Home owners caught short in changes to building defects insurance

Instead of having a blanket seven years to claim against home owners’ warranty insurance for building defects, home owners are now limited to just two years to discover non-structural defects and six years to uncover structural defects.

The nature of strata schemes puts them at a huge disadvantage in terms of knowing how long they have left to claim against their home warranty insurance.

A huge concern for strata schemes created after 1 February 2012 is that the statutory warranty periods for claims against the builder, developer or sub-contractor will be reduced significantly.

The fact that claims have to be made within six months of the problem being discovered is also a major setback, as strata schemes tend to take several months to take action to rectify defects.

Many schemes do not even know when completion of their building occurred, so it becomes very difficult for them to work to these reduced timeframes.

Having the building contract is critical for ascertaining whether the warranty period is seven years from completion or two years for non-structural and six years for structural defects. But it is very rare for schemes to have a copy of the contract, as it is not specifically identified as a document the developer must provide at or before the first annual general meeting.

Many schemes will be in a position where they will not know when ‘completion’ was or how many years after ‘completion’ they have to commence proceedings.

Schemes may need to become aware of and commence proceedings in relation to building defects within two years of completion.

It’s a real concern that proceedings need to take effect so soon after completion. Two years from completion will almost always be less than, and sometimes much less than two years from the date of strata plan registration.

If strata schemes have last resort insurance to make a claim outside the period of cover, the new law will prevent schemes from making a claim unless it “diligently pursues” the breach of the statutory warranty.

This new provision intends to prevent claims being made at all. If any recovery target still exists, even if it is a $2 company no longer trading, you may need to sue them to judgment and then wind them up to preserve your right to claim upon the insurance.

• Lost the right to notify the insurer within the period of cover and then make a claim after the period of cover
  
• Lost the right to make a claim outside the period of cover (for last resort insurance) if the builder dies, disappears or becomes insolvent prior to the last six months of cover
• Lost the right to make insurance claims more than 10 years after completion of the works regardless of the circumstances, such as the builder intentionally delaying the defect proceedings or winding up proceedings
• Lost the right to rely on notifications where notifications do not sufficiently specify the nature and circumstances of the loss
• Land-owning developers have lost the right to avoid their statutory warranty liabilities by not being party to a building contract
• Certain developers have lost the right to make home warranty insurance claims due to the types of permitted excluded beneficiaries being expanded.

In line with construction cost increases, the threshold for when home warranty insurance is required and where a cooling-off period applies was increased from $12,000 to $20,000 from 1 February 2012.

The minimum amount of home warranty insurance cover also increased from $300,000 to $340,000 per dwelling.

For more information or to discuss your home builder’s warranty issue, contact Streeterlaw on 8197 0105 or by emailing at advice@streeterlaw.com.au