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Owner-Builder Home Warranty Insurance
Home warranty insurance is also referred to as 'home indemnity', 'builder’s warranty' or 'builder’s indemnity.' But the different names are not the most confusing aspect; there are substantial misconceptions in respect to this form of insurance, which we will aim to clarify.
What is covered, and when it is needed, varies from state to state. This is one of the principal reasons that you'll often receive incorrect advice or no clear advice at all. Many people take out the insurance at the last minute because, even though they are advised of the requirement, they do not fully understand what it is for.
Unfortunately you'll find that even professionals in this area still occasionally get the information wrong, due to differences in legislative requirements in each state. The information contained in this article provides an explanation of the requirements for each state, with the information sourced directly from the relevant authorities.
Let's start by looking at what it is for, and then we'll move onto the issue of when it is needed and how to go about obtaining it?
Firstly, it's important to avoid confusing home warranty insurance with construction insurance. Construction insurance covers contract works, such as the structure you are erecting and the building materials, against loss or damage, and also provides public liability cover during the actual project. This insurance is always essential and should be obtained before work starts.
The Builders' Home Warranty Insurance covers loss or damage resulting from non-completion of the work, loss of deposit, or breach of statutory warranty if the property owner cannot recover compensation from the builder because of the following situations:
- death of the builder
- disappearance of the builder
- insolvency of the builder.
Note that the policy only responds to claims where the property owner or purchaser is unable to recover from the builder or owner builder.
There is a common misconception that a claim may be made against the policy without first pursuing recovery against the builder or owner builder. Where the builder or owner builder is available (and solvent) they remain entirely responsible.
When to insure
The owner builder must obtain the insurance, and provide a certificate to the buyer, before entering into a contract to sell the property. Failure to do so can result in a substantial fine. In addition they risk having the sale contract invalidated.
In order to avoid any dramas it is wise to advise your real estate agent and/or solicitor / settlement agent of this requirement when you list your property for sale.
The cost of this insurance decreases the later you need it. For example, if selling a property just one year before the end of the required warranty period you will only be paying for one year's worth of warranty insurance. This will therefore be cheaper than if you'd required the insurance earlier.
Even in states that do not require the owner builder to provide this insurance, it is important to understand that the owner builder is still liable for any breach of statutory warranty. This is still the case after the warranty period expires.
For example, if you sell your house five years after building, and after another four years the new owners discover that a waterproofing problem is as a result of sub-standard work (i.e. not to code at the time of building), they can still pursue you for the repairs. Even if you used a contractor to do the waterproofing, you are still the first point of call, as the 'builder'.
The following types of construction work require this insurance:
- construction of a new dwelling
- extension or renovation of a new dwelling
- placing of a pre-built dwelling onto land
- carrying out work associated with any of the above including pergolas, fencing, swimming pools, landscaping etc.
While we attempt to update this information regularly, legislation can change at any time, and you may need to check with your local authority (or click on the source links below).
Where the construction work is valued at over $16,000 and the property is sold within 6 and a half years from completion.
Source link: VIC
Where the construction work is valued at over $20,000, and the property is sold within 7 years from obtaining the owner builder license.
Source link: WA
ACT / QLD / SA / NSW
Not required by owner builders, and they cannot actually obtain this type of insurance even if they want to.
Source links: ACT / QLD / SA / NSW
Unlike other States, in the Northern Territory an owner-builder must obtain the insurance before commencing the project. It is only available directly through the Master Builders Fidelity Fund.
Source link: NT