Introduction
In the realm of property construction and development, adherence to regulatory frameworks is paramount. In New South Wales, the Home Building Compensation Fund (HBCF) serves as a vital safety net for homeowners in New South Wales, providing financial protection in the event of incomplete or defective work. However, exemptions to this cover requirement exist under certain circumstances.
The Role of the Home Building Compensation Fund
It is mandatory for builders and contractors to have HBCF cover, also known as home warranty insurance, for building works exceeding $20,000.00. The HBCF acts as a safety measure, ensuring that homeowners have recourse in the event of insolvency, death, disappearance, or licence suspension of their builder. It covers costs associated with rectifying incomplete building works, major defects of building works and for non-major defects of building works:
- Building works that failed to commence – loss of deposit under the building contract, claimable for up to 12 months from the failure to commence;
- Building works that failed to complete – up to 20% of the contract price (including any variations), claimable for up to 12 months from the cessation of work;
- Building works that contained major defects – the costs of repair, claimable for a period of up to 6 years from completion of the work;
- Building works that contained non-major defects – the costs of repair, claimable for a period of up to 2 years from completion of the work.
It is important to note that the HBCF cover may have exclusions and limitations, for example, defects resulting from normal wear and tear, acts of god, or the negligence of the homeowner.
Exemption Criteria
Despite the importance of HBCF cover, exemptions are available under specific circumstances. Builders may be exempt from the requirements of HBCF cover if they meet certain criteria. These exemptions include:
- Building contract price less than $20,000.00 including GST;
- Multi-storey buildings – Multi-storey buildings, defined as those with more than three storeys and containing two or more separate home units;
- Building works not yet commenced at the time of entering into a contract for the sale of land;
- Built-in furniture work and related electrical wiring involved in lighting installation;
- Contracts for supplying components of kit homes, with the kit home supplier not conducting any building works associated with assembling the kit home;
- Residential building works being done by or on behalf of public sector agencies like the Crown or a State owned corporation;
- Residential building works aligned with the “build to rent” scheme;
- Certain residential building work in specified types of retirement villages;
- Residential building works for some charities that are recognised housing providers;
- Residential building works undertaken by or on behalf of local government acting as a developer.
Special Exemptions
In addition to statutory exemptions, developers or contractors doing residential building work can apply for an exemption with State Insurance Regulatory Authority (SIRA). These exemptions will only be granted if there are exceptional circumstances or if full compliance is impossible or would cause undue hardship. An online public register of exemptions granted is available for general public to verify whether work done at a specific property was done without insurance under an exemption granted by SIRA.
Consequences of Uninsured Work
Failure to comply with the HBCF requirements, barring legitimate exemptions, could expose homeowners to various risks, including:
- Inability to obtain an occupation certificate for the building or the property;
- Ineligibility to make a claim under the statutory warranties for major defects and all other defects;
- Possibility of bearing unpredictable and potentially substantial costs for rectifying any defects discovered in the building or the property.
Conclusion
Understanding the HBCF is essential for builders and homeowners alike. While HBCF provides crucial protection, exemption offer flexibility under specific circumstances. By ensuring compliance with regulatory frameworks and exploring tailored insurance options, stakeholders can mitigate risks effectively and uphold the integrity of the construction industry, ultimately fostering confidence and security for all involved parties.
Reference:
- Home Building Act 1989 (NSW)
- Home Building Regulation 2014 (NSW)
- State Insurance Regulatory Authority, HBC Exemptions.
<https://www.sira.nsw.gov.au/insurance-coverage/home-building-compensation-insurance/getting-home-building-compensation-insurance/hbc-exemptions>
