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Recent law changes affecting building of homes and renovation works

Published on September 7, 2015

Important statutory protection for homeowners and consumers in the area of residential building work came into force on 1 January 2015. These protection measures are the result of recent amendments to the Building Act 2004 ("the Building Act").

The changes apply to residential building work carried out by a building contractor, in particular, where the price of the work is $30,000 (inclusive of GST) or more.

For building work costing $30,000 or more, it is now mandatory for a building contractor to make certain pre-contract and post-contract disclosures. These include providing to clients a Disclosure Statement and a prescribed Checklist prior to entering into a residential building contract.

After completion of all residential building work (regardless of the value of the work) a building contractual must provide clients an "owner's manual" containing:

(1) Information on the processes and materials for ongoing maintenance of the building work;
(2) Copy of insurance policy that the contractor holds in relation to the building work; and
(3) Copies of guarantees or warranties that apply to the building work.

Mandatory written building contract

For building work costing $30,000 or more the building contractor must sign a building contract with the client homeowner.

If there is no formal written building contract entered into, or the contract does not contain the minimum content prescribed in the Building Act or the Building Regulations, the contract between the building contractor and the client is deemed to include the default building clauses prescribed by law.

Implied warranties and default clauses in building contracts

The Building Act imposes mandatory implied warranties, which are deemed included in all residential building contracts, whether written or oral contracts. The protection of the warranties last for 10 years and can be summarised as follows:

The building work will be carried out in a proper and competent manner and in accordance with the plans and specifications and with relevant building consent;
All materials supplied will be suitable for the purpose for which they will be used;
All materials supplied will be new unless otherwise stated in the contract;
The building work will be carried out in accordance with, and will comply with laws and legal requirements;
The building work will be carried out with reasonable care and skill and be completed by the date specified in the contract, or if there is no date specified, within a reasonable time;
The household unit will be suitable for occupation on completion of the building work;
If the contract specifies the particular purpose for which the building work is required, the work and materials used in carrying out the work will be reasonably fit for that purpose; and
If the contract specifies the result that the client owner wishes the building work to achieve, the building work and materials used in carrying out the work will be of such quality and that they might reasonably be expected to achieve that result.
Remedies for breach of implied warranties

The Building Act prescribes remedies for breach of the implied warranties. These include requiring the builder to remedy the breach and if the builder fails to do so, having the breach remedied by another contractor and claiming the cost and seeking compensation from the builder. The Act also now allows the owner of the building or land on which the work was carried out under a residential building contract to take action against the builder for breach of implied warranties even if the owner was not a party to the contract. As such, the benefit of the warranties can be passed to and may be enforced by subsequent owners.

Defects liability warranty for a period of 12 months

From 1 January 2015 a defect liability period of 12 months from the time of completion of the building work is implied in every building contract for work carried out to household units.

On-Sellers's Obligations

The Building Act introduces a new remedy for buyers of property against "on-sellers". A buyer who purchased a property with a new dwelling on it from an "on-seller" is entitled to enforce the implied warranties as well as the defects liability warranty prescribed by the Building Act against the on-seller. The definition of "on-seller" in the Building Act includes:

A person or company who with the assistance of others builds a dwelling; and
A person or company who in trade buys a newly constructed dwelling from the person or company who builds it and sells it shortly thereafter.

Please note that the above information is intended to provide general information. The contents contained in this article do not constitute legal advice and should not be relied on as such.

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