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Legal Requirements for Owner Builders
This article refers to the Home Building Act 1989 (NSW) and the Consumer, Trader and Tenancy Tribunal in NSW

An owner builder is someone who is involved in coordinating or supervising any work, or carries out any work, involved in: the construction of a dwelling; alterations or additions to a dwelling; or repair, renovation, decoration or protective treatment of a dwelling.

The Home Building Act places obligations on owner builders to:

• Be licensed at the time of the proposed works, that is, have an owner builder permit if the reasonable market cost of the labour and materials exceed $5,000 inclusive of GST. If you carry on as an owner builder without a licence you can be fined.
• Obtain home warranty insurance if you sell the property up to six years after the work was done. If you do not carry this insurance at time of sale you can be fined.

Statutory warranties

If an owner builder sells the property that the work was carried out on within six years of the work being completed then the purchaser is entitled to the benefit of the statutory warranties (promises) in the Home Building Act in relation to the work. The owner builder gives the same promises as a builder who entered into a building contract with someone to carry out work.

The promises include:

• that the work was performed in a proper and workmanlike manner
• that all materials supplied are good and suitable for the purpose for which they are used and that, unless otherwise stated, the materials were new when used
• that the work was done in accordance with and complied with the law in place at the time of building
• that the work has resulted in a dwelling that is reasonably fit for occupation
• that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes the purpose or result known to the contractor, so as to show that the owner relies on the contractors skill and judgment.

Home warranty insurance

The insurance is something that the owner builder is required to take out if selling within six years, but the purpose of it is to protect the purchaser if one of the promises is broken.

The purchaser will receive the benefit of the insurance if it can be established that:

• the work is defective, that is, one of the promises has been broken, and
• a claim is made within the time allowed in the insurance policy and it has been notified in accordance with the policy, and
• the owner builder is dead, insolvent or has disappeared.

If the owner builder is still around and solvent then the only course for the purchaser to take, if they want to recover something for the defective works, is to sue the owner builder.

The purchaser has seven years after the date of completion of the work to bring a claim. If the work was never completed, the seven years is calculated from the date for completion of the contract, or if there was no date of completion, the date of the contract. If the purchaser attempts to claim out of this time, the owner builder has a defence to the claim. This often comes as a surprise to an owner builder when they receive a complaint from a purchaser, or worse, are served with an application from the Consumer Trader and Tenancy Tribunal (CTTT).

The case studies below assume a claim was made by a purchaser within this timeframe of seven years.

CASE STUDY

A person held an owner builder permit for building, and home warranty insurance on selling within six years. The work was to carry out alterations and additions to an existing property and build a swimming pool.

The market cost of labour and materials was over $5,000 inclusive of GST. The works were completed in May 2007. On 9 April 2008, he sold the property.

In late May 2008, the purchasers moved into the property and noticed deficiencies with the waterproofing in the bathrooms, cracking to the tiles in the pool and cracking to the exterior of the house.

The purchasers obtained a report from a building consultant. The report stated that:

• the work was deficient
• the work was not carried out in accordance with the Building Code of Australia
• the work was defective according to the Office of Fair Trading Guide to Standards and Tolerances
• the owner builder had breached the promise that the work was performed in a good and workmanlike manner.

The purchasers sent the report to the owner builder with a demand that they pay the cost of having the works rectified.

Scenario 1. Owner builder carrying out the work
The owner builder carried out the waterproofing works himself and signed a statutory declaration that was lodged with council saying: ‘…waterproofing work was carried out to council specification and waterproofing guidelines.’

In this case the owner builder can ask to inspect the property with a building consultant to obtain a report. If the report agrees with the one obtained by the purchasers then the owner builder will need to either offer to arrange for rectification of the deficiencies at his own cost, or allow the purchasers to arrange for someone to carry out the rectification work. The owner builder will then need to pay for the rectification work.

If the report does not agree with the one obtained by the purchasers then the owner builder has to work out how to deal with the dispute. This could involve:

• Negotiation, mediation or conciliation where the owner builder and purchaser will both compromise and come to an agreement; or
• a hearing in the Consumer, Trader & Tenancy Tribunal (CTTT) where a member will make a decision as to whether the work was carried out properly or whether there was a broken promise and a payment has to be made or rectification work carried out.

Scenario 2. Owner builder engaged a licensed waterproofing subcontractor

The owner builder contracted a licensed waterproofer to do the waterproofing works.

If the building consultant’s report agrees with the one obtained by the purchasers, then the owner builder will still need to either offer to arrange for rectification of deficiencies at their own cost, or allow the purchasers to arrange for someone to carry out the rectification work. The owner builder will then need to pay for this work. However, the owner builder will be able to claim for the cost of rectification against the licensed waterproofing subcontractor.

If the building consultant report does not agree, the owner builder would join the waterproofing subcontractor to the CTTT proceedings or in the negotiation/mediation conciliation. The owner builder is in the same position as a licensed builder who has had a claim made against them by an owner.

Scenario 3, Owner builder using an employee or friend

The owner builder cannot claim against an employee. The general rule is that employers are liable for the acts of their employees. Also, if the owner builder was involved in supervising the works, they will still be responsible for the deficiency.

Deficiencies and mistakes may happen but owner builders can try to prevent claims or at least be ready to handle a claim when it is made by preparing in advance.

Tips

• Keep detailed notes of all work carried out on site.
• Keep all receipts and invoices in relation to work carried out.
  
• If you are not doing all of the work yourself make sure that the person who is, is properly qualified, is licensed and has insurance.
• Keep details of the licences and insurances.
  
• Keep copies of all certifications given in relation to the works.
  
• Take photographs during the course of the works and when they are complete.
  
• It is cheaper to arrange for a building consultant to inspect and prepare a report before you sell. If you pick up any deficiencies you can rectify them before you receive a claim.

The above article contains general comments only. Please contact Watkins Tapsell for specific advice on your situation. All cases are decided on their own facts and circumstances.

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