invoice is for around $17,000, is the contractor required to hold homeowners insurance?

I live in NSW in a 52 apartment strata complex.

Some ‘completed’ works on common property appear unsatisfactory to individual unit owners. There are varying opinions on whether the installing contractor should have had HOI?

The works were completed in at least three separate units in the complex by the same contractor. The cost of each work was around $17,000. The three jobs were assigned at the same time.

If a contractor does work on common property in three units within a strata complex, and each invoice is for around $17,000, is the contractor required to hold homeowners insurance?

Answer: Contractors must take out insurance under the home building compensation scheme if they are the principal contractor for residential building work and the price is over $20,000.

Home Building Compensation Fund (HBCF) cover (formerly called Home Warranty Insurance) is needed if you’re a licensed builder or tradesperson in New South Wales and you’re about to undertake a home building project valued at $20,000 or more, including GST. You can find out more about Home Warranty Insurance in NSW here: Home Warranty Insurance NSW | HIA Insurance Services

According to the NSW State Insurance Regulatory Authority, contractors must take out insurance under the home building compensation scheme if they are the principal contractor for residential building work and the price is over $20,000. Insurance obligations for residential building works.

So, it is our understanding that if the total work on the property was valued at $51,000 ($17,000 x 3) as one project, then the principal contractor was required to have Home Warranty Insurance. Regardless of whether this is common property or works inside the individual lots, the contractor should have Home Warranty Insurance.

Failure to take out Home Warranty Insurance is an offence under NSW law. Contractors are legally required to give proof of cover to the homeowner (or lot owners) they are working for before they start work or ask for a deposit or any other payment.

In your specific situation, however, it is best to seek the advice of your strata manager or, if necessary, a specialist lawyer to determine if the work, and the means of engaging the contractor qualified for the warranty insurance.

Dakota Panetta
Solutions in Engineering
E: [email protected]
P: 1300 136 036

This post appears in Strata News #671.

Question: We’ve been declined insurance for the second year due to the number of defects in our building. How do we know which defects to repair first?

Our 18 unit property in NSW has been declined insurance due to the number of defects. There is no builder warranty as the builder has gone under.

How do we get guidance on what to repair first? We are fumbling around repairing defects, however, as property owners and committee members, we were not builders and have been declined insurance for the second year. We must return to NCAT and explain why we have no building insurance. How do we know what the insurance companies see as the highest risk defects?

Claims associated with builder’s warranty and, in particular, builders not rectifying genuine defects can place an owners corporation in a very difficult position.

Answer: Seek information from an insurance broker to provide advice on what the owners corporation needs to do to become insurable.

In this instance, I recommend you seek information from an insurance broker to provide advice on what the owners corporation needs to do to become insurable.

If the reason insurers are declining is due to defects, I recommend the owners corporation:

• Prioritise rectifying defects that pose the greatest safety risk and risk of damage to the building;
• Have a clear plan in place for the rectification of defects.

The engineer who conducted the defects report should be able to provide a priority order for defects and a timeframe for their completion. Please note, however, that although an engineer may state a defect is low or medium risk and must be completed within 24-48 months as an example, insurers will likely still require those defects actioned as soon as practical in order to consider coverage.

It may be worthwhile for the owners corporation to consider a strata loan, raise a special levy or a combination of both to expedite the repairs, as the consequences of no insurance are significant for owners.

Tyrone Shandiman
Strata Insurance Solutions
E: [email protected]
P: 1300 554 165

This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisenent Australia AFSL No 240549, ABN 15 003 886 687.

This post appears in the May 2023 edition of The NSW Strata Magazine.

Question: We purchased our brand new apartment after the building’s minor defects warranty had expired. Or had it?

For our new complex of 9 units, the units were purchased over a two and a half year period. We purchased our unit after the minor defects warranty had expired. Or had it?

The unit is brand new. Since moving in, we have found defects we would like rectified by the builder or developer. Are they still liable?

Answer: The current statutory warranty period that applies is 6 years for major defects and 2 years for minor defects work from the date of completion of the works.

Without having seen the relevant occupation certificate to determine the completion date, I am guided by the information provided.

It appears that as it is a recent development, the current statutory warranty period that applies of 6 years for major defects and 2 years for minor defects work from the date of completion of the works.

I note that any defective work in your unit should be brought to the attention of your strata manager on behalf of the Owners Corporation.

Clause 6 in Schedule 1 of the Strata Schemes Management Act 2015 which requires that on the agenda for each annual general meeting defect items should be considered.

6 Required items of agenda for AGM

Specifically it provides that “until the end of warranty periods for applicable statutory warranties under the Home Building Act 1989 for buildings of the strata scheme, an item to consider building defects and rectification.”

Pierrette Khoury
Khoury Lawyers
E: [email protected]
P: 0415 459 486

This post appears in the November 2021 edition of The NSW Strata Magazine.

Question: Our fairly new building has leakage issues. The builder is now bankrupt and the leaks have started again. Who should be responsible?

