The Porter Davis liquidation in early 2023 put into sharp focus the practice of some builders taking deposits from owners before obtaining domestic building insurance for their work, insurance that helps to protect owners in the event of a builder’s insolvency.
In the case of Porter Davis, this practice left thousands of owners without insurance to recover the loss of their deposits, leading the State Government to implement a relief scheme to compensate home owners over $28 million, later extended to 20 February 2024 and expanded to other builders in liquidation.
As the relief scheme has now come to an end, the State Government has made changes to the consumer protection and enforcement provisions of the Building Act 1993 and Domestic Building Contracts Act 1995, including new offences for demanding or receiving deposits, or carrying on domestic building work without domestic building insurance.
Offence to demand or receive money without the required insurance
As and from 28 February 2024 when the amendments came into force, it is an offence for a builder to demand or receive money under a major domestic building contract (currently meaning where the contract price exceeds $16,000) without ensuring that the work is covered by domestic building insurance. This includes a deposit.
Changes have also been made to the Building Act 1993, which regulates the licencing of builders, to add new powers to investigate suspected offences under the Domestic Building Contracts Act 1995, and to suspend or take action against builders who are found to be in breach of their statutory obligations.
Builders in breach of the new offences can face penalties for an individual builder, of up to 240 penalty units ($46,154.40) and 1200 penalty units ($230,772) for a corporate builder, for each breach.
The penalty can more than double if there is an element of culpability found to the conduct, such as when the builder knows (or is reckless about the fact) that the builder has not ensured the work is covered by the required insurance.
Despite the introduction of the new offences, home owners should continue to be vigilant against potentially adverse or predatory practices by builders, particularly given the volatility of the costs of supply and liquidity pressures faced by builders, and the high rate of builder insolvencies that we are still seeing on an ongoing basis.
The introduction of the new offences will mean that builders cannot rely on deposits to cash flow their insurance premiums, and will have to seek refunds of insurance premiums where deposits are not paid, or contracts are otherwise terminated at an early stage.
