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Builders play a critical role in maintaining the quality and safety standards of residential construction projects. By Law, builders in Victoria are required to take out domestic building insurance (DBI), also known as builder warranty insurance, for work valued at $16,000 or more. This insurance is designed to safeguard homeowners against incomplete or faulty building work, and provide homeowners protection in the event of a builders:
- Death
- Disappearance
- Insolvency
- Failure to comply with a final order issued by the Victorian Civil and Administrative Tribunal (VCAT) or a court, if the insurance policy was issued on or after 1 July 2015.
In the event of any of the circumstances listed above, homeowners may be eligible to file a claim, subject to the terms and conditions of their DBI policy. In addition, homeowners may be eligible to lodge a claim if a builder chooses to deregister their company. In instances where disputes arise between homeowners and builders concerning incomplete work or failure to meet contractual obligations, homeowners can seek assistance from the Domestic Building Dispute Resolution Victoria (DBRV).
The statutory warranty period commences from the date when the building work is considered completed, as indicated by the occupancy permit or certificate of final inspection. In cases where a defect is classified as major (or structural), homeowners have up to 6 years to lodge a claim, while minor (or non-structural) defects allow for a 2-year period for claims to be made.
What are your responsibilities after deregistering your business?
Builders may deregister their business for various reasons, including the completion of projects or retirement. It is crucial that builders understand the ramifications of deregistration, especially if previously obtaining DBI coverage.
There are also important company registration requirements enforced by the Australian Securities and Investments Commission (ASIC) and liability periods impacting builders to be aware of. As homeowners may, depending on the circumstances, be permitted to claim against a DBI policy following a builder’s deregistration, it is important to seek advice from an insurance and/or legal professionals. Generally, Builders should be aware that they are required to maintain their company’s registration with ASIC until at least the end of the 6-year liability period, which is calculated from the completion date of the last project (as per the occupancy permit or certificate of final inspection).
Further, it's important to understand that builder’s liability for building works generally ceases after a period of 10 years, rather than 6 years, as governed by the Building Act 1993 (Vic) and the Domestic Building Contracts Act 1995 (Vic) for defects liability and statutory warranty. Legal action related to building defects may be brought against the builder up to 10 years from the date of completion of the building work.
If a claim is paid, the VMIA reserves it rights to recover the claim from the Builder. Importantly, deregistering a company while there are active policies may also impact any potential DBI warranty eligibility facilities the builder may wish to apply for in the future.
Governing domestic building contracts in Victoria
Builders are generally required to perform their work with skill and care, meeting reasonable expectations, and utilising materials and goods of suitable quality. Moreover, they must adhere to all relevant building regulations and complete the work within a reasonable timeframe, with the responsibility of rectifying defects arising within specified periods post-completion. In Victoria, these periods can, depend on the circumstances, extend up to 10 years from the date the work was completed.
Regardless of whether a written contract exists, builders must also comply with the implied warranties established under the Domestic Building Contracts Act 1995. These warranties serve as vital safeguards for homeowners, ensuring that builders uphold standards of quality and professionalism across all aspects of the construction process.
These implied warranties provide homeowners with essential protection and avenues for legal recourse if the builder fails to fulfill their obligations or if defects arise. Understanding and adhering to these warranties is imperative for both builders and homeowners and constitutes a fundamental aspect of the legal framework governing domestic building contracts in Victoria.
Next steps
To learn more about DBI, contact our BRIC team.
BRIC is a specialist broker in domestic building insurance. We are committed to providing expert advice and solutions to our clients.
