Owner Builder Warranty and Defect Obligations

15/1/2017

Owner Builder Warranty and Defects Obligations

Owner Builder course students should be aware of their responsibilities when it comes to warranties and defects on their owner builder projects.

First we should consider the obligations that a registered or licensed builder would have in respect to works they complete.

Generally, a builder has an obligation for the structural components of a dwelling for a period of not less than 6 years, although some major reputable builders are now offering a warranty period of up to 50 years. Yes, you heard correctly, 50 years.

For an owner builder, it is legally required that you will live in the home you build for a specified period before you are able to sell it without restriction. This time can be reduced or varied at the discretion of the regulator with regard to special circumstances.

Nevertheless, in some states and territories, it is a requirement that all owner builder works are identified on any contract of sale which affect the property and alerts potential buyers of the possibility that works completed by the owner builder may not be covered by a statutory state backed insurance scheme.

When you contract with a builder, they are required to effect individual cover for each project to protect the consumer against failure to complete works as contracted insolvency, bankruptcy or significant structural failure.

This insurance, is called Home Warranty Insurance in some states and territories and is taken out by the principal or head contractor.

But here's the rub.

In many instances, owner builders are not permitted to take out Home Warranty Insurance, go figure!

So how do you protect yourself.

Well this is where it gets confusing and where I have had many differences of opinions with a range of experts in this field.

Under contract law as it is written across the states and territories, there is a requirement for a written contract to exist where the contract value exceeds a specified amount. In some states, this is as little as $1,000.00. ($3,300.00 for Queensland).

Now there is no difference in the requirements for this contract to exist between parties, regardless of if the Principal Contractor is an Owner Builder or a Licenced/Registered Builder. The requirement includes sub contracts.

So, in my opinion, and it is a view not unanimously shared, if an owner builder enters into a contract, with a Licenced contractor, above the specified amount that requires the contractor to effect insurance, then the works carried out under that contract are covered by the contractors effected statutory insurance.

Confused?, Don't worry, so are most trade contractors and registered builders, not to mention the regulator.

When I raise this questions, often the eyes just glaze over and the response is basically to put it in the too hard basket.

Did this post help?

Possibly not, but at least it will raise comment and evoke a discussion. I would like to see what everyone else take on this is.

I know we have an insurance expert (particularly in Owner Builder Insurances) that follows this blog. I look forward to his comments on this post.

Should be interesting.

As always,

Happy Owner Building,

Rick

44 Comments

Phil Minty

8/2/2017 12:36:42

Hi,
On the matter of insurance the direction for taking out insurance needs to be elaborated on. This Ownerbuilder home warranty insurance from my investigation with insurance companies is only required in NSW once the building project is complete.
However it has been explained to me from insurance companies that I need owner builder , building insurance from the start of the building to give public liability and damage (to the house while building ) insurance . I believe that this is the insurance council require with the DA application . Is there any one else who has found this to be the case?
Regards
Phil Minty

Richard

28/2/2017 23:03:02

Thanks Rick,

I'll definitely be raising this with the contractors that I use.

But a call to my insurance broker will be in order too!

Cheers,
Richard

Rozvel

22/3/2017 09:35:29

I was not aware that owner builder did not need to take out home owners warranty insurance. But council DA application I have submitted has asked for the insurance to be paid for the full estimated value of project. Which is also a problem because there looks like a minimum valve of $1300 is set to all Renovations, even though to have purchased materials cheaply before commencing project. I will keep in mind that the contract between me and the Contractor must have insurance from the contractor. I guess this could be submitted to council once project complete.

Jeff Bye

25/3/2017 13:04:21

Useful comments, thanks for the heads up.

Lynne Flemons

30/3/2017 12:19:32

I am a bit confused about the home warranty insurance, but it does seem to be required in NSW from the beginning of the build. My handyman tells me I need it from the beginning.

Ross osland link

22/10/2017 19:48:54

We were advised we needed either home warranty insurance or owner builder certificate in order to get a private company certification CC.
Home warranty insurance would mainly be used if buying and selling property.
Seems there is many interpretations on requirements needed .
I am also not told I needed a white card , only owner builders certificate , but have since realised this is not the case .

Verena Menkarios

15/5/2017 19:21:51

this clarified some important info for me, thank you for discussing it.

Gabriela Brun

31/5/2017 13:33:24

It would be really good to cover the topic of insurance in the owner builder's course, or to have it as an extension topic as it seems really complex and so important to get it right!

rick heaton link

19/9/2017 19:27:01

There is a section on insurance in the Abacus Training Learner Guide we provide as additional resources

SHANE MULLIN

1/6/2017 07:56:18

Hi Rick,
From any information that I can find (for NSW) as you have written, as long as there is a contract written out, the contractor is licensed to carry out the works and they have current insurance then that is satisfactory.

When works will be over 20k (In NSW) the contractor also needs HBCF insurance needs to be taken out by a builder or trades-person before taking any money (including a deposit) from a home owner (including an owner-builder) under a residential building contract and before starting any work under that contract.

I will still be taking out public liability insurance for the project I am going to carry out.

