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Builders Warranty Insurance: when it is not required

As of 1 July 2002 builders are required to take out warranty insurance for domestic building contracts with a contract price over $12,000, subject to certain exemptions.

The insurance is required to cover home owners for defects and incomplete work in cases where the builder dies, is insolvent or has disappeared. In all other cases the builder will be responsible for the defects and incomplete work.

In a $2.9 million property dispute, Berrigan Doube Lawyers acted for the vendor in the sale of property. The purchasers believed that this was a matter that required Builders Warranty Insurance.

We alleged that the property was not required to have Builders Warranty Insurance as the builder was carrying out domestic building work under a contract for the construction of a multi-storey building. A multi-storey building is a building that has a rise of more then 3 storeys and that contains two or more dwellings.

The purchaser argued that the dwelling was not more then 3 storeys as one of the storeys was a basement finished below ground level.

A space will not be considered a storey for the purpose of the legislation where the space:

1. contains only accommodation intended for vehicles; or
2. Is partly below the finished ground and the underside of the ceiling is more than 1m above the average finished level of the ground at the external wall.
   

In this case, the building surveyor confirmed that the basement was above the ground for the purpose of the legislation and that Builders Warranty Insurance was not required.

Whether a space in the building is a storey will ultimately be determined by the Building Surveyor who is responsible for ensuring that the property has the right insurance in place. If the Building Surveyor believes that the builder does not have the right insurance, a Building Permit will not be issued by the surveyor until the right insurance is in place.

It is best practice to ask your builder whether they have Builders Warranty Insurance and if they do not, to obtain legal advice on whether it is required under the relevant legislation.

If you have any builders insurance inquiries, please do not hesitate to contact us for more information.