What is home owner warranty insurance? When is it required? What does it do?
Owners often complain about being given inaccurate information by contractors. Amendments to the Home Building Act 1989 (“Act”) and related laws over recent years, the most recent of which commenced on 1 March 2015, have made an already complicated situation even more complex.
The current scheme is the Home Building Compensation Fund. Further information can be obtained here. It replaces previous schemes and funding arrangements, although those can still be relevant for past works. Broadly, home owner warranty insurance (“HOWI”) provides some protection to home owners, including subsequent owners, in relation to defective or incomplete work, where the owner is unable to recover from the builder or developer in some circumstances. HOWI is required in relation to residential building work, where the work involves a price over $20,000 or involves labour and materials having a market value over $20,000.
The definition of residential building work is complex. Generally, it means construction, alteration, repair or decoration of a dwelling, but various works are deemed included or excluded, e.g. a standalone contract for internal painting is excluded, while a contract for installation of tiling is included. Multi storey buildings may also be excluded, but only for new construction. This is a very important point. Contractors frequently misconstrue this exclusion as excluding remedial works in existing multi storey buildings. It does not and failure to insure may leave owners with uninsured work and contractors unable to recover the contract price. Determination of whether a building is multi storey can be difficult. For works contracted on or after 15 January 2015, “multi storey” is determined in accordance with Regulation 56 of the Home Building Regulation 2014.
For work contracted prior to 15 January 2015, “multi storey” is determined in accordance with Regulation 74 of the Home Building Regulation 2004. Owner builders are no longer required or able to effect HOWI, but must include, in sale contracts entered in to within 6 years of the works, a clear statement to the effect that insurance is not available.
There are significant limits to what HOWI covers. In particular: Cover will be limited to $340,000 per dwelling, with an excess of $250 (aggregate, not per lot). If the contract price (including GST) for the work exceeds $20,000 multiplied by the number of lots, the contract of insurance must provide cover of no less than $340,000 in relation to each dwelling in the building. If the contract price (including GST) is less than $20,000 multiplied by the number of lots, then the contract of insurance must provide for cover of no less than a total of $340,000.
When do you need Home Warranty Insurance?
T: (02) 9929 0226
M: 0403 738 996
ABN: 61 649 876 437 E:
PO Box 514 NORTH SYDNEY NSW 2059 AUSTRALIA