When Am I Required to Take Out Home Warranty Insurance, and How Much Am I Required to Take Out?

December 2009

We regularly receive enquiries from our clients asking if they are required to take out Home Warranty Insurance on a particular project. This requently arises where either they are not responsible for securing the Building Permit or such approval is not required.

Here we look at several common examples to help you determine when you are required to arrange Home Warranty Insurance, and what you are required to consider in determining how much insurance you need to take out. Legislation in Victoria and NSW require that Home Warranty Insurance be taken out when entering into domestic building contracts where the value of the works exceed $12,000. This is irrespective of who has taken out the relevant building permit, or even if a permit is not required for the works.

Working for an Owner Builder

According to the Victorian Building Commission, in 2008-2009, 29% of all domestic building permits in Victoria were issued to Owner Builders. Often, Owner Builders take out their own permits, as they want to either undertake certain portions of the work themselves, or have the ability to organise the individual trades to undertake each section of work. There are builders within the industry that recommend property owners take out owner builder permits to supposedly avoid delays in arranging insurance, and wishfully to save costs.

Fiction: Licenced builders undertaking works for owner builders are not required to take out Home Warranty Insurance, as this is the responsibility of the Owner Builder.

Fact: If you are contracting directly to an Owner Builder and the value of your work and the materials you are working on exceeds $12,000 in Victoria or New South Wales ($8,000 in South Australia), then you are required to provide Home Warranty Insurance for your contract. Not only does the builder have to purchase the insurance but also the Owner Builder if they sell within six years - which is ultimately more expensive!

Contracting for Labour Only

Due to the ease with which people can now purchase building materials over the internet, there has been an increase in the number of property owners that choose to supply their own materials, and engage builders to provide labour services only. 

Fiction: The builder is only required to provide warranty insurance for the value of the contract, i.e. labour only

Fact: Where your client is providing their own materials, you are required to take out warranty insurance on the value of your contract, plus reasonable costs for the replacement value of the materials supplied by the owner. i.e. where an owner is supplying $70,000 worth of materials and your contract is for $14,000, you must supply insurance for $84,000.

Providing Project/Construction Management Services

Project/Construction Management is a broad and often misused term within the building industry. Regardless of whether or not you are picking up tools onsite, or if the various trades are contracting with you or directly with the owner, if you are supervising or overseeing the building works and there is not a separate head contractor, then you may be deemed to be carrying out the domestic building work, and required to provide Home Warranty Insurance for your contract, plus for the various trades which you are supervising/overseeing. 

Fiction: As long as you are not picking up tools on site, but simply ensuring that the various contractors are getting the work done on time, and in accordance with the plans etc, you are not the ‘builder’ and therefore Home Warranty Insurance is not required.

Fact: If you are deemed to be the builder, whether or not you are physically performing any work, you are required to provide Home Warranty Insurance for the total replacement value of the works.

Undertaking work when no permit is required

Sometimes you may find that you are contracting to provide services where no building permit is required due to the nature of the works being performed. i.e. replacing weatherboards, non structural kitchen renovations etc.

Fiction: Home Warranty Insurance is only required on jobs where a building permit is required

Fact: Home Warranty Insurance is required for any domestic building work valued at over $12,000, unless the work is specifically excluded by legislation.

GST – does this form part of the contract price

A common misconception is that GST does not need to be included in determining the value of Home Warranty Insurance required to be taken out.

Fiction: GST is not included when determining the value of works for insurance purposes.

Fact: GST forms part of the total contract price, and needs to be included in the value of work when arranging Home Warranty Insurance.
The above is not an exhaustive list of when you are required to provide Home Warranty Insurance, and it is always a good idea to contact your building surveyor or Insurance Broker to determine what is required if you are unsure.


To the extent that any of the above content constitutes advice, it is general advice without reference to your needs or objectives and therefore cannot be relied upon. Before acting on any advice you should obtain advice specific to your needs.



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