Chapter 14 NEW SOUTH WALES
In New South Wales, the legislation dealing with the regulation and licensing of the building industry is:
- the Home Building Act 1989 (NSW) (HB Act).
- the Design and Building Practitioners Act 2020 (NSW) (DBP Act); and
- the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) (RAB Act).
The Home Building Act
The HB Act has two regulatory functions:
- to regulate all aspects of residential building, including licensing; and
- to regulate the licensing of specialist work.
Residential building work is work involved in, or involved in coordinating or suspending any work in, the construction of a ‘dwelling’ (as defined in the HB Act), making of alterations or additions to a dwelling, and repairing, renovation, decoration or protective treatment of a dwelling. It also includes specialist work done in connection with a dwelling.
Residential building work excludes any work (other than specialist work) the reasonable market cost of the labour and materials involved in which does not exceed $5,000.
Specialist work includes plumbing and drainage work (other than roof plumbing work), gas fitting work, electrical wiring work, and any work declared by the regulations to be refrigeration work or air conditioning work. Specialist work is not limited to specialist work done in connection with a dwelling – commercial and industrial specialist work is captured by the HB Act
Builder’s licensing requirements
Who requires a licence?
Individuals, partnerships or corporations contracting to do residential building work, where the labour and materials are worth more than $5,000, or specialist work (irrespective of whether it is residential building work), must hold a contractor licence under the HB Act.
Individuals must hold a contractor licence or must be:
- an employee of a partnership or corporation; or
- a member of a partnership or an officer of a corporation
that holds a contractor licence.
Where an individual is the employee, partner or officer of a partnership or corporation that holds a contractor licence, and is not the holder of a licence in his or her own capacity, then the individual must be supervised by someone who is licensed.
What types of licences can be obtained?
The HB Act provides for the following licences and certificates (licence) to be granted:
- contractor licence;
- supervisor certificate;
- tradesperson certificate; and
- endorsed contractor licence (equivalent to a supervisor certificate).
What criteria apply to the grant of a licence?
- The applicant’s (and any close associate’s) fitness, ability and capacity to carry out contracts for which the licence is required (including matters such as previous solvency, insurance claims over previous work, the number of complaints made against the applicant and number of penalty notices issued against the applicant); and
- The Secretary must refuse an application if the Secretary is not satisfied:
- that any the above requirements would be met if the licence was issued;
- with the proposed arrangements for supervision of work to be carried out; or
- that the applicant has complied or will comply with any insurance requirements under the HB Act.
Who needs to be supervised?
Individuals who are not licensed and are carrying out residential building work or specialist work need to be supervised by the holders of the relevant licences. Individuals holding relevant tradesperson certificates can carry out residential building work, refrigeration work or air-conditioning work without supervision but must be supervised when carrying out the following:
- advanced liquefied petroleum gasfitting work;
- disconnection and reconnection of fixed electrical equipment;
- draining work;
- electrical wiring work;
- gasfitting work;
- liquefied petroleum gasfitting work;
- plumbing work;
- water plumbing—fire protection systems;
- water plumbing—fire sprinkler systems;
- water plumbing—urban irrigation; and
- water plumbing work
What is an appropriate level of supervision?
The HB Act does not contain a definition of ‘supervision’. Compliance with the supervision requirements of the HB Act is to be determined on the facts of each case. However, the level of supervision must be sufficient so as to ensure that the requirements applicable to the work under the HB Act are complied with.
The HB Act sets out a number of mandatory formalities for residential building work contracts which includes contracts to do specialist work that is also residential building work. The formalities and insurance requirements vary depending on the contract price of the contract.
