Builder’s warranties – Mind the gap

Aug 23, 2022

Builders are often surprised when we explain to them that the statutory warranty they have to give for domestic building work (generally lasting 10 years from the issue of the occupancy permit and an extended 15 years for combustible cladding) only applies between the builder and its clients, and that there is no ‘automatic’ corresponding warranty given to the builder by the subcontractors they engage for that work.

That is because the Domestic Building and Contracts Act 1995 (DBCA) is concerned with consumer protection. It imposes warranties on the builder in favour of consumers that it will carry out domestic building work in a proper and workmanlike manner, that the materials it uses are good and suitable for purpose, that it will comply with all legal requirements and regulations and that the work will be carried out with reasonable care and skill. These are warranties that cannot be avoided.

For their part, subcontractors will attempt to limit their liability or restrict the warranties they give for the work done or materials supplied as much as commercially possible.

Any limitations on liability that are agreed to between the builder and subcontractor will be upheld, absent ambiguity in the contract. If there are no such terms the Limitation of Actions Act 1958 will apply to prevent contractual claims from being brought after 6 years from the date on which the cause of action ‘accrues’ (generally, the date when the defective work was done regardless of when it first comes to the attention of the builder, except in the case of negligence).

That can leave a builder exposed to any gap between the time limit they have to sue a subcontractor for defective work (ie. 6 years), and the statutory warranty imposed on the builder for that same work (ie .10 or 15 years).

For that reason, it is critical that builders review the terms of the contracts they enter into with their trades and suppliers to ensure that they can hold their subcontractors liable for defective work, for the full period of the builder’s statutory warranty to their clients, or that they are at least aware of the risk of any shortfall and have accounted for it.

If you require advice concerning your subcontract and supplier agreements, please reach out to Peter Lettieri or Danying Chen in the KKI Property team.