The Victorian Parliament has passed new laws to prevent builders accepting deposits under a Major Domestic Building Contract before they have taken out Domestic Building Insurance (DBI).

DBI is a consumer protection insurance designed for those constructing a new home, renovating, or developing buildings of up to three residential levels. It safeguards the property owner in the event of incomplete or defective work, serving as a last-resort protection in case the builder dies, disappears, or becomes insolvent. 

All builders in Victoria are legally required to purchase DBI on behalf of consumers for any domestic building project valued over $16,000 prior to taking any money from a consumer. Despite the majority of builders adhering to regulations, recent insolvencies have highlighted instances where builders disregarded the law by taking deposits from clients without obtaining DBI first.

Until now regulators have had limited ability to impose penalties and recourse on builders who do the wrong thing in this regard, but new laws that passed in Victoria last week change that. The Building Legislation Amendment – (Domestic Building Insurance New Offences) Bill 2023 (Vic), which passed State Parliament last Thursday, provide strong incentives to discourage builders from accepting deposits under a Major Domestic Building Contract (MDBC) until they have obtained the necessary insurance.

Under the new laws, which will come into force at a date yet to be confirmed, but no later than 28 November 2024, the Victorian Building Authority (VBA) will have stronger powers to act against builders who demand or receive deposits without first taking out the required insurance.   

The Bill makes it an offence for a builder who has entered a MDBC to demand or receive money from a building owner under the Domestic Building Contract without ensuring that they have the appropriate DBI cover in place. A builder who is found in breach of this will face a penalty of up to $96,155 for an individual, or up to $480,775 for a company.

Furthermore, under the amendment, builders who are found guilty of certain offences against the Domestic Building Contracts Act 1995, may become ineligible for registration for a period of time.

These new laws represent a positive step forward in further empowering regulators to intensify efforts to curb and discourage misconduct, as well as ensuring individuals have avenues to pursue action against builders who commit offences.

Next steps

Irrespective of these new laws, it remains prudent for consumers who are looking to build a new home or renovate, to make sure that domestic building insurance has been secured by their builder prior to handing over a deposit. In Victoria, consumers can confirm if their builder has a VMIA DBI in place for their build or renovation via this link.

DBI plays a vital role in safeguarding homeowners' investments and offering recourse in case of unforeseen issues. The Victorian Managed Insurance Authority (VMIA) is the primary provider of this insurance in Victoria, however it’s not the sole provider. The VMIA’s domestic building insurance also applies if a builder fails to satisfy a tribunal or court order.

To learn more about DBI, feel free to contact the BRIC team. BRIC is an insurance brokerage specialising in builders' warranty insurance, committed to providing expert advice and tailored solutions to help clients safeguard their investments.

You can also learn more about DBI through the following recently published articles "Understanding Consumers Risk and Insurance in Australia’s Home Building Market" and "Domestic Building Insurance: A Vital but Misunderstood Shield for Consumers."

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