Impacts on those Buying, Building or Renovating Residential Properties in WA?

Residential building work contracts in Western Australia are governed by the Home Building Contracts Act 1991 (the Act). If residential building work valued over $20,000 is to be undertaken (a WA Registered Builder is required) the Act requires that a builder take out home indemnity insurance in the name of the owner before accepting payment or commencing work.

1. Background

We previously wrote about WA Builders indemnity insurance (“HII”) in July 2018. If you need further background material please see our original blog here or Building an Energy here.

2. What has changed?

In October 2022 the WA Government introduced some important changes to WA the HII scheme. The media release noted:

• Home indemnity insurance reforms to better protect home owners affected by builder insolvencies
• Maximum insurance payouts will double to $40,000 for lost deposits and $200,000 for incomplete or defective works
• Home indemnity insurance is compulsory for residential building projects valued at $20,000 or more
• The McGowan Government has approved reforms to the State’s home indemnity insurance scheme to double the maximum payouts to home owners.
• The changes mean eligible homeowners may be entitled to up to $40,000 for lost deposits, and up to $200,000 for incomplete or defective works in the event their builder dies, disappears, or becomes insolvent.
• In most cases, the insurance policy must cover the construction period and six years from the practical completion date.
• The scheme changes will take effect as soon as possible.

3. When do the changes come into effect?

This is the key issue for many property owners who might need to claim on the indemnity policy covering their build. This is a question that property owners need to ask the underlying insurer, however at least one of the main insurance providers has indicated that the increase in the insurance limit to $200,000 apply to Insurance Certificates which were issued on or after 1 June 2020.

So the key issues is that the application of the $200,000 limit is backdated well before the changes were announced. Great news for those building new homes, but it is critical that property owners check with the insurer who issued the policy for their build.

4. How do property owners find out about the HII Insurance Policy for their build?

Before a contract for home building work is signed, or a deposit is paid, the builder must provide the owner with a copy of the ‘Notice for the Home Owner’ which summarises the main requirements of the Act, including the requirement to take out HII.

A copy of the certificate of HII policy together with the application for a building permit is lodged with the permit authority. The permit authority is able to refuse the application if evidence of HII is not provided.

Home Owners can also request copies of the actual policy from their Council/City or Shite office.

One of the largest indemnity insurers in WA, QBE Insurance, has published a Builders Warranty Insurance Certificate Register which can be used to confirm that the Certificate of Insurance your builder provided was issued by QBE. You can use the register to match the details on your Certificate with the QBE’s records. Access the register here

5. Summary

• HII provides property owners with a key piece of insurances if the builder cannot complete the work if they have died, cannot be located or become insolvent.
• The insurance can only be called on in limited circumstances and is now capped at up to $200,000 depending when the Policy was issued.
• Unless the builder has died, cannot be located or is insolvent, they remain liable to the homeowner or subsequent homeowners to remediate construction defects.
• Owner builders, builders building on spec or their own home face similar obligations.

6. Footnote

Home indemnity insurance is only one of the insurances that a builder should have. Property owners engaging builders should ensure that all of the other requisite insurances are in place prior to commencing.

7. Important Note

The above general information was considered correct in Aug 2023. Circumstance will change over time. It is recommended that all readers seek their own professional advice prior to acting on the information contained in this note.

Build, Buy, Invest in property with confidence.

Ph 9240 8855 Web: www.houspect.com.au/wa Email: enquiry@houspectwa.com.au