Understanding the Defects Liability Period
If you have recently built or bought a new home in New South Wales, it is essential to understand the defects liability period. The defects liability period is a contractual provision that gives homeowners the right to have any defects in their new home fixed by the builder.
During the defects liability period, the builder has an obligation to repair or replace any defective work in accordance with the terms of the contract. In most cases, the defects liability period lasts for 13 weeks from the date of practical completion of the work. However, this period may vary depending on the terms of your contract.
It is important to note that the defects liability period does not cover wear and tear, damage caused by the owner, or defects that arise from the failure of the owner to maintain the property properly. If you notice any defects during the defects liability period, you should notify the builder in writing as soon as possible.
It is also important to keep in mind that the builder’s obligations extend beyond the defects liability period. Under the Home Building Act 1989, the builder has statutory warranties for residential building work that are implied in every contract. These warranties include a warranty that the work will be done with due care and skill, that all materials will be good and suitable for their intended purpose, and that the work will comply with all relevant laws.
In addition, the Design and Building Practitioners Act 2020 imposes a duty of care on persons who carry out construction work to exercise reasonable care to avoid economic loss caused by defects in or related to a building arising from the construction work. The duty of care is owed to each owner of the land in relation to which the construction work is carried out and to each subsequent owner of the land.
Understanding your rights and the builder’s obligations during the defects liability period and beyond is critical to ensure that you are protected in case of any defects in your new home. In the next section, we will discuss how to identify defects and what to do if you find any.
Statutory Warranties and the Home Building Act 1989
In addition to the contractual defects liability period, the Home Building Act provides statutory warranties for residential building work. These warranties are implied in every contract to do residential building work and require the holder of a contractor license to warrant that the work will be done with due care and skill, in accordance with the plans and specifications set out in the contract, and that all materials supplied will be good and suitable for the purpose for which they are used, among others. The warranty may extend to compliance with the National Construction Code, the Building Code of Australia, and Australian Standards.
Importantly, these warranties are not limited to a contract to do residential building work for an owner of land and are also implied in a contract under which a person who has contracted to do residential building work contracts with another person for the subcontractor to do the work for the principal contractor. These warranties are extended for specialist work.
Section 18E of the Home Building Act sets out the warranty period for a breach of a statutory warranty. This period is six years for a breach that results in a major defect in residential building work and two years in any other case. The warranty period starts on completion of the work to which it relates, but this does not prevent proceedings from being commenced before completion of the work. If the breach of warranty becomes apparent within the last six months of the warranty period, proceedings may be commenced within a further six months after the end of the warranty period.
Homeowners should note that the statutory warranties provided by the Home Building Act are separate from any contractual warranties provided in the residential building contract, such as the defects liability period. This means that homeowners have additional rights and remedies under the Act in the event of defective building work. It is important to seek legal advice as soon as possible if you suspect that there may be a breach of a statutory warranty or if you are unsure of your rights and options.
Related content: Statutory Warranties – NSW
Liability for Negligence and the Design and Building Practitioners Act 2020
The Home Building Act 1989 provides statutory warranties for residential building work. However, homeowners may encounter defects in their homes even after the defects liability period has ended. In such cases, homeowners may be entitled to compensation for their economic loss caused by defects. The Design and Building Practitioners Act 2020 has been introduced to address such situations.
Under the Design and Building Practitioners Act, any person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects in or related to a building arising from the construction work. The duty of care is owed to each owner of the land in relation to which the construction work is carried out and to each subsequent owner of the land. This means that a builder or developer can be held liable for any defects in a building even after the defects liability period has ended.
If a homeowner identifies a defect in their home that falls within the scope of the Design and Building Practitioners Act, they may be entitled to compensation for their economic loss. Homeowners may commence legal proceedings for breach of the duty of care within 10 years from the date of completion of the construction work.
It is important to note that the statutory warranties under the Home Building Act and the duty of care under the Design and Building Practitioners Act can coexist. This means that homeowners may be entitled to compensation under both Acts for the same defect.
In the next section, we will discuss the Building and Construction Industry Security of Payment Act 1999 and its implications for homeowners with defects in their homes.
Setting-Off the Cost of Defects Rectification and the Building and Construction Industry Security of Payment Act 1999
In addition to the remedies provided by the Home Building Act and the Design and Building Practitioners Act, homeowners can also rely on the Building and Construction Industry Security of Payment Act 1999 to seek compensation for defects in residential building work.
Under the Act, the owner has the right to set-off the cost of defects rectification from any payment claim made by the builder. This means that if the builder submits a payment claim for work done on the property, the owner can deduct the cost to fix any defects from the payment claim.
