Statutory warranties: what your builder still owes you after handover

Handing over the keys feels like the end of a building job. Legally, in New South Wales, it is not. The Home Building Act 1989 writes a set of warranties into every contract for residential building work, whether or not the contract mentions them, and they run for years after completion. Knowing what they cover, how long they last and what you have to do to rely on them is one of the most useful things an owner or strata committee can learn, because the time limits are firm and the steps you take in the first weeks after finding a defect matter.

What the statutory warranties are

Section 18B of the Home Building Act implies warranties into every contract to do residential building work. In plain terms, the builder warrants that:

• the work will be done in a proper and workmanlike manner and in line with the plans and specifications in the contract;
• the materials supplied will be good and suitable for their purpose and, unless the contract says otherwise, new;
• the work will be done in accordance with, and comply with, the law, which brings in the National Construction Code and the standards it references;
• the work will be done with due diligence and within the time stated in the contract, or within a reasonable time;
• where the work is a dwelling, or alterations, additions or renovation to one, the result will be reasonably fit for occupation as a dwelling; and
• where the owner made a particular purpose or result known to the builder, the work and materials will be reasonably fit for that purpose.

These are not optional extras. A contract cannot sign them away, and they sit underneath whatever warranty a builder or product supplier offers in writing.

Who can rely on them

The warranties are not limited to the person who signed the contract. Under section 18C, successors in title, such as a later buyer of the house, get the benefit of them too, for the rest of the warranty period. Owners corporations can rely on them for common property in a strata scheme. That matters, because many defects only show up after a property has changed hands, or after a strata building has been occupied for a couple of years.

How long they last

Section 18E sets the time limits for bringing proceedings:

• Six years for a major defect.
• Two years for any other defect.

Both periods run from completion of the work, not from when you notice the problem. If a defect becomes apparent in the last six months of the period, you get a further six months to commence proceedings.

The distinction between the two categories is important. Broadly, a major defect is a defect in a major element of the building that causes, or is likely to cause, an inability to inhabit or use the building (or part of it) for its intended purpose, the destruction of the building or part of it, or a threat of collapse. Major elements include load-bearing components essential to the building's stability (foundations, footings, floors, walls, roofs, columns and beams), fire safety systems and waterproofing. As the Building Commission NSW puts it, major defects involve structural or safety failures, and the category also extends to cladding and services in some cases.

Everything else, from poor finishes to minor cracking that is not structural, generally falls into the two-year category. It is no coincidence that waterproofing and structure are on the six-year list: they are the elements that are covered up during construction and that cause the most damage when they fail. Our articles on wet area waterproofing and carpentry and structural integrity explain why.

Your obligations when a defect appears

Owners have duties too. Section 18BA says a person relying on the warranties must:

• mitigate their loss, which means taking reasonable steps to stop the damage getting worse;
• make reasonable efforts to notify the builder in writing within six months of the defect becoming apparent; and
• not unreasonably refuse the builder access to inspect and rectify the work.

In practice:

1. Write it down, with photos, and date it. A clear record from the day you first noticed the problem is worth more than any later reconstruction.
2. Notify the builder in writing, early. An email that describes the defect, its location and when you noticed it is enough to start. Keep a copy.
3. Stop the damage spreading, for example by turning off a leaking supply or protecting finishes, but do not have someone else "fix" the defect before the builder and, if needed, an inspector have seen it. Removing the evidence can weaken your position and may affect your ability to recover the cost.
4. Give the builder a reasonable chance to rectify. Under section 48MA, when a court or the tribunal decides a defects claim, rectification by the responsible builder is treated as the preferred outcome. That is not automatic in every case, but refusing access without good reason can count against you.

If you cannot resolve it with the builder

• Building Commission NSW runs a free dispute resolution service for home building disputes. An officer will usually contact both parties to try to reach agreement, and where major defects are involved, an inspector may attend site. If defects are found, a rectification order may be issued setting out the work and a timeframe.
• NCAT, the NSW Civil and Administrative Tribunal, hears building claims when that process does not resolve the dispute. It can make binding orders for rectification or compensation.
• Home Building Compensation Fund (HBCF) cover is required for most residential building contracts over $20,000. It is a last resort: you can generally only claim if the builder has died, disappeared, become insolvent, or had their licence suspended for failing to comply with a court or tribunal order to pay you. According to icare, cover runs for six years for major defects and two years for other defects, with the same six-month extension for defects found late in the period. HBCF does not cover multi-unit buildings of more than three storeys.

For strata committees: the building bond

For new residential strata buildings of four storeys or more, Part 11 of the Strata Schemes Management Act 2015 sets up the Strata Building Bond and Inspections Scheme. The developer must lodge a bond with NSW Fair Trading of 2% of the building contract price. An independent building inspector prepares an interim report between 15 and 18 months after completion and a final report between 21 and 24 months after completion. The bond can be used to pay for rectifying defects identified in the final report that have not been fixed.

The bond is not a replacement for the statutory warranties. It is an extra source of money for one specific window. Committees should treat the interim report as an early warning and the final report as a deadline, and should not assume that the bond, at 2% of the contract price, will cover everything. Our post on reading a strata defects report covers what to do once you have one.

Common mistakes we see

• Waiting to see if it gets worse. The clock runs from completion, not from discovery, and a two-year defect can quietly run out of time.
• Verbal complaints only. A phone call to the site supervisor is not written notice.
• Letting another trade fix it first. The cost is often unrecoverable, and the evidence of the original defect is gone.
• Assuming a minor symptom is a minor defect. A stain on a ceiling is cosmetic. The failed membrane causing it is a defect in a major element, and may well be a major defect if it makes part of the building unusable. Get the cause diagnosed before you classify it.
• Committees leaving it to individual owners. Defects affecting common property are best raised by the owners corporation, not lot by lot.

How we handle defects

We would rather prevent defects than argue about them, which is why we inspect concealed work at hold points and hand over the photographic and certification record at completion. That record is what lets everyone, including us, establish years later what was built and how. You can read more about that method in hold points and the handover record.

When a defect does appear on work we have done, we want to hear about it early, we attend promptly, and we fix the cause, not the symptom, so the repair only needs doing once. We put our findings and the rectification in writing, so the owner or owners corporation has a clear record for the file. And when we are engaged to investigate defects in someone else's work, we give a straight, documented account of what we find, so committees and owners can decide how to proceed with the full picture.

If you have a defect you are not sure how to classify, or want help working out what to put in writing, get in touch.

Sources

• Home Building Act 1989 (NSW), NSW Legislation, sections 18B, 18BA, 18C, 18E and 48MA
• How Building Commission NSW deals with building defect complaints, NSW Government
• HBCF: what am I covered for?, icare NSW
• Strata Building Bond and Inspections Scheme, NSW Government
• Strata Schemes Management Act 2015 (NSW), NSW Legislation, Part 11

This article is general information, not legal advice. Time limits apply and depend on when the work was completed, the type of defect and the facts of your situation, so get advice from a lawyer or Building Commission NSW before relying on it. Full website disclaimer