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.
Happy Owner Building,
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.
Useful comments, thanks for the heads up.
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.
We were advised we needed either home warranty insurance or owner builder certificate in order to get a private company certification CC.
this clarified some important info for me, thank you for discussing it.
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!
There is a section on insurance in the Abacus Training Learner Guide we provide as additional resources
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
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.
My advice is to always avoid do and charge agreements.
In what ways Rick? Thank you
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.
Thanks, Graham. I'm building in NSW, this is comforting to know as the whole thing about insurance had been so confusing for me.
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?
Owner building certificate seem to be a grey area at present with a lot of councils, private certifiers and building companies interpreting differently .
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.
Brook Andrew Baker
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.
After reading all the above commentary I consulted
Thanks Lorrain for your research. After reading your post, I am going to take up both Public Liability Insurance and Contract Work insurance.
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,
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!
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!
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?
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 ?
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.
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??
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.
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.
As an owner builder - do you need to get public liability insurance for trades coming onto your property?
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
I doubt it? Likely something like home builder insurance is required. Perhaps (more remote thought) even tradie insurance additional.
K M Lalji
Does anyone know what the going rate for public liability premiums are for owner builders?
Approx 1700 for 120k, checkout buildsafe
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Rick Heaton is a Building and Construction Industry professional with formal tertiary qualifications in management and training.