Building, Renovating or Buying a newly built or renovated home in WA - Critical Insurance Information
1 What is home indemnity Insurance?
Home indemnity insurance (HII) protects owners against financial loss if a builder cannot complete residential building work or meet a valid claim for faulty or unsatisfactory building work because of death, disappearance or insolvency. So the first key point is that post construction the builder remains liable for the work and the insurance can only be claimed upon if the builder has died, disappeared or is insolvent.
The policy must cover potential claims for defective workmanship made up to six years from practical completion.
The policy must require the insurer to pay up to $100,000 or the value of the contract work (if it is less than that amount) and no more than $20,000 for loss of deposit. This is the maximum amount that the insurer must agree to pay out while the policy is in force. So the next key point is that the amount that will be paid out is limited to $100,000.
The insurance policy must cover the residential building work during the construction period and for six years from the date of ‘practical completion’ (the six year insurance period). Practical completion is when the building, extensions or renovations are completed and ready for occupation and is generally signalled by the builder notifying the local authority that practical completion has been reached.
The Act applies to all areas of the state, however, the provisions of the Act are different when a person builds, extends or renovates their own home as an owner-builder or a builder seeks exemption to build their principal place of residence.
2 When is the insurance required
Insurance is required when residential building work exceeds $20,000. Residential building work is defined in the law to mean:
· construction of a new dwelling;
· extension or renovation of an existing dwelling;
· placing a dwelling on land; or
· construction, extension or renovation of multi-unit grouped homes except for some multi-storey developments and fully leased retirement villages.
Insurance cover is required for all residential building work contracts including:
· A ‘cost plus contract’.
· Building or buying a ‘spec’ home. A home built by a registered builder on their own behalf and then sold as a completed home (usually by offer and acceptance). The builder must take out HII prior to the building permit being granted to protect purchasers and any subsequent owners for six years following practical completion.
· Placing a dwelling on land for the first time. The cover must include the cost of the residence as well as placement and any work to the dwelling after placement. An example of this might be a transportable home.
· Relocating an existing dwelling to a new site. HII must cover work connected with the relocation, placing the dwelling on the land and work to the dwelling after placement.
4 Who arranges the Builders indemnity Insurance?
The builder is responsible for taking out HII and for giving the owner a copy of the certificate of insurance
5 Who Provides the Insurance?
Indemnity Insurance in WA is provided by private insurers that have been approved by the WA Minister for Commerce. The builder has the option of which insurer to select, provided that the insurer agrees to supply the cover.
6 What if the Builder cannot get Insurance?
If the Builder cannot obtain the required insurance, the owner should engage another builder who can.
7 The Administration
Before a contract for home building work is signed, or a deposit is paid, the builder must provide the owner with a copy of the ‘Notice for the Home Owner’ which summarises the main requirements of the Act, including the requirement to take out Insurance.
A copy of the certificate of Indemnity policy together with the application for a building permit is lodged with the permit authority. The permit authority is able to refuse the application if evidence of insurance is not provided
8 Special Rules for Owner Builders
There are special rules for Owner Buildrs in WA
9 Special Rules for Builders Principle place of Residence
There are special rules fro Builders builing ther own principle residence in WA
10 Exemptions and Key issues for WA Strata Unit Purchases
There are some key exceptions for the need for this insurance in WA whcih is surprising that builder’s indemnity insurance is not required for properties over 3 story’s in WA, especially noting the number of strata property builders who have become insolvent in recent years (I.e. Diploma) and left strata owners having to fund significant remediation costs.
- Home Indemnity Insurance provides property owners with a key piece of insurances if the builder cannot complete the work as they have died, cannot be located or is insolvent.
- The insurance can only be called on in limited circumstances and is capped at $100,000.
- Unless the builder has died, cannot be located or is insolvent, they remain liable to the home owner to remediate construction defects.
- Owner builders, builders building on spec or their own home face similar obligations.
- Multi storey, multi-unit developments (strata buildings) and retirement villages that are intended to be leased, if certain procedures are followed, are exempt from the insurance requirement!