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.
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.
Caution to developers
Developers who contract two or more parties should be aware that:
- Developers can 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 coordinating 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 can hire:
- a licensed builder to supervise the technical aspects of the building project, or
- 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.
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 cover under the Home Building Compensation (HBC) Scheme for the proposed residential building work before starting the work
- attach the certificate of cover under the HBC Scheme to the contract for sale of the property.
If the certificate of cover under the Home Building Compensation Scheme 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.
Insurance under the Home Building Compensation Scheme
A developer needs to ensure that the builder has arranged insurance under the Home Building Compensation Scheme for each dwelling before work commences if they contract a builder (principal contractor) to:
- undertake the building work
- take responsibility for the entire project.
Visit the SIRA website for more information.
Important: Under the Home Building Act 1989 an insurance policy under the Home Building Compensation Scheme 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 get independent professional advice 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.
Engaging licensed contractors
From 29 April 2005, it’s 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 will be imposed if you knowingly employ 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 imprisonment for a term not exceeding 12 months, or both.