Chapter 14 VICTORIA
Commercial and domestic building work
There are significant differences in the requirements of the regulatory framework depending on whether the relevant work is classified as ‘domestic building work’ or other (commercial) building work.
Domestic building work includes:
- the construction, renovation, improvement, repair or demolition of a home;
- work carried out in conjunction with the renovation or repair of a home, such as landscaping, paving and the provision of utilities;
- site work (including work required to gain access, or to remove impediments to access a site) related to the work; and
- the preparation of plans or specifications for the carrying out of work.
A ‘home’ is any residential premises and includes any part of a commercial or industrial premises that is used as a residential premises. The Act expressly provides that ‘home’ does not include motels, residential clubs, nursing homes and hospitals or accommodation associated with a hospital.
Given this definition, developments which might appear at first to be commercial developments, may actually fall within the definition of domestic building work. For example, high rise residential towers and serviced apartments forming part of a hotel complex have been held to be a home for the purpose of the DBC Act.
Exemptions and exclusions
The DBC Act excludes several types of works from the scope of domestic building work. For example, farm buildings (other than a home) and buildings intended only for business purposes or to accommodate animals are excluded under the Act.
Further, the Domestic Building Contracts Regulations 2017 (Vic) stipulate that a number of trades (for example, electrical work and glazing), when forming the entire scope of work under a contract, are exempt from the application of the DBC Act.
Commercial and domestic registration requirements
Who needs to be registered?
The Building Act requires certain ‘disciplines’ involved in the building industry to be registered.
Referred to as building practitioners, these disciplines include:
- domestic and commercial builders;
- building and quantity surveyors;
- building inspectors;
- draftspersons; and
erectors or supervisors.
Generally, developers (who, for example, develop, market and sell off the plan residential sales) will not be considered domestic builders, and will therefore not be required to be registered – particularly where the relevant contracts of sale which provide that the building will be constructed by a builder under a separate major domestic building contract. This may depend on the level of control maintained by a developer.
An application for registration must be in writing, specify the category of registration sought, comply with the regulations and be accompanied by prescribed information relating to the character of the applicant, an authorisation for the conduct of police record check, proof of insurance (where required) and the requisite fee.
What behaviour will be a breach of the registration requirements?
It is an offence for an unregistered person to:
- hold themselves out as a building practitioner, building surveyor, building inspector, engineer, draftsperson or quantity surveyor;
- carry out work as a building inspector or building surveyor; or
- hold themselves out as registered under Part 11 of the Building Act.
Additionally any builder who enters into a major domestic building contract (where the contract price is greater than $10,000) must be registered as a building practitioner authorised to carry out such work. However, there is no corresponding requirement for domestic building contracts which are not major domestic building contracts.
A ‘builder’ is any person who carries out domestic building work, or that manages or arranges the carrying out of domestic building work. This definition does not generally include developers, although the DBC Act more generally will still apply to a developer (and the contracts it enters into) depending on the nature of its role in the construction and sale of a building.
In addition to potential monetary penalties available for the above offences, regulatory bodies have broad powers to issue directions, set codes of conduct and suspend the registration of building practitioners where they fail to meet the requisite standards.
Commercial building contracts
There are no formal requirements in the Building Act or the DBC Act for commercial building contracts.
Domestic building contracts
Under the DBC Act there are a number of mandatory requirements for the form and content of domestic building contracts.
The requirements differ depending on whether the contract is a domestic building contract or a major domestic building contract (where the contract price is greater than $5,000).
The requirements applying to all domestic building contracts include:
- a prohibition against a builder demanding or receiving an excessive deposit (depending on contract value);
- restrictions on the use of ‘cost plus’ clauses;
- the prohibition of arbitration clauses;
- restrictions on the use of cost escalation clauses;
- a requirement that the builder be insured;
- a prohibition against the builder seeking more than the contract price; and
- the implied statutory warranties (see Statutory warranties below).
The additional requirements which apply only to major domestic building contracts include:
- a prohibition against unregistered builders entering into contracts;
- a requirement that a contract information statement be given to the building owner;
- a requirement that builders obtain foundations data;
- limits on progress payments;
- the inclusion of a cooling off period (five clear business days); and
- other formal requirements.
Failure to comply with any of these mandatory requirements may attract a penalty.
Further, if the domestic building contract does not comply with the mandated contract formalities:
- it may not be enforceable by the builder against the building owner; or
- the building owner may have a basis to avoid the contract at any time before its completion.
The DBC Act implies various statutory warranties by the builder in every domestic building contract including warranties regarding the manner in which the work will be performed and the materials to be used.
These statutory warranties cannot be excluded and apply for the benefit of successors in title. They are enforceable for a period of ten years from the date of issue of the occupancy permit, or where an occupancy permit was not issued, the date of issue of the certificate of final inspection
The Victorian Minister for Planning may require certain specified building practitioners to hold prescribed insurance. This requirement is set out in a Ministerial Order. It is an offence to carry out work as a building practitioner without the prescribed insurance coverage, with the exception of work under a domestic building contract.
The control in relation to insurance, in the context of a domestic building contract, is achieved through a dual mechanism:
- a builder is not able to be registered unless it has insurance in place; and
- a builder is prohibited from entering into a domestic building contract unless that builder is registered.
Different categories of warranty insurance
There are a number of Ministerial Orders for various classes of insurance. The coverage provided under the various Ministerial Orders differs. Accordingly, it is important to be certain that you are reviewing the correct Ministerial Order when considering what the entitlement under the relevant policy might be.
Insurance requirements for domestic building work
For domestic building work, the Ministerial Order of 23 May 2003 (supplemented by the Ministerial Order of 28 May 2014) requires that a builder must have an insurance policy that indemnifies the builder against liability to the building owner in respect of loss or damage resulting from:
- defective or incomplete work;
- breach of statutory warranties, or failure to maintain specified standards;
- conduct contravening a trades practices provision;
- loss of deposit; or
- costs of alternate accommodation.
The insurance cover must cover losses for structural defects for six years from the completion of the work and for non-structural defects for two years.
Insurance requirements for commercial building work
For commercial building work, the Ministerial Order of 9 July 2019 (replacing the previous Ministerial Order of 27 May 2014) requires a number of specific classes of building practitioners to be insured by an indemnity policy.
For building surveyors, building inspectors, quantity surveyors, engineers and draftspersons the policy must indemnify against civil liability from claims arising from conduct:
- as a building practitioner;
- in any reasonably related professional activity;
- by a company or partnership for which they are a director, principal, partner or employee; and
- claims arising from a contravention of the Australian Consumer Law (which includes misleading and deceptive conduct).
For demolishers and erectors or supervisors the policy must indemnify against civil liability from personal injury or property damage in connection with:
- their business as a building practitioner; and
- as a building practitioner of a company or partnership for which they are a director, principal, partner or employee.
A number of regulatory bodies are empowered to deal with various complaints about building work.
- the Victorian Building Authority;
- Domestic Building Dispute Resolution Victoria;
- the Director of Consumer Affairs Victoria; and
- the Victorian Civil and Administrative Tribunal.
These bodies are empowered to deal with issues such as behaviour, quality of works and contractual disputes. through a range of mechanisms and forums, including conciliation and mediation.