The Home Warranty Insurance Scheme is established under the Home Building Act 1989 and commenced on 1 May 1997. It is an integral part of the consumer protection package for home owners having building work undertaken.
After new home warranty insurance arrangements for NSW commenced on 1 July 2010 the NSW Self Insurance Corporation trading as NSW Home Warranty Insurance Fund took over as the sole provider of home warranty insurance within NSW.
Home warranty insurance policies issued before the commencement of the new Government underwritten scheme will remain in force, and the insurer that issued the policy will remain on risk for the duration of the period of cover.
For more information, go to the Home warranty insurance fund website at www.homewarranty.nsw.gov.au
Home warranty insurance needs to be provided by:
From 1 February 2012, home warranty insurance is required to be obtained where the contract price is over $20,000 or, if the contract price is not known, the reasonable market cost of the labour and materials involved is over $20,000. Prior to 1 February 2012, the threshold was $12,000.
Where the contract price or the reasonable market cost of the labour and materials involved does not exceed $20,000, there is no legal requirement for home warranty insurance to be obtained.
Contractors who carry out residential building work must still hold an appropriate licence with Fair Trading where the labour and materials involved are valued at over $1,000.
Persons who contract and/or carry out specialist work (ie. electrical wiring, plumbing, gas-fitting, air-conditioning and refrigeration) require a licence regardless of the value of the work.
Home owners should be wary of any builder or tradesperson who says they do not need insurance if the value of work exceeds $20,000, or who suggests you obtain an owner-builder permit while they carry out the work for you.
The certificate of home warranty insurance should be an original issued by the insurer and should have the name of the contractor, home owner, property address and total value of the contract. The builder’s name shown on the insurance certificate should be exactly the same as that on the building contract and the builder’s licence.
It is recommended that prior to making any payment under a sale or building contract, home owners check the validity of the certificate of home warranty insurance by contacting the approved insurance agent whose contact details appear on the certificate.
Caution: A certificate of insurance is separate to a certificate of eligibility. A certificate of insurance is home warranty insurance cover issued specifically for your project, but ‘eligibility’ merely means that the builder has been assessed by an approved insurance agent and has been granted the entitlement to apply for job-specific certificates of insurance. Make sure the certificate of insurance you receive is a job-specific certificate issued for your project.
Examples of a certificate of insurance and a certificate of eligibility can be found on the Home warranty insurance page for Tradespeople on Fair Trading's website.
From 1 February 2012, home warranty insurance policies must provide cover of at least $340,000. Between 28 February 2007 and 31 January 2012, the minimum cover that had to be provided was $300,000. From 1 May 1997 to 27 February 2007 the minimum cover was $200,000.
Future increases in the minimum cover provided under the scheme will be in line with any corresponding increase in the Producer Price Index, which measures change in the price of wholesale goods and services.
The cover may be subject to limitations relating to over payment of deposits and progress payments and other limitations specified in the policy.
Claims for incomplete work are limited to at least 20% of the contract price (up to a maximum of the cover provided under the policy).
Construction of a new multi-storey residential building does not require home warranty insurance cover to be in place. For the purposes of the exemption from the home warranty insurance requirements, a multi-storey building is a building that:
A rise in storeys has the same meaning here as in the Building Code of Australia. A storey does not include a space within a building which is only intended to accommodate vehicles.
If a home owner is planning to buy a unit that is part of a multi-storey residential building, the developer is not required to attach a certificate of home warranty insurance to the contract for sale.
Conversely, construction of a new multi-unit residential development (where the rise is three storeys or less, eg. villa units, town houses, low and medium rise projects etc) does require home warranty insurance cover to be in place. In this instance, a developer is required to attach the certificate of home warranty insurance to the contract for sale of such dwellings.
Similarly, home warranty insurance cover must also be taken out before residential building work is done on an existing multi-storey building (eg. repairs, maintenance, alterations and additions etc).
Section 97 of the Home Building Act 1989 allows the Director General to grant an exemption from the home warranty insurance requirements contained in Part 6 of the Act, if satisfied that there are exceptional circumstances or that full compliance is impossible or would cause undue hardship. (Clause 72 Home Building Regulation 2004 prescribes persons entitled to apply for an exemption).
An exemption will not be considered where home warranty insurance cannot be provided because of a contractor’s financial or business circumstances or where building work has already commenced.
Residential building work done by some Government departments is automatically exempted from the insurance provisions (section 103E Home Building Act 1989; clauses 76 and 76A Home Building Regulation 2004).
Under the legislation governing the operation of the development and construction approval process, the Council/principal certifying authority is required to be notified of the builder for the project. It is also a condition of the approval for a project that home warranty insurance be obtained. Where home warranty insurance is not obtained, the Council/principal certifying authority may not be able to issue an occupation certificate for the completed building work. This may impact on the ability of the property to sell and its market price.
A claim under a home warranty insurance policy may be lodged with, or notified to, an insurer by a home owner (including a subsequent purchaser) in the event of a loss being suffered as a result of a builder, tradesperson, developer or owner-builder (as the case may be) failing to complete or commence work and/or failing to rectify defective work and the home owner cannot recover financial loss nor have the work rectified or completed.
In order for home owners to safeguard their position under a home warranty insurance policy, once they become aware of defective or incomplete work they should immediately notify the home warranty insurer of a loss. By law, this notification must be in writing and provide such information as may be reasonable necessary to put the insurer on notice as to the nature and circumstance of the loss.
The Home warranty insurance claims page on the Fair Trading website has information about making a claim, periods and types of cover provided as well as claim notification and lodgement procedures. More information is also available on the Resolving building disputes page.
The Home Warranty Insurance Scheme Board was established to oversee the operation of the home warranty insurance scheme. As part of its ongoing scheme monitoring role, the Scheme Board is examining how the scheme may be improved for the benefit of home owners and builders. For more information, refer to the Home Warranty Insurance Scheme Board page on the Fair Trading website.
Insurance agents authorised to provide home warranty insurance services on behalf of the NSW Home Warranty Insurance Fund for residential building work under the NSW Home Building Act 1989 are; Calliden Insurance Limited and QBE Insurance (Australia) Limited. For more information go to the Approved insurance agents page on the Fair Trading website.
For information on insurers that were previously approved to sell home warranty insurance, go to the Past approved insurers page on the Fair Trading website.
The certificate of home warranty insurance should be an original issued by the insurer and should have the name of the contractor, home owner, property address and total sum. The builder’s name shown on the insurance certificate should be exactly the same as that on the building contract and the builder’s licence.
It is recommended that prior to making any payment under a sale or building contract, home owners check the validity of the certificate of home warranty insurance by contacting the home warranty insurer whose contact details should appear on the certificate.
Fair Trading is able to investigate complaints about insurers approved to provide home warranty insurance in NSW under the Home Building Act 1989. For more information, refer to the Complaints against insurers page on the Fair Trading website.
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