|Requirement||Contract Price $5,000-$20,000 (after 1 March 2015)
$1,000 – $20,000 (before March 2015)
|Contract Price $5,000-$20,000||Contract Price >$20,000|
|1||Provide consumer information sheet||Yes||Yes||Yes|
|2||Names of the parties and licence details (holder and licence number)||Yes||Yes||Yes|
|3||Description of the work||Yes||Yes||Yes|
|4||Plans and specifications attached and a clause stating they form part of the contract, together with any variations to the plans and specifications||Yes||Yes||Yes|
|5||Contract price if known||Yes||Yes||Yes|
|6||Clause requiring the contractor to ensure that all building work will comply with the Building Code of Australia (BCA), all other relevant standards and specifications that the work is required to comply with under any law and the conditions of any relevant development consent or complying development certificates||Yes||Yes||Yes|
|7||Clause stating the that contract may limit the liability of the contractor for a failure to comply with requirement 5 above if the failure relates solely to designs or specifications prepared by or on behalf of the principal or where the contractor advises the owner that the designs or specifications contravenes requirement 5 above||Yes||Yes||Yes|
|8||Clause requiring all variations to the contract to be in writing signed by the parties||Yes||Yes||Yes|
|9||Expressly set out the statutory warranties||No||Yes||Yes|
|10||If the contract price is not known or can be varied, the contract must contain a warning and explanation of how it can be varied||No||Yes||Yes|
|11||Details of any progress payments payable under the contract (if the Security of Payment Act does not apply to the contract)||No||Yes||Yes|
|12||Checklist for consumers to consider||No||Yes||Yes|
|13||Statement setting out the cooling off period for the contract||No||Yes||Yes|
|14||Statement that the contract may be terminated at general law and this does not prevent agreement of additional circumstances for termination||No||Yes||Yes|
|16||The cost of insurance cover||No||No||Yes|
What are the consequences if contract formalities are not observed?
If a contract is not in writing or does not have a sufficient description of the work to which it relates:
- it is not enforceable by the holder of the licence against the other party to the contract and the contractor will not be entitled to any damages or to enforce any remedy for breach of contract;
- the holder of the licence is liable for damages and is subject to any other remedy for a breach of the contract committed by the holder of the licence; and
- fines may also apply.
The HB Act implies various statutory warranties into every contract to do residential building work.
- work will be done with due care and skill and in accordance with the plans and specifications set out in the contract;
- all materials supplied by the licence holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, materials will be new;
- that the work will be done in accordance with, and comply with, the HB Act or any other laws;
- that the work will be done with due diligence and within the time stipulated by the contract;
- if the work is for the construction or alteration of a dwelling that it will result in a dwelling that is reasonably fit for occupation as a dwelling; and
- that the work and any materials used in doing the work will be reasonably fit for the purpose or result, if the person for whom the work is done expressly lets the contractor know the particular result that the principal desires the work to achieve.
The statutory warranties cannot be excluded. They are enforceable for a period of six years after completion of the work to which the warranty relates for a breach that results in a major defect in residential building work, or two years after completion in any other case.
Major defects are:
- defects in a major element of a building that causes or is likely to cause the inability to inhabit or use the building for its intended purpose, or the destruction of the building or a threat of collapse of the building;
- combustible cladding; and
- use of banned building products.
- A major element of a building is a load-bearing component that is essential to the stability of the building, fire safety systems and waterproofing.
If the work is not completed, the starting date for the warranty periods is either the date the relevant construction contract was terminated, the date on which the work under the contract ceased to be performed (if the contract was never terminated), or the date of the contract (if the contract was never terminated and work was never commenced). The warranties extend to benefit non-contracting owners and any successors in title. However, if a statutory warranty has already been enforced in relation to a deficiency in work/materials, a non-contracting owner or successor in title will not be able to enforce the warranty for that particular deficiency.
The principal, non-contracting owners and successors in title have a duty to mitigate loss in the event of a breach of a statutory warranty, to give written notice within 6 months after the breach becomes apparent and to not unreasonably refuse access to the contractor for rectification of the breach.
Home building compensation insurance
The HB Act requires the builder to have insurance provided by a licensed insurer in place if the contract for residential building work is valued at over $20,000.
Insurance policies must provide cover of at least $340,000. Consumers (including non-contracting owners and any successors in title) are entitled to claim on the insurance:
- where the contractor is insolvent, dead or has disappeared; or
- the contractor’s licence is suspended because the contractor failed to comply with a money order in favour of the home owner made by a court or the Civil and Administrative Tribunal (Tribunal).
The insurance may consist of two separate insurance contracts – one covering the construction period and the other covering the warranty period.
What are the insurance policy requirements?
|Type of loss which the insurance policy must cover||Compulsory period of cover|
|Loss from non-completion of the work||At least 12 months after the failure to commence, or cessation of, the work to cover.|
|Loss from major defects||At least six years from the completion of the work.|
|Loss from non-major defects||At least two years from the completion of the work.|
When must an insurance claim be made?
An insurance policy will only cover a loss:
- arising from non-completion of work or breach of a statutory warranty that is insured by a construction period insurance contract if the loss ‘becomes apparent’ meaning when a beneficiary first becomes aware (or ought reasonably have become aware) of the loss and is notified to the insurer within the period of insurance; and
- in all other cases, if the loss becomes apparent and is notified to the insurer within the period of insurance, or if the loss becomes apparent during the last six months of the period of insurance and is notified to the insurer within six months after the loss becomes apparent.