I’m an owner of a unit apartment that is almost 6 years old, bought off the plan. The building has had a lot of issues. Back in 2016, one of the bedrooms was flooded and thankfully the builder did some fixing and replaced the flooring, wardrobe, painting. Since then, the builder has declared bankruptcy. We were in a legal battle with them. 

I recently found a leakage affecting the same bedroom. This happened during March 2021 in the long and heavy rain in Sydney. Above the door frame there are some hairline cracks on the wall and water is seeping out of them. I’m almost certain that my bedroom is located right under my upstairs neighbour’s balcony. Last year, work was done to redo the tiling of the balcony upstairs. There was not enough drain and waterproofing. This work was approved by strata and we had special levy to cover the expense.

Who should be responsible for this? I have contacted strata about the leakage issue. Note that I currently don’t have content insurance.

Answer: Is there home warranty insurance in this building as you may be able to claim on this policy

It is unfortunate the builder declared bankruptcy. Is there home warranty insurance in this building as there may be an ability to claim on this policy as the builder has declared bankruptcy and may trigger the policy.

It sounds like the issues you are facing relate to the common property and may be related to the balcony. It would be ideal to obtain a quote for the repair to be submitted to the strata manager.

Pierrette Khoury
Khoury Lawyers
E: [email protected]
P: 0415 459 486

This post appears in Strata News #471.

Question: Doing a web search I discovered that the builder/developer has gone into administration. Can you please tell me what ramifications this has for an owner?

I am looking at buying a strata villa that is let out as holiday accommodation. The villas are single story and were built 2 years ago. 

Doing a web search I discovered that the builder/developer has gone into administration.

Can you please tell me what ramifications this has for an owner? 

Answer: There is no direct impact except for the fact that if there are building defects you may need to make a claim on the home warranty insurance policy rather than pursue the builder/developer.

Christopher Kerin
Kerin Benson Lawyers
E: [email protected]
P: 02 8706 7060

This post appears in Strata News #419.

Question: We moved into our newly built apartment in December 2017. There are 20 apartments on 3 levels above ground and our garages basement underneath. Is this considered a 3 or 4 level apartment block?

Answer: I presume this question is posed for the purposes of determining whether home warranty insurance was required or not.

I presume this question is posed for the purposes of determining whether home warranty insurance was required or not.

From the question, it appears that the building is three storeys in height for the purposes of an exemption from insurance under the Home Building Act. That is, home warranty insurance was required.

Regulation 56 of the Home Building Regulation 2014 addresses this issue as follows:

56 Exemptions from insurance for multi-storey buildings

1. A person who does, or enters into a contract to do, residential building work relating to the construction of a multi-storey building is exempt from the requirements of Part 6 of the Act in respect of that residential building work.
2. A developer who enters into a contract for the sale of land on which residential building work relating to the construction of a multi-storey building has been done, or is to be done, is exempt from the requirements of section 96A of the Act in relation to that residential building work.
3. The exemption in subclause (2) does not apply if the residential building work was contracted to be done before the commencement of this clause and, at the time the contract was entered into, the work was required to be insured.
4. The exemption in subclause (2) extends to a developer who enters into a contract for the sale of land to the extent that work relating to the building’s construction was contracted to be done before the commencement of this clause, if, at the time that work was contracted to be done, it did not relate to the construction of a multi-storey building for the purposes of the Home Building Regulation 2004 .
5. This clause does not apply in respect of residential building work commenced before 31 December 2003 (being the date of commencement of clause 57BC of the Home Building Regulation 1997, the corresponding earlier version of this clause).
6. If a developer entered into a contract for the sale of land on which residential building work in relation to a multi-storey building was proposed to be carried out but was not commenced before 31 December 2003 and the developer complied with clause 61 in relation to that contract–

   1. the provisions of the contract complying with clause 61 (b) (ii) and (iii) cease to have effect, and
   2. the developer must notify the purchaser of the land in writing that they no longer have effect and of the exemption from the requirements of Part 6 of the Act in relation to the residential building work conferred by this clause.
7. In this clause–
   
   “multi-storey building” means a building–
   1. that has a rise in storeys of more than 3, and
   2. that contains 2 or more separate dwellings.

   “rise in storeys” has the same meaning as it has in the Building Code of Australia of the National Construction Code Series.

   “storey” has the same meaning as it has in the Building Code of Australia of the National Construction Code Series.

The BCA defines a storey as:

Storey means a space within a building which is situated between one floor level and the floor level next above, or if there is no floor above, the ceiling or roof above, but not—

1. a space that contains only—

   1. a lift shaft, stairway or meter room; or
   2. a bathroom, shower room, laundry, water closet, or other sanitary compartment; or
   3. accommodation intended for not more than 3 vehicles; or
   4. a combination of the above; or
2. a mezzanine.

Christopher Kerin
Kerin Benson Lawyers
E: [email protected]
P: 02 8706 7060

This post appears in Strata News #327.

Have a question about NSW Home Warranty Insurance and the amount of storeys in your building or something to add to the article? Leave a comment below.

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Read next:

• NSW: Home Building Act Statutory Warranties – What is the Two Year Warranty for Non Structural Defects Worth?
• NSW: Update on the 2% Bond Scheme

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