If you are selling a property that has had residential building works completed in the last 6 or 7 years, statutory vendor disclosure obligations under the Home Building Act 1989 (NSW) (Act) will be an important factor in your sale. Similarly, if you are buying a property that has had building work completed within that period there are important things to look out for in the purchase process.
Building Work under Contract or Otherwise
A vendor who has completed residential building work under a contract valued at $20,000 or more within the last 6 years is required to provide a certificate of insurance for the work to the purchaser. This obligation extends to owner-builder work when the work is done under a contract between the person who contracts to do the work and the owner builder. The requirement to provide a certificate of insurance to the purchaser also extends to a vendor who is “a person who does residential building work otherwise than under a contract” intended to capture “do-it-yourself” builders who will rarely enter into a contract but do not meet the definition of an owner-builder.
The threshold of $20,000 is GST inclusive.
The relevant timeframe is 6 years after practical completion of the building work. The Act contains detailed provisions relevant in determining the date of practical completion. If a final occupation certificate was received for the work, that will generally be the applicable date.
Specific provisions apply to developers (particularly of multi-storey buildings) and suppliers of kit homes.
Purchasers should check the validity of a certificate of insurance provided by a vendor by using the HBC Check function on the State Insurance Regulatory Authority website:
https://www.sira.nsw.gov.au/insurance-coverage/home-building-compensation-insurance/hbc-check
Owner-builders
The obligation for a vendor to provide a certificate of insurance to a purchaser applies to owner-builder work completed prior to 15 January 2015. After that date, owner-builders became unable to obtain insurance under the Act.
Accordingly, owner-builder vendors who completed work valued at $20,000 or more after 15 January 2015 must include a very specifically worded and conspicuous note in the contract for sale which acts as a consumer warning for the purchaser that building work which has been completed at the property was not required to be insured under the Act. Importantly, this obligation applies to owner-building work completed within seven years and six months prior to the date of sale (not 6 years as is the applicable timeframe for residential building work that is not owner-builder work).
The obligations contained in the Act for owner-builders apply to any successor in title (anyone who inherited the property).
Penalties for non-compliance with the Home Building Act
If a vendor of a property does not comply with disclosure obligations with respect to residential building work, the purchaser can rescind the contract for sale at any time prior to settlement. This means the purchaser can walk away and claim their deposit back. This can have serious implications if the vendor is relying on receiving the sale proceeds such as if, for instance, they have contracted to buy another property.
Statutory penalties also apply equating to fines of $110,000 for a corporation and $22,000 for an individual or other entity such as a trust.
Defects in Quality
So far as defects in quality are concerned with respect to building works, the rule is generally caveat emptor (buyer beware) with the onus being on the purchaser to satisfy themselves as to the state and condition of the property. It is not the vendor’s responsibility to disclose a defect, however if a vendor makes an express or implied warranty that the property is of a certain quality and the warranty turns out to be untrue or if a vendor is deceitful or deliberately conceals defects which would otherwise be discoverable, then this may amount to contractual fraud or misleading and deceptive conduct under Australian Consumer Law.[1]
Purchasers should carry out thorough property inspections and obtain building and pest reports. It may also be worthwhile obtaining a survey and building certificate from the local Council, particularly if there is no final occupation certificate attached to the contract or made available by the vendor.
Seek advice!
It is important to seek specific legal advice if the property you are selling or buying might have had recent building work completed.
If you require more information please contact Kate Shann kate.shann@ks-law.com.au or 0408 417 609.
The content of this article is intended to provide a general guide to the subject matter. Specialist individual advice should be sought about your specific circumstances.
[1] Anderson v Daniels (1983) NSW ConvR 55-144; Wood v Balfour [2011] NSWCA 382
