If you are a residential property developer in NSW, you must ensure that your builder has obtained the requisite Home Building Compensation Fund (HBCF) insurance for the works. You must not enter a contract to sell land on which residential building work has been or is to be done unless there is annexed to the contract:
- the requisite certificate of HBCF insurance in the name of your builder; and
- a brochure in the approved form explaining the operation of the HBCF and dispute resolution under it.
There are severe consequences if you fail to do this:
- A fine of up to $110,000.00 may be imposed on a company, or $22,000.00 in the case of an individual.
- The sale contract is voidable at the option of the purchaser at any time prior to completion. This means you will lose any deposit paid and you will have no remedy as against the purchaser, for instance in relation to a lower resale price.
These requirements are set out in the Home Building Act. You are deemed a property developer for the purpose of this Act if:
- You (either as an individual, partnership or your corporation) engage a builder to carry out residential building work on your behalf in connection with an existing or proposed dwelling in a building or residential development; and
- You (either as an individual, partnership or corporation) own or will own 4 or more of the existing or proposed dwellings in the development.
The owner of the land, in the circumstances set out above, will also be considered a property developer in relation to the development, in addition to the party that engaged the builder. For instance in a joint venture agreement one party may own the land and another party may engage the builder to carry out the residential building works on the land. Both parties will be considered property developers under the Act.
These requirements seem straightforward enough, but as with anything, the devil may be in the details. Some of which are as follows:
- It is vital to ascertain at the outset of the development which party is the owner, property developer and builder as this will determine who is responsible for obtaining HBCF insurance, which will be a considerable expense.
- For the purpose of the Act retirement villages and residential accommodation for the disabled are considered residential property developments but only where the development consists of self-contained units.
- The requirement to annex the builder’s certificate of HBCF insurance to the sale contract does not apply where the contract is entered more than six years after completion of the building work. Accordingly, if the developer retains ownership of any of the dwellings for less than 6 years, they will be required to annex the certificate of HBCF insurance to the sale contract.
If you currently are or are considering developing residential property in NSW you need to inform yourself regarding HBCF insurance requirements. This will be a considerable expense and primarily the responsibility falls on the builder. However the builder may wish to negotiate with you which party is ultimately responsible for payment. Do not risk nasty surprises when it comes to selling the land down the track. Speak to Hamilton Mott and be aware of your rights and obligations.