What are the consequences for breach of the insurance requirements?
Where a contractor fails to comply with the insurance requirements, the contractor is not entitled to:
- damages or to enforce any other remedy for the breach of the contract committed by any other party to the contract; and
- recover money for that work under any other right of action (including a quantum meruit), unless a court or tribunal considers it just and equitable.
Residential building work that is uninsured at the time the work is done ceases to be uninsured work if the required contract of insurance for the work is subsequently obtained.
A contractor who fails to comply with the insurance requirements may face a fine. The contractor will remain subject to any other remedy for a breach of the contract committed by the contractor under the relevant contract.
What do I do if I have complaints about a builder?
Generally, complaints about building contractors must be made to the NSW Fair Trading. The complaint will be investigated and, if appropriate, a rectification order will be issued requiring the builder to remedy defective or incomplete works. If the builder fails to comply, a claim may be made to the Tribunal.
Disputes relating to certain claims do not need to be investigated before proceeding to the Tribunal.
- the payment of a specified sum of money;
- the supply of specified services;
- relief from payment of a specified sum of money; and
- the delivery, return or replacement of specified goods or goods of a specified description.
The Tribunal has power to hear and determine any building claim up to $500,000 arising from residential building work. Claims over $500,000 are dealt with by the District Court of NSW, or if above $750,000, the Supreme Court of NSW.
Where a licence holder fails to comply with an order of the Tribunal or a court to pay an amount of money in respect of a building claim, its licence is automatically suspended until the Director-General is satisfied that the order has been complied with.
The Design and Building Practitioners Act 2020
The DBP Act currently applies to residential buildings and provides for:
- a duty of care for the benefit of owners of land; and
- a system for regulating design and building work, including registration of designers, engineers, builders and other specialist practitioners.
Duty of Care
A person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects:
- in or related to a building for which the work is done; and
- arising from the construction work.
The duty of care is owed to each owner of the land in relation to which the construction work is carried out, including all subsequent owners. Where the duty has been breached, owners can claim damages for breach of the duty as if it were a common law duty, irrespective of whether the owner was a party to the contract for the construction work. The duty is owed by any person who carries out construction work. It is non-delegable and parties cannot contract out of it.
The classes of buildings to be covered by the duty of care will be prescribed in regulations but will as a minimum include residential buildings. Residential building work as defined in the HB Act is subject to the duty of care.
The duty of care applies retrospectively and applies to buildings less than 10 years old from 10 June 2020. The duty is in addition to the rights and obligations under the HB Act other legislation and the common law and does not limit any of those rights or obligations.
System for regulating design and building work
The DBP Act provides a comprehensive system for:
- declaration of regulated designs by registered designers;
- the declaration of building work by registered builders (prior to application for an occupation certificate);
- insurance requirements for designers, engineers and builders
- registration of designers, engineers, builders and other specialist practitioners (including those performing
- maintenance); and
- investigation and enforcement including issuing stop work orders.
The system drives compliance with the Building Code of Australia
With the exception of the duty of care regime, which came into force on 11 June 2020, the majority of the provisions of the DBP Act will be in force on 1 July 2021. The DBP Act will apply to existing contracts before that date if application for a complying development certificate or a construction certificate is made on or after the date prescribed in the DBP Regulation 2021 (NSW). For a summary of the key points read the MinterEllison Alert dated 9 April 2021.
The Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020
The RAB Act applies to class 2 residential buildings (these are generally apartment buildings) and is intended to prevent developers from carrying out building work that may result in serious defects or result in significant harm or loss to the public or current or future occupiers.
The RAB Act provides:
- a requirement for developers to give advance notice before applying for an occupation certificate;
- the power for the NSW Department of Customer Service to:
- prevent issue of an occupation certificate or registration of a strata plan (eg if there is a ‘serious defect’, or the building bond required under the Strata Schemes Management Act 2015 has not been lodged);
- investigate building work (eg to investigate serious defects and compliance with the Building Code of Australia and Australian Standards);
- issue stop work orders and building rectification work orders to developers; and
- require developers to pay for compliance costs in respect of building rectification work orders.
A ‘developer’ is defined broadly under the RAB Act and includes a head contractor. The Act commenced on 1 September 2020 and applies retrospectively with a 10 year limit.