Home building compensation (HBC) cover – formerly known as home warranty insurance – is an important consumer protection for homeowners in NSW. As renovations continue to boom, we recommend being across some insurances builders and tradespeople must have when working on certain upgrades to your residence.
Home building compensation cover protects homeowners as a last resort if their builder cannot complete building work or fix defects because they have become insolvent, died, disappeared or had their licence suspended for failing to comply with a court or tribunal order to compensate a homeowner.
Cover is only available from icare HBCF!
Future owners of a property are also covered for the statutory warranty period (six years for major defects in the work and two years for other losses from the date of completion of work). An additional six months cover applies in cases where the loss becomes apparent in the final six months of the period of insurance. The six-month period starts from the date of the loss becoming apparent.
As a NSW builder, it’s important to get to grips with HBC to avoid potential problems or delays with building projects and to stay on the right side of regulators. If you’re a licensed builder or tradesperson in NSW, you need to get home building compensation (HBC) cover for each home building project over $20,000 including GST.
Builders or tradespeople need this cover to work directly for a developer, homeowner or owner-builder for new homes, new low-rise ‘multi-unit’ buildings of three storeys or less, or home renovations, unless exempt.
Sub-contractors do not need the cover, because the head contractor has already covered the work.
If you’re thinking about making renovations, your builder or tradesperson must obtain a certificate of home building compensation (HBC) cover before starting the work or requesting payment from you.
A minimum of $340,000 in combined HBC cover is available for non-completion and defects within the statutory warranty period. That is six years for major defective work and two years for other losses. The time starts from when the work was completed.
You can make a HBC claim if your builder or tradesperson cannot fix or complete the work because they have died, disappeared, become insolvent, or had their licence suspended for failing to comply with a court or tribunal order to compensate a home owner.
In those circumstances, you will have cover for:
- loss resulting from incomplete work because of early termination of the contract (conditions apply)
- loss resulting from a breach of statutory warranty, such as:
- if the work is not done with due care and skill
- as per the plans and specifications set out in the contract
- the materials used are not suitable
- the work does not comply with the law
- the work is not done within the time stipulated in the contract
- within a reasonable time if the contract does not stipulate a time
- loss resulting from faulty design provided by the builder
- reasonable costs of alternative accommodation, removal and storage
- loss of deposits or progress payments (conditions apply)
- legal or other reasonable costs incurred in seeking to recover compensation
- reasonable costs incurred in taking action to rectify the loss or damage
- loss resulting from the work done by the subcontractors of the builder
- loss resulting from the work done by the builder to rectify the problem after completion of the work.
Failing to take out HBC cover for such work is an offence under NSW law.
When faced with defective residential building works and a builder unable to satisfy a claim, focus will obviously shift to HBC cover.
However, having been intended as a last resort measure, this is subject to some limitations:
- Contracts covered – HBC requires a contractor performing residential building work with a GST inclusive contract price of $20,000 or more to have cover
- Buildings covered – This only applies to buildings with 3 storeys or less, with some scope to artificially inflate the number of storeys.
From 1 July 2018, your builder or tradesperson must disclose the cost of the HBC cover in their contract with you.
The HBC premium or contribution is based on number of factors including the category of work, builder risk and location.
To read more, visit the State Insurance and Regulatory Authority website.