Blog - Home Owners Warranty and other forms of legal recovery.

While MJ Civil are not legal practitioners and as such are not able to provide legal direction, our experience through the preparation of Expert Reports for use as evidence in civil proceedings, for either a Plaintiff or a defendant, are featured in this Blog.  

It seems from our experience that there is a common misconception that a home owners warranty (HOW) policy provides a home owner with a facility to simply make a claim under the HOW policy for any deficiency in a newly constructed building.

While in some circumstances a HOW policy provides a facility to make a claim under it for the cost of rectification of defects in the insured building work without having to take proceedings against the builder, it is not typically the case.

The Home Building Act provides in respect of building work commenced or contracted on or after 1 July 2002 that the HOW policy is to be used as a last resort, unless the builder has become insolvent or is dead or has disappeared. In practical terms, if the builder is still solvent, a home owner must first obtain an order, in civil proceedings against the builder, for damages for defective work or for rectification of defective work, and the builder must fail to comply with that order. Then the owner will be able to make a claim under the HOW policy (assuming the home owner has given the relevant notice to the insurer of a potential claim within time). The last resort requirement raises the costs and commitment for an applicant to a significant level, which typically dictates that the losses incurred by an applicant need to be considerable, in order to make a claim against a HOW policy a commercially viable proposition where the builder is still solvent.

Further amendments to the Act in Dec 2003 removed the requirement for HOW insurance in relation to the construction of residential apartment blocks of more than 3 storeys.

In light of the above, it is now the common belief amongst many building professionals and legal practitioners that the HOW policy is to be viewed as a safety net to protect home owners from substantially incomplete works or significantly sub-standard building works, where a builder has subsequently been placed in liquidation.

The current limitations of claims under HOW policies have led to a marked increase in civil proceedings through the NSW Civil & Administrative Tribunal (NCAT) and the Supreme Court system for those seeking recovery of significant damages.

If an individual home owner or residential Strata Plan does wish to embark on civil proceedings, the burden of proof is on the applicant to specifically identify where the builder has failed to comply with one or more of the statutory warranties within the Act, which are identified in italics below. 

To generate the level of proof required usually requires one or more reports by appropriately qualified experts, with any such report being in a form which is admissible as evidence in legal proceedings.

MJ Civil and our network of construction professionals, have the capability of assisting home owners through the process of legal recovery irrespective of whether the claim is through  civil proceedings or a HOW claim.

18B Warranties as to residential building works 

(a) a warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract,
(b) a warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new,

(c) a warranty that the work will be done in accordance with, and will comply with, this or any other law,

(d) a warranty that the work will be done with due diligence and within the time stipulated within the contract, or if no time is stipulated, within a reasonable time,
(e) a warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling,

(f) a warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes known to the holder of the contractor licence or person required to hold a contractor licence, or another person with express or apparent authority to enter into or vary contractual arrangements on behalf of the of the holder or person, the particular purpose for which the work is required or the result that the owner desires the work to achieve, so as to show that the owner relies on the holder's or person's skill and judgement.