The Home Building Compensation Fund: What is it and how does it work?
The Home Building Compensation Fund:
What is it and how does it work?
The Home Building Compensation Fund (HBCF) is a New South Wales government insurance scheme that provides homeowners protection against financial loss due to incomplete or defective building work. This article will delve into when HBCF cover is required, who provides it and useful tips for homeowners before and after entering into a building contract.
When is HBCF cover required and who provides it?
HBCF cover is mandatory for residential building work valued over $20,000. This insurance is administered by Insurance and Care NSW (iCare) and regulated by the State Insurance Regulatory Authority (SIRA). The responsibility for obtaining HBCF cover lies with the builder or contractor, who must take it out it on behalf of the homeowner before commencing any work.
When can HBCF cover be called upon?
HBCF cover can be called upon in several scenarios:
Non-completion of work – where the builder or contractor fails to complete the work.
Breach of statutory warranty – where there is a breach of statutory warranty under section 18 of the Home Building Act 1989 (NSW) (HBA) and the homeowner cannot recover the loss due to the builder's or contractor’s insolvency, death, disappearance or suspension of their licence.
This cover includes the following:
Defects claims – up to $340,000 for defects.
Incomplete work – up to 20% of contract value, capped at $340,000.
Related additional costs – for alternative accommodation, removals, and storage, but which are included in the $340,000 limit.
Useful HBCF tips for before you sign a building contract
Licensing check – you can check here whether the builder’s or contractor’s licence is current and whether they have any pending or prior HBCF claims. You can also consider the Home Building Compensation Check here which demonstrates all previous work for which the builder or contractor required HBCF cover.
Litigation check – search the court lists here or NSW judgment publications here for any mentions of the builder or contractor to understand whether there is any current or prior litigation involving them.
Milestone payments and progress Claims – where possible, negotiate such that milestone payments and progress claims are limited to less than 20% of contract value, especially where they involve advance payment for prime cost (PC) items.
Payment in arrears – where possible, negotiate such that you only need to pay for work items that have been completed and verified as complete
Suspension and termination rights – ensure you are able to suspend and/or terminate the contract in the event the builder’s or contractor’s licence is suspended or cancelled.
Useful HBCF tips for after you sign a building contract
Building Commission – the Building Commission NSW can help with complaints relating to building, renovation or trade work done on residential buildings, as well as specialist trade work done on residential and non-residential buildings, when work is incomplete or defective, does not comply with the statutory warranties provided by the HBA, or has caused damage to other structures (including neighbouring properties).
Promptly sue – if issues arise, commence proceedings without delay and properly notify the HBCF as soon as possible noting that notice requirements vary for different claims. While you may have up to 6 years to make a major defects claim, you may only have up to 2 years for minor defects claims and up to 12 months for incomplete work claims. The size and timing of the claim will dictate whether the claim needs to be brought through the Courts or NSW Civil and Administrative Tribunal (NCAT).
Summary
By understanding the requirements and processes associated with HBCF cover, homeowners can better protect themselves from financial loss due to incomplete or defective building work. Taking proactive steps before and after entering into a building contract can ensure that the HBCF provides the necessary support when needed.
Contact us
For tailored advice regarding protection afforded by the HBCF, or for assistance running an HBCF claim, reach out to our team.