They are right to do so. Building, restoring and improving residences throughout Newcastle and the Hunter Region is a popular form of investment, but problems arise when there is no Home Warranty Insurance in place, or it is insufficient to cover the extent of the work.
The question arises as a result of the terms of the Homes Building Act 1989 (NSW) (“the Act”), which in general terms, requires that if any residential building work has been carried out to a property within six (6) years prior to the property being listed for sale, where the value of that residential building work exceeds the prescribed minimum (currently $20,000), then in any Contract for Sale of property there is a requirement for a certificate of Home Warranty Insurance to be included in the contract.
Residential building work is defined in the Act as “. . . any work involved in, or involved in co-ordinating or supervising any work involved in:
(a) the construction of a dwelling, or
(b) the making of alterations or additions to a dwelling, or
(c) the repairing, renovation, decoration or protective treatment of a dwelling.”
The Act requires that if any residential building work carried out to a property and the value of that work exceeds $20,000, then Home Warranty Insurance is required.
If the property is then sold or is offered for sale within six (6) years from the carrying out of any residential building work (with a value in excess of $20,000), then the Act requires that a certificate of Home Warranty Insurance be attached to the Contract for Sale of Land.
A popular misconception is that the requirement for Home Warranty Insurance does not apply to “owner-builder work”.
However, Section 29 of the Act specifically includes owner-builder work as:-
(a) the reasonable market cost of the labour and materials involved which exceeds the prescribed amount ($20,000); and
(b) that relates to a single dwelling-house or a dual occupancy.
In other words, if a home owner carries out owner-builder work and the reasonable market cost of the labour and materials exceeds the sum of $20,000, then the owner-builder is required to obtain Home Warranty Insurance.
If the owner-builder carries out residential building work that exceeds this value and DOES NOT obtain Home Warranty Insurance at the time of carrying out that work, then the owner-builder may be faced with the difficult situation of having to obtain Home Warranty Insurance after the work has been completed if the owner-builder offers the property for sale within six years from the date the completion of the residential building work.
The requirement to obtain Home Warranty Insurance after the work has been completed can often create difficulties as a result of the requirements of any of the insurance companies that offer Home Warranty Insurance, such as obtaining of engineers reports and other reports (to confirm that the works have been carried out in a proper manner).
There are also penalties (fines) for persons who enter into a Contract for Sale of Land in respect of which land residential building work has been completed which exceeds the prescribed minimum and a Home Warranty Insurance Certificate is not attached to the Contract.