However, it is important to note that the right to set-off is subject to certain limitations. The owner must provide the builder with a written notice, known as a payment schedule. The payment schedule notice must specify the amount of the set-off and the reasons for it. The owner should provide detailed particulars of the defect, why the builder is responsible for the defect, the rectification method for the defect, and the cost to rectify the defect.
The builder then has the right to dispute the set-off by lodging an adjudication application with an authorised nominating authority within the timeframes set out in the Act. If the builder lodges an adjudication application to challenge the set-off, then the matter is referred to an adjudicator to determine.
It is important for homeowners to understand their rights under the Building and Construction Industry Security of Payment Act 1999 and to seek legal advice if they have any concerns about defects in their residential building work.
Common Residential Building Contracts in NSW
When entering into a construction contracts, it is essential to ensure that the contract accurately reflects the terms that the homeowner has agreed to with the builder. In NSW, there are several commonly used residential building contracts, including:
- Home Building Contracts by the Housing Industry Association (HIA)
- Master Builders Association (MBA) Contracts
- Office of Fair Trading (OFT) Contracts
- Australian Building Industry Contracts from the Australian Institute of Architects
It is important to note that while these contracts have some similarities, they differ significantly from one another. Therefore, it is crucial to carefully review the contract and ensure that it aligns with the homeowner’s expectations. This is particularly because many builders amend these contracts in the special conditions and complete the schedules other than the prescribed method.
Each contract will outline the specific provisions regarding defects liability and the builder’s obligations during the defects liability period. It is essential to note that the defects liability period for residential building contracts in NSW is usually 13 weeks, whereas 52 weeks is more common for commercial and industrial projects.
The contract will also outline the payment terms, which are essential to ensure that the homeowner only pays for work that has been completed to a satisfactory standard. However, it is crucial to note that withholding payment for defective work is not allowed under these contracts, and homeowners are required to pay the full contract price despite any defects. The only exception to this is if the works are not substantially complete, meaning they cannot be used for their intended purpose. This may seem circular to the security of payment law but the application of the law will depend on the forum that the builder enforces his rights.
It is also worth noting that homeowners should consult with their lawyers before signing any residential building contract to ensure that their rights are protected throughout the construction process. This is especially important when it comes to defects liability and the builder’s obligations.
Identifying and Rectifying Defects Years After Construction
Despite the existence of statutory warranties, defects in residential buildings may still arise years after the completion of the construction work. The defects may be caused by poor workmanship, design errors, or the use of defective materials. These defects may not become apparent until years after the defects liability period has expired. For example, watch this video about a family who had a lucky escape when their Sydney home collapsed while they were sound asleep:
If you have identified defects in your home years after construction, it is important to take action as soon as possible. The first step is to engage a qualified and experienced building expert witness to assess the defects and provide a report. This report should identify the defects and provide an opinion on the cause and rectification of the defects.
Once the defects have been identified and assessed, you should contact the builder or contractor who carried out the work. You should provide them with a copy of the expert report and request that they rectify the defects. The builder or contractor may agree to rectify the defects at their own cost. If they refuse to rectify the defects, you may need to consider legal action to enforce your rights.
Under the Home Building Act, you may commence proceedings for a breach of statutory warranties within 2 to 6 years from the completion of the work. The Design and Building Practitioners Act also imposes a duty of care on builders to avoid economic loss caused by defects in or related to a building for which the work is done. You may be entitled to damages for the breach of this duty.
If you have received a payment claim under the Building and Construction Industry Security of Payment Act, you may set-off the cost of defects rectification from any payment claimed by the builder or contractor.
It is important to note that the costs associated with identifying and rectifying defects can be significant. You should consider seeking legal advice before commencing legal proceedings to ensure that you understand your rights and the potential costs involved.
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Conclusion
In conclusion, homeowners have various legal rights and protections when it comes to defects in their residential properties. It is important to understand the defects liability period, statutory warranties under the Home Building Act, liability for negligence under the Design and Building Practitioners Act, and the right to set-off the cost of defects rectification under the Building and Construction Industry Security of Payment Act.
It is also essential to have a good understanding of the common residential building contracts in NSW, such as the HIA Contract, Master Builders Association Contract, and Office of Fair Trading Contract. Homeowners must take proactive steps to identify and rectify defects, which can arise years after construction.
If you are a homeowner and have identified defects in your residential property, it is important to seek legal advice from an experienced lawyer. With the right legal guidance, you can navigate the complexities of defects liability and ensure that your rights are protected. Our office of expert building and construction lawyers offer a free 15 minute phone consultation to explore your options.
