Contract for Sale of Land – Home Owners Warranty Insurance

Sep 23, 2020

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One of the questions that is asked when acting for a Vendor in preparing a Contract of Sale is whether any building works have been carried out to the property. If the answer is yes, then there are a series of issues that must be considered:

  • Is there a building contract?*
  • Was the work undertaken on an owner-builder basis?*
  • What was the value of the work?*

(*These questions are necessary to determine whether a Home Owners Warranty Insurance Certificate is required).

  • Has the work been completed?
  • Are there any defects in the work, and if so, are they of a structural or non-structural nature?
  • Has an Occupation Certificate been issued for the building works?

These questions are important as there are certain requirements imposed on Vendors when considering selling a property where building works have been carried out in the 6 years prior to the property being sold.  Certain disclosure requirements may be applicable depending upon the date the work was completed.

As set out below there can be serious consequences for a Vendor if the right disclosures are not made in the Contract of Sale.

Residential Building Work under a Building Contract

Residential building work is defined in the Act as:

“. . . any work involved in, or involved in co-ordinating or supervising any work involved in:

  1. the construction of a dwelling, or
  2. the making of alterations or additions to a dwelling, or
  3. the repairing, renovation, decoration or protective treatment of a dwelling.”

The Act requires that if any residential building work is carried out to a property and the value of that work exceeds $20,000.00, then Home Warranty Insurance is required.

If the property is then sold, or is offered for sale, within six (6) years from the carrying out of any residential building work (with a value in excess of $20,000), the Act requires that a certificate of Home Warranty Insurance be attached to the Contract for Sale of Land.

Residential Building Work under an Owner-Builder Permit

Vendors who have carried out residential building works under an Owner-Builder Permit are no longer required to provide the Purchaser with evidence of insurance, but a consumer warning must be included in the Contract for Sale of Land stating:

  1. that an owner-builder permit was issued in relation to the land (specifying the date on which it was issued), and
  2. work done under an owner-builder permit is not required to be insured under the Home Building Act 1989, unless the work was done by a contractor to the owner-builder.

If this consumer warning is not included the purchaser can void the sale contract before settlement.

This could cause a range of serious problems for a Vendor relying on the Contract proceeding to settlement as expected.

The requirement for a Contract of Sale to include a consumer warning does not apply:

  1. to a sale of land more than 7 years and 6 months after the owner-builder permit was issued, or
  2. if the reasonable market cost of the labour and materials involved does not exceed the amount prescribed by the applicable current Regulations as they may change from time to time.

Care must be taken when compiling all disclosure material for a Contract for Sale of Land to ensure that the disclosure of any previous building works, and the inclusion or exclusion of evidence of the Home Owners Warranty insurance, is compliant with the Home Building Act 1989 (NSW).

 

 

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