Shane,

Monttles

14/9/2017 23:06:29

I agree Public Liability insurance is a good idea plus Construction Insurance for me to cover material stored on site & damage by subcontractors and workers comp insurance to cover tradesmen under $5000 contract required level

Sally Regan link

30/6/2017 18:13:23

Definitely confused. I will try to understand what difference it makes if the work is not contracted but is 'do and charge', therefore no contract exceeding $20k.

19/9/2017 19:24:54

My advice is to always avoid do and charge agreements.
Thye leave the owner builder far too exposed.

Roel

14/7/2021 21:15:01

In what ways Rick? Thank you

Graham Cairns

13/9/2017 11:17:21

This has been a little confusing for myself but after speaking with a number of licensed contractors and researching the requirements for NSW I have found that as long as a contractor employed to carry out works is licensed with current insurance than that is enough to fulfill the state requirements.

Would be a very interesting area to learn more information about though

Duncan Ong

20/10/2022 21:07:31

Thanks, Graham. I'm building in NSW, this is comforting to know as the whole thing about insurance had been so confusing for me.

steve

19/9/2017 16:48:54

I have read above that an owner builder must live in the residence for a specified amount of time before being able the sell the property without any restrictions. does this mean the owner builder may rent out the property without restrictions, or is he required to either live in it or obtain permission to sell within the specified timeframe but unable to rent it out?

Rick Heaton link

19/9/2017 19:23:20

Hi Steve,

The intent of the Owner Builder permit is to allow an individual who is not in the business of building, to construct a dwelling that they intend to live in.
Where circumstances change, it may be necessary to obtain an exemption from your governing authority.
There may even be taxation implications, so it is best to check.

Johnny Wright

2/6/2020 02:45:53

Hi Steve,
My understanding is that if you want to sell within 6 years of issue of the occupation certificate, you will need to obtain a home owner builders insurance, which would cover the new owners of any defects. As far as I know after 6 years you have no restrictions to selling. But who and how is going to stop you to rent it out?

Ross Osland link

22/10/2017 20:02:46

Owner building certificate seem to be a grey area at present with a lot of councils, private certifiers and building companies interpreting differently .
In my situation , council approved a DA for small extensions to our investment property , which would cost about $47.
With us undecided on selling or actually getting the extensions done , the council advised to get a CC approved & do a minimal alteration (window resize) and this making DA lasting till as long as we required .
Our Planning & Drawing company agreed wholeheartedly and thus we have entered this domain of uncertainty, with inexperience and naivety .
To get the CC we need full engineered drawings , but we also cannot get quotes until we get these.
Insurance ? Now that is a whole new world of pain .
We had originally planned on getting a fully licensed tradesman to do entire extension with insurance in place , if we did them .
We were never advised we would have to live in the premises .

Rob

13/2/2018 09:20:06

I had determined that building insurance wouldn't be required by me as the project manager and that the individual contractors would need to have insurance as per the state requirements depending on the value of their component.
With materials excluded (because I am supplying all of those) most contractors would not have a fee that high.
I will definitely take out public liability though as it would cover for anyone who may access the site (lawfully or unlawfully).
Another thing to consider is notifying the bank that holds the mortgage over our property?

Brook Andrew Baker

4/4/2018 12:38:42

Thanks Rick.
I Really enjoyed and learned a lot from this passage. Being in constrcution myself I utilise software packages to track and manage defects.
I have in place in my contracts a DLP of 12 weeks. My reno is only a small reno however, there are some areas that may cause issues. Having a warranty and defects period in place assures me the job will be done

Steven Cruden

29/4/2018 14:01:46

Thankyou all for your comments, I was having issues understanding the exact insurance requirements for our build but reading the comments posted here and from my own investigations I feel we are ok as long as our contracted trades have insurance and we take out Public Liability Insurance.
The only other cover required would be Construction Insurance to cover theft or damage during the build.

LorrainReynolds link

21/3/2020 17:34:45

After reading all the above commentary I consulted
NSW Dept.of Fair Trading which states clearly "Home Building Compensation Cover" is no longer available for work done by an Owner Builder .However if the contracted work is over $20,000 including materials , for a particular contractor, that contractor must have Home Building Compensation cover. This includes the combination of several contracts with the same contractor. The question is, what of work of less than $20,000 contracted cost. I looked into the site lead......but got led in circles, no clear prescription. It seems to become an issue if you are selling the building in under 6 years from the signing off or Certificate of Occupancy date
Fair Trading definitely does recommends taking out
*Public Liability Insurance
*Contract Work Insurance
Workers Compensation insurance is another confusing issue as contractors can sometimes be classified as workers in the Owner Builder scenario.

20/10/2022 21:21:28

Thanks Lorrain for your research. After reading your post, I am going to take up both Public Liability Insurance and Contract Work insurance.

Christoper Becker

16/4/2020 07:05:13

Hi, Just wondering, If you were an owner builder about to start a renovation to a house that you own, is fully insured,house and contents, would the public liability that our policy has built into it,
$20 million, cover the public risk required for renovation?
The reason I ask, an example, although not building related, a mate I knows dog attacked another dog on the nature strip out the
front of his property.Dog required $9,000.00 worth of vet bills. He
spoke with his solicitor and it is being sorted out under his house
and contents public liability policy.

