Home Building Compensation Cover – what you need to know

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What’s in a name?

 Not much really, but it is important to know the current jargon in order to avoid confusion. What used to be called ‘Home Warranty Insurance’, has become ‘Home Building Compensation Cover’, but they are the same thing. It is important to note that there are differences in requirements from state to state, and this article refers only to NSW.


The Home Building Act of 1989 (NSW) and its various amendments provides the law that is designed to protect both builders, their clients—that is, property owners—and in some circumstances, subsequent purchasers of a property.

 The Act provides the law, and the NSW Department of Fair Trading is the instrument for administering it. The NSW State Insurance Regulatory Authority regulates the insurance coverage. 

One game – many players

 In the one overall activity of construction, renovation, extension or development, many and varied people may be involved:

  • Owner builder
  • Builder
  • Sub-contractor or tradesperson
  • Property developer
  • Property owner
  • Subsequent purchaser of the property
  • ‘Off-the-plan’ purchaser

…. and it is vital that each be aware of their specific requirements and obligations in this area.

Essentially, HBC cover must be obtained by the builder (in circumstances described below), but others involved need to know their obligations. ‘I didn’t think I needed it’, is not regarded as a valid excuse.

 The 20K cut-off

 There are various requirements in terms of, amongst other things, contracts and insurance coverage, and they are decided based upon the cost of the project. The cost includes labour, materials, and GST. The levels are:

  • Not more than $5,000
  • More than $5,000 but not more than $20,000
  • More than $20,000

 The significant point here is that HBC cover is only required for the last category, where the cost of the project is more than $20,000. The cover must be obtained, and evidence provided to the property owner at the outset. Some exemptions apply, but they are very specific, and must be applied for.

 There are dedicated rules and requirements for owner-builders, and they too need to be fully appraised. For example, while an owner-builder may not need HBC cover, if they employ a builder to complete part of the project, and that portion is valued at more than $20,000, then the HBC cover requirements come into play. Make sure you know the rules.

 Coverage is designed to protect the property owner from defects and incompletion where a builder has:

  • Died
  • Disappeared
  • Become insolvent
  • Had their licence suspended for failing to comply with a direction from the court or a tribunal

 Coverage is limited to 6 years from completion, in the case of major defects, and lesser periods for other issues.

 As such, if work has commenced, or was completed less than 6 years from the property being offered for sale, a Certificate of Insurance must be attached to the Contract for Sale. Failure to do so is a breach of the law, and may provide an avenue for the contract to be rescinded.

Vendor — be aware

 Whether you are buying ‘off-the-plan’, or purchasing a property which has either been built, extended, or renovated ‘a few years ago’, you need to make sure that you have proper protection under The Act. We can help.

Building and Construction Law … measure twice, cut once

 It will be easier with sound legal advice from the experts. Owen Hodge Lawyers. We are here to help.

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