Home Property & You When is Home Owners Warranty Insurance Required in NSW?

When is Home Owners Warranty Insurance Required in NSW?

When is home owners warranty insurance required NSW?
When is home owners warranty insurance required NSW?

Ever wondered when home owners warranty insurance is required in NSW? If you’re planning to build a new home or do any major renovations, then you may be required to obtain home owners warranty insurance. This type of insurance is also known as home building compensation cover. It is designed to protect homeowners in the event that their builder is unable to complete the building work or fix defects due to insolvency, death, disappearance or license suspension.

Home owners warranty insurance is mandatory in NSW for certain types of construction projects. If you are a licensed builder or tradesperson and you are about to undertake a home building project valued at $20,000 or more, including GST, you must obtain Home Building Compensation Fund (HBCF) cover. This insurance is exclusively available from iCare HBCF, the single provider operated by the NSW Government.

The purpose of home owners warranty insurance is to provide peace of mind to homeowners. In addition, the cover ensures that the homeowners are protected from financial loss if their builder is unable to complete the work or fix defects. Tradies and builders need to understand the requirements for obtaining this insurance. They also need make sure that they comply with the standards before commencing work or requesting payment. Failure to obtain home owners warranty insurance when required can result in penalties, fines or even legal action.


Home Owners Warranty Insurance in NSW

Below are some key things you need to know about home owners warranty insurance in NSW.

So What Is Home Warranty Insurance?

Home warranty insurance is a safety net for homeowners in case of defective building work or major defects. It’s a legal requirement for all residential building work over $20,000. The work includes new homes, home renovations or alterations as well as swimming pool constructions. The insurance policy provides cover for non-structural defects for six years and two years for defective work.

When Is It Required?

A licensed builder or contractor needs to obtain a certificate of insurance on each domestic project over $20,000, prior to starting work or signing contracts. The certificate of insurance is required for all residential building work, including new contracts, owner-builder work and contracted building work. The contract price or market cost of labour and materials must be over $20,000, including GST.

Key Entities Involved

The NSW Government oversees the home warranty insurance scheme, which is administered by iCare. As a licensed builder or contractor, you’ll need to apply for a policy through iCare. Homeowners are also involved in the process. They need to ensure that their builder or contractor has obtained the necessary insurance policy before commencing work. Subsequent purchasers of the property are also be protected under the insurance policy. However this will depend on the construction type and the nature of the work.

For further information about home owners warranty insurance, including specialist work and potential problems, visit the Service NSW website.

When is Home Owners Warranty Insurance Required in NSW?

Eligibility and Coverage Details

Eligibility Criteria

You must obtain a certificate of eligibility on each domestic project over $20,000, prior to starting work or signing contracts.

Extent of Coverage

HBC cover protects homeowners as well as subsequent owners for six years from the date of completion of major/structural works, and two years from the date of completion of minor/non-structural works. The coverage amount for HBC cover must be at least $340,000.

In the event of incomplete work or non-completion of work, the HBCF provides a safety net for homeowners faced with incomplete and defective building work carried out by a builder or tradesperson.

Claiming Compensation

If you discover any defects in the workmanship or materials used in your building project, you may be entitled to claim compensation from the HBCF. You must notify the builder or tradesperson in writing of the defects within six months of discovering them. In addition, you need to lodge a claim with the HBCF within 24 months of the period of insurance.

To claim compensation, you will need to provide proof of HBCF cover. The proof can be a certificate of insurance or a deed of indemnity. You can access the HBCF builder self-service portal or the iCare HBCF self-service portal to obtain this proof of cover.

The HBCF only covers defects that have a significant impact on the safety, livability or function of the building. Cosmetic defects or defects that do not significantly impact the building are not covered by the HBCF.


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Legal and Financial Implications

Consequences of Non-Compliance

If you fail to comply with the requirements for Home Owners Warranty Insurance in NSW, you may face serious legal and financial consequences. The NSW law mandates that residential building work valued at over $20,000 requires Home Warranty Insurance. Carrying out such work without obtaining the necessary insurance may lead to penalty of up to $22,000. The court or tribunal may also order you to pay compensation to the homeowner for any financial loss they suffer due to your non-compliance.

Financial Protections for Homeowners

Home Owners Warranty Insurance provides financial protections for homeowners in the event of a breach of statutory warranties by the builder. If the builder fails to complete the work or fix defects, the homeowner can claim compensation from the insurer. The insurance coverage includes the cost of completing the work and rectifying defects. It also includes coverage of other reasonable expenses incurred by the homeowner.

Home Owners Warranty Insurance does not cover all aspects of the construction project. For example, it does not cover contract works insurance, professional indemnity insurance or public liability insurance. Therefore, it is advisable to seek legal advice. In addition, carefully review the terms of the insurance policy before signing the contract.

Who Regulates the Home Owners Warranty Insurance Scheme

The State Insurance Regulatory Authority (SIRA) regulates the Home Owners Warranty Insurance scheme in NSW. The SIRA issues a certificate of insurance to the homeowner, which provides proof of insurance coverage. The homeowner has a right to reasonable access to the site during the construction process to assess the work and ensure compliance with the Home Building Regulation.

To protect yourself from financial loss and stay on the right side of regulators as a homeowner, conduct a risk assessment before undertaking any residential building projects. You should also ensure that the builder has obtained Home Owners Warranty Insurance. Ask for a copy of the certificate of insurance before commencing the work. In case of any disputes, it is advisable to seek the services of a construction lawyer. In addition, enter into a deed of indemnity to protect your interests.

When is Home Owners Warranty Insurance Required in NSW?

Process and Requirements

Home Owners Warranty (HOW) Insurance is mandatory in NSW for certain types of construction projects. The HOW system is based heavily on your financial stability as a builder.

Securing the Certificate of Insurance

To secure the certificate of insurance, you must apply to an approved insurer. The certificate of insurance must be issued in the name of the homeowner. Furthermore, it must be provided to them before any work commences. The certificate of insurance provides protection to homeowners in the event of default by the builder or contractor.

Dealing with Builder Issues

If you encounter issues with your builder or tradesperson, you may need to take legal action. You can make a claim against the insurance cover if the builder or contractor is unable to complete the building work. You can also apply to an administrative tribunal to resolve disputes with your builder or contractor.

Please note that the certificate of insurance has an open job limit. This is the maximum value of work that can be undertaken under the certificate. The open job limit for a certificate of insurance is $300,000. The period of cover for the certificate of insurance is 12 months, and it must cover the intended purpose of the building work.

In NSW, the period of cover for electrical wiring is 24 months. The completion date of the building work must be within the period of cover. If the building work is not completed within the period of cover, the homeowner may be entitled to a partial refund.

The NSW Civil and Administrative Tribunal and NSW Fair Trading can provide further information about the requirements for Home Owners Warranty Insurance. It is important to ensure that you comply with all the requirements to avoid any legal issues.

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