Statutory warranties require construction to be carried out in a certain way. Statutory protection covers consumers for financial loss arising from defective or incomplete building work. A Government rescue applies to homeowners whose insurance was affected by the collapse of HIH Insurances.

Statutory warranties

Statutory warranties are implied by law whether or not they are detailed in the contract between you and your builder. They require construction to be carried out:

• in compliance with the Building Act 2004;
• in a proper manner and in accordance with the approved plans;
• using good and suitable materials;
• with reasonable diligence where no completion date is specified; and
• to ensure it will reasonably meet the requirements expressly made known by the owner.

Your building certifier oversees this during notifications and inspections.

In the ACT, statutory warranties expire:

• for structural work, at the end of six years after the date on which the Certificate of Occupancy was issued; and
• for non-structural work, at the end of two years after the date on which the Certificate of Occupancy was issued.

Statutory protection coverage

A licensed builder must obtain residential building work insurance (also known as housing indemnity insurance) or a fidelity certificate from an approved fidelity fund scheme before starting any building work, unless it is exempt from requiring protection.

Protection is required for:

• construction of certain kinds of residence; and
• certain alterations or additions to certain kinds of existing residence where the work is valued at $12,000 or more.
• In the ACT, insurance or a fidelity certificate provides for a maximum cover of $85,000.

The insurance or fidelity certificate will cover minor building work, such as built-in garages that form an integral part of the building, but not separate garages or carports. Builders can offer owners optional insurance for such building work if they wish.

The insurance or fidelity certificate covers:

• incomplete building work due to the builder’s insolvency, disappearance or death; and
• defects that come to light after completion if the builder has died, disappeared or become insolvent.

Insurance or a fidelity certificate requires the insurer to be informed within 90 days of you becoming aware of the defect.

The insurance or fidelity certificate does not apply to a building still owned by the builder or by a developer. Otherwise insurance or a fidelity certificate begins when the title in the land is transferred to the purchaser. It expires five years after the day the Certificate of Occupancy is issued.

Where protection can be taken out

Insurance is available through the Housing Industry Association. Fidelity certificates are available through the Master Builders Association. Builders may take out other insurance.

HIH Government rescue

In 2001 the ACT Government allocated funds to cover the potential losses of homeowners who had claims under residential building work insurance backed by HIH. The assistance applied both to claims that had been approved and not paid before the collapse of HIH and to any new claims that would have been paid if HIH had not been placed in liquidation on 16 March 2001. The residential building work insurance applied for five years after completion.

This insurance only protected residential building work as defined in the Building Act 1972 and provided a maximum coverage of $85,000 for a building project. The builder is responsible for rectifying defects and therefore insurance should only be payable if the builder is unable to do so because of circumstances like bankruptcy. The Government employs an independent assessor to review new claims against the provisions of the insurance and the circumstances of the building project concerned.

Homeowners receiving financial assistance are required to assign to the ACT Government any monies that may in future be paid by HIH in relation to the claim. In addition, they must assign the right to recover some or all of the money from the bankrupt builder’s estate or from a separate claim against a private building certifier (if the certifier is found to be negligent).

The ACT Planning and Land Authority administers the ACT Government’s rescue for residential building work insurance. Homeowners who wish to lodge a claim against HIH or another insurer should initially contact the organisation that issued the policy to their builder.