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Developers 

Reform of the residential home building laws


The NSW Government has completed a comprehensive review of the residential home building laws. The majority of the changes in the Home Building Amendment Act 2014 and the Home Building Regulation 2014 commence on 15 January 2015. Visit the Major changes to home building laws page to read more about the changes to the home building laws.

Under the Home Building Act 1989, a developer is an individual or company or partnership on whose behalf the work was done, and the owner of the land (if different to the person on whose behalf the work was actually done), in the following circumstances:

  • the residential building work is done in connection with an existing or proposed dwelling in a building or residential development where four or more of the existing or proposed dwellings are or will be owned by the individual, partnership or corporation, or
  • the residential building work is done in connection with an existing or proposed retirement village or accommodation specially designed for the disabled where all of the residential units are or will be owned by the individual, partnership or corporation.

Note. This makes the owner of the land a developer even if the work is actually done on behalf of another person (for example, on behalf of a party to a joint venture agreement with the owner for the development of the land). The other person on whose behalf the work is actually done is also a developer in relation to the work.

A company that owns a building under a company title scheme is not a developer for the  purposes of this Act.

The builder is the individual, company or partnership that carries out the residential building work.

Residential building work 

Residential building work is any work involved in the doing or the supervision or the co-ordination of the construction of (or alterations, repairs or additions to, or protective treatment of) a dwelling.

A dwelling (ie. house, terrace, villa, home unit, etc) includes:

  • swimming pool or spa
  • garage, shed, cupboards, driveway, fence
  • various other structures prescribed by the Home Building Regulation 2014 when they are constructed for use in conjunction with a dwelling.

A developer usually arranges for another party (licensed contractor) to do the residential building work unless they hold a licence as a builder in their own right.

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Caution to developers 

A note of caution to developers who contract two or more parties:

  • Developers may contract one or more person/ company/ partnership to undertake part of a residential building project.
  • Each person/ company/ partnership is only responsible for the work specified under their contracts.
  • If the developer contracts two or more parties to work on the same building project, the developer is supervising and co-ordinating the work. This means that they are taken to be undertaking residential building work under the title of ‘builder’ and take on responsibility for this role and must hold a licence issued by NSW Fair Trading in the category of 'builder'.

Example 1

Sometimes a developer may hire:

• a licensed builder to supervise the technical aspects of the building project

• other contractors to carry out various trade works in the building project.

The licensed builder is only responsible to supervise or do the part of work they are contracted to do and is not responsible for the work that the developer hired the other parties to do.

Example 2

A developer:

  • contracts a variety of trade contractors to work a number of roles, or
  • hires two contractors, where one contractor might do, say, excavation work as preparation for the foundations and another contractor does the construction work.

If the excavation work here is part of the entire residential building work project (eg. by being support work for permanent foundations, rather than a hole for temporary shoring) the developer who contracts the separate contractors to do the different parts could be seen as co-ordinating the whole project.

Important: Each situation should be considered on its own facts.

The developer who does the building work or co-ordinates other contractors who are doing the work becomes subject to the provisions of the Act as a ‘spec’ builder.

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'Spec' builders 

A ‘spec’ builder is the general term for an individual, company or partnership who carries out residential building work on land that they own. The ‘spec’ builder is a licensed builder and therefore does not need to contract out the work, but can do their own residential building work.

The building work is speculative, meaning the property is generally intended to be sold at completion.

Regardless of their intention (to sell or keep the property for investment), the ‘spec’ builder must:

  • arrange insurance under the Home Building Compensation Fund on the proposed residential building work before starting the work
  • attach the certificate of insurance under the Home Building Compensation Fund to the contract for sale of the property.

If the insurance certificate under the Home Building Compensation Fund is not attached to the contract for sale, the:

  • ‘spec’ builder is committing an offence and may be subject to a penalty
  • purchaser has the right to rescind the contract for sale before settlement.

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Developer's responsibilities  

Insurance under the Home Building Compensation Fund

A developer needs to ensure that the builder has arranged insurance under the Home Building Compensation Fund for each dwelling before work commences if they contract a builder (principal contractor) to:

  • undertake the building work
  • take responsibility for the entire project.

When selling the property within 6 years of completion of the work, the developer must give the certificate of insurance under the Home Building Compensation Fund with the contract, to each purchaser of a dwelling.

It is an offence for a developer to enter into a contract for sale of land where residential building was done or is currently being done or is to be done on the developer's behalf unless the certificate of insurance under the Home Building Compensation Fund provided by the builder is attached to the contract for sale - except in certain circumstances for 'off the plan' sales.

The purchaser has the right to cancel the contract before settlement if the certificate of insurance under the Home Building Compensation Fund is not attached to the contract of sale. Certain circumstances, such as sale off-the-plan are exempt.

Important: Under the Home Building Act 1989 an insurance policy under the Home Building Compensation Fund is not required to cover a developer on whose behalf residential building work is being done. This is reflected in all currently available insurance policies, where developers are a standard exclusion.

Developers should seek independent professional advice as to other measures available to them to minimise any loss as a result of the death, disappearance or insolvency of the builder they engage. Such measures might include requiring a builder to have some other appropriate insurance in place (eg. principal nominated contractor insurance) or requiring a builder to provide an on-demand bank guarantee, letter of credit or performance bond/surety which can be presented for payment if there is a default under the building contract.

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Engaging licensed contractors 

From 29 April 2005, it has been an offence under the Home Building Act, for a developer to:

  • knowingly employ an unlicensed contractor
  • refuse to disclose to a building inspector the names and addresses of persons working on the site

Monetary penalties may be imposed for knowingly employing an unlicensed contractor.  The Home Building Act provides for a maximum penalty of $22,000 for individuals and $110,000 for a corporation for these offences.

From 1 March 2015, Individuals convicted of a subsequent offence of unlicensed contracting are liable to a penalty not exceeding $55,000 or imprinsonment for a term not exceeding 12 months, or both.

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