Just wondering?.

2/6/2020 02:33:01

Hi Christopher,
I think the best is to check with your insurance company. In my experience the insurance companies dont like covering construction on the property. Or they might charge extra while the construction is on.

Steven Riley

17/5/2020 12:01:09

We were stung with home construction insurance vs owner builder insurance. Our builder is building our house to lock up stage under his construction insurance and said we needed insurance for when we started our works. I sourced construction insurance...which I now know is different to owners warranty insurance. Lesson learnt!

John Wright

2/6/2020 02:37:20

Hi Steven,
Could you please elaborate on your comment. I was under the impression that you need owners warranty insurance in case you want to sell before 6 years have past. But you need construction insurance to cover loss/theft of material, storm damage, flood etc, on the construction site.
So I assume if you want to complete you your house by yourself you still need construction insurance.

Mikhaila Aubrey

26/8/2021 12:33:30

Hi Steven,
It would be great if you could explain your situation a little more. We are also only doing our first stage of the project to lock up, and then completing the deck and internal works ourselves. Do I need to have insurance with our home and contents insurer or is it a special insurance? The works will most likely be under $20,000 with any one sub contractor so they will not be liable for insurance of their trade correct? What happens if someone gets hurt whilst on our land? Sorry for all the questions!

Ian Harrigan

9/6/2020 12:09:02

The issue of insurance is confusing but is probably the most important to get right. Everyone’s building projects are as individual as they are. Each state and local council have their own requirements. So, check with your local council, check your state’s requirements and then find an insurer to meet them. Good luck!

Phil

15/2/2021 16:11:12

Still after reading this have no idea what I am required to do. I have a shed owner builder starting in a month or so. Total cost 25k with 13k being shed, 7k being slab and 5 for plumber / electrician. Do I need need to get insurance ? or am I covered under the insurance of the trades?

Brent

16/3/2021 10:37:25

I bought a house from an owner builder who sub divided a block of land to build a multi dwelling development. The owner lived in one and sold the other. The owner builder was ordered by Fair trading that if sold within 6 years that home warranty insurance had to be taken out. I bought the house 3 years after the occupation certificate was issued and it flooded the lower level within 6 weeks of moving in. The owner builder told me that he did not have insurance and could not get it. The whole DA for the land was breached numerous times which is causing the flooding to continue and now the certifier has been brought into the debate. Does the order still stand and if so is the owner liable for major defects to the sub division and construction of the houses or is the certifier liable and to make a claim on his indemnity insurance ?

Darryl Spinks

25/3/2021 19:12:01

As we are doing an extension do we still require home warranty insurance or do we just need public liability? Please advise, all responses are welcomed.

Lance

23/9/2021 21:09:09

HI, we payed a builder to do a second story renovation which he completed to lock up, hes insurance covers all the structural work to that point but we had intended to have them complete the balance of work as a stage two but due to a falling out, this was not to be. Then covid hit so I decided to do the gyprocking and finishing (door jams, skirts etc etc) myself, now the certifier has told me I need insurance for this but I dont seem to be able to get any, I have a builder friend who says he will certifie the work I have done but he doesn't carry insurance himself. Not sure where to turn now??

24/9/2021 07:27:11

Lance if the original work was over $20,000 then the builder has to take out warranty insurance for major defects. I had a dispute with an owner builder which I took to NCAT and when the hearing was close to the date of being heard, the owner builder changed the state of his address, which meant that he was now outside of state jurisdiction and untouchable. As for you completing the job, you would likely come under an owner builder arrangement and you no longer have to have insurance however may need council approval, which requires certification.. You do have to guarantee your work for major defects if you sell before the expiry period however as I found out there are get out clauses for those without a conscience.

Grant Marini

13/4/2022 19:55:54

Hi all, We just enquired regarding this with our insurance company - it seems like a really straight forward process to update that construction is happening at the property.

Kate Koutifaris

21/5/2022 05:06:43

As an owner builder - do you need to get public liability insurance for trades coming onto your property?

Mochammad Soleckhan link

30/5/2022 07:00:13

I agree the insurance part is confusing, I have existing public liability insurance in my home policy as we have acreage,I wonder if this is sufficient cover for my project

31/5/2022 08:48:25

I doubt it? Likely something like home builder insurance is required. Perhaps (more remote thought) even tradie insurance additional.

Jay S

17/6/2022 15:29:54

Hi All,
Just a quick question on Home and Building warranty.
Does the warranty start from completion of the work or after issuing Occupation certification by local council, Its for major defect which cover for 6yrs.

K M Lalji

17/2/2023 13:52:09

Does anyone know what the going rate for public liability premiums are for owner builders?

18/2/2023 08:22:26

Approx 1700 for 120k, checkout buildsafe

James Warne link

15/8/2024 14:39:56

I will need to bring this up with my building certifier. Hopefully that will shed some light on it for me and i can bring what i learn back to this blog.

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