Builder obligations Vs consumer rights

We recently had a client who came to Dangerfield Exley Lawyers with the following problem about their Builder’s Warranty.

We recently had a client who came to Dangerfield Exley Lawyers with the following problem about their Builder’s Warranty:

“In February of this year, after heavy rain, part of the roof caved in on my investment property that I purchased in June 2010. My tenant is a builder, and recognised that the wall of the garage was unstable and the cause of the underlying problem.
My building and contents insurer sent an engineer out to the property to assess, and they confirmed they were only willing to fix and pay for the damage caused by the flood, but not a structural defect related to the wall. So my initial thought was that this may be covered by the builder’s insurance (I bought the property off him and he completed the works in August 2005), but I am unsure how many years I’m entitled to this insurance protection. Am I protected by insurance?”

Unfortunately, we didn’t have good news for our client. It appeared that they were out of time with respect to both their builder’s insurance and the builder’s implied warranties.

Domestic builder’s insurance would have covered the structural defects of the garage wall for six (6) years from the date that the property contract was signed (8th June 2010).

The implied warranties require the builder to remedy any problems with their work for up to ten (10) years from completion of the work, as evidenced by an occupancy permit or certificate of final inspection (which for our client was 25th August 2005). Implied warranties automatically apply to all building work. If the builder refuses to provide a remedy, it is then up to the current owner to initiate legal action.

Legally, there does not appear to be much recourse to remedy the structural defects, although we recommended to our client that it may be worthwhile contacting the builder anyway, with the aim of reaching an amicable solution.

Building law: Warranties, insurance and consumer guarantees

It is good to have a firm understanding of your rights and corresponding time restrictions with regards to building defects, especially with owner-builder works. Below are the three avenues available to an owner who has defective works, depending on the specific circumstances and time constraints.

1. Warranties under building law

Builders, owner-builders and tradespeople must honour the implied warranties in the Domestic Building Contracts Act(DBCA), which require that they:

  • Carry out the work in a proper and workmanlike manner, in accordance with the plans and specifications set out in the contract;
  • Ensure all materials supplied are good and suitable for their purpose and are new, unless otherwise stated in the contract;
  • Carry out the work in accordance with all laws and legal requirements;
  • Carry out the work with reasonable care and skill and complete the works by the date (or within the period) specified by the contract;
  • Ensure new homes, extensions, renovations, repairs and kit homes (or similar) are suitable for occupation when completed; and
  • Ensure other types of work and the material used are reasonably fit for their intended purpose.

Implied warranties automatically apply to all domestic building work, regardless of the cost or whether or not there is a written contract.

These warranties transfer to a new owner for up to ten (10) years from completion of the work.

2. Domestic Building Insurance

Domestic building insurance gives you limited cover. Previously known as ‘builders warranty insurance’, it protects consumers in the event their builder or tradesperson cannot finish the building project or fix defects on completed works because they have either:

  • Died;
  • Become insolvent;
  • Disappeared.

If your policy was issued on or after 1 July 2015, it also provides cover if the builder fails to comply with a final order made by the Victorian Civil and Administrative Tribunal (VCAT) or a court.

The DBCA requires a registered builder who enters into a major domestic building contract to be covered by insurance. A major domestic building contract is a contract for constructions, renovations or additions to a domestic building costing in excess of $16,000.

The DBCA requires both domestic and commercial owner-builders to have additional obligations placed on them if they propose to sell their property within the prescribed period, being six and a half (6.5) years for domestic building works after their completion date and ten (10) years after the completion date for commercial building works.

Your builder or tradesperson must provide you with a copy of the policy and a certificate of insurance covering your property before you pay a deposit for the works or any other money.

Domestic building insurance covers costs up to $300,000 to fix structural defects for six (6) years, and non-structural defects for (2) two years. Claims on the policy for work that was not completed may be limited to only 20 per cent of the contract price.

3. Consumer Guarantees

Consumer guarantees in the Australian Consumer Law ensure you have rights for services. These laws require a builder to meet certain obligations when they do building work or are engaged to do building work.

These are:

  • The duty to exercise due care and skill;
  • That the work be fit for the intended purpose; and
  • That the services are supplied within a reasonable time.

Should you want more information on builders or consumers right, contact us to ensure your rights are protected.

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