Building Warranties and the Perils Of ‘License Lending’: Does This Make a Registered Domestic Builder the Contracted Builder?

Building Warranties and the Perils Of ‘License Lending’: Does This Make a Registered Domestic Builder the Contracted Builder?

21 Mar 2018

By Justin Cotton, Director, Lovegrove & Cotton – Construction and Planning Lawyers

Sadly it is an all too familiar occurrence to find a registered domestic builder falling foul of the situation where their builder registration details have been used on a building contract where they have never actually been to the site.

It is a little like allowing one’s head to be placed in a noose, albeit it may seem like a good idea at the time, because the registered builder is receiving remuneration for the use of their builder occupational licence on a job. The problem is though, that firstly you are enabling someone else to circumvent the consumer orientated requirements of the building law, and secondly the registered builder has no control over the quality of the build.

In a recent matter the writer was involved in, the two partners of a building business had split the projects between them based on the geographic location of each site. The problem later arose that only one of the partners was a registered builder, and that registered builder soon discovered that there were a number of problem projects with defects that he knew nothing about, but where his details had been entered as the ‘registered builder’ on the building contract.

Builder registration name and number are not only relevant to the building contract, they are also used to obtain the domestic builder (or warranty) insurance on the contract and for the details on the building permit. If the registered builder individual on the contract, the building permit and the insurance policy is not actually the builder carrying out the works, this can amount to misrepresentation to the relevant building surveyor and the insurer, regardless of whether or not the owner knows about or consents to the situation.

Is it really a good idea to brook a situation where you, as the registered builder, can become the port of call for building defect claims after the event, or possibly even a practitioner misconduct complaint, in circumstances where you were not actually responsible for the performance of the works? Quite obviously the answer is a resounding “No”. And yet this kind of thing has been happening all too frequently in Victoria.

It is not always the case that the registered builder has knowingly assisted in this process, because it may be that the registration number and name was used without their knowledge. A builder registration is a valuable commodity and it should be jealously protected, because they are not given away with large dollops of largesse by the registration authorities.

Despite the obvious pitfalls of ‘license lending’, relevant VCAT case law does not find that a registered builder in this scenario who did not carry out the works is automatically the contracted Builder. They will not necessarily be seen as responsible for the “section 8 warranties” implied into the building contract.

In the case of Hill v Bastecky [2006] VCAT 2663, a registered builder had assisted a building company that wanted to perform works but did not have a registered builder director. Mr Bastecky allowed his registration name and details to be entered into the building contract with the owners Mr and Mrs Hill, even though the building company WPI was stated to be ‘the builder’ in the contract and was to be carrying out the building works.

Of course, the usual practice is that the contracted builder will be stated in the contract to be a building company, not an individual, although it can sometimes be an individual trading under a business name. However, each domestic building contract needs to state the name and number of the registered builder, who will usually be a director of the building company.

When WPI later became insolvent, and after the insurance company refused coverage to the Owners because they had been misled as to the true situation, Mr Bastecky was held to be liable in damages to the Owners.

The liability did not arise because Mr Bastecky was the contracted builder, and the Tribunal found that he was not liable in contract to the Hills. While the Owners contended that the company WPI was acting as Bastecky’s agent when it entered into the contract, the Tribunal rejected that argument. WPI was said to be the contracted builder that would have been liable under the section 8 warranties for defects, had the insolvency not occurred.

However, the Tribunal also found that the warranty insurer was misled by Mr Bastecky’s actions in completing the first four pages of the contract schedule. There was also a suggestion (though disputed by Bastecky) that he had been introduced to the Owners as ‘your builder’. The Tribunal decided that Mr Bastecky was guilty of misleading and deceptive conduct when he assisted WPI to obtain insurance and enter into the contract, and said that the deal between WPI and the Owners would not have proceeded otherwise.

This case should be a salutary reminder to individual builders to be on guard about the misuse of their registration details and in short, they should never allow their details to be used in this way.

Lovegrove & Cotton: Leaders in building practitioner legal representation

Lovegrove & Cotton are experts in construction law and building practitioner legal representation in Melbourne, Sydney, the ACT and Queensland. Kim Lovegrove RML, FAIB is co-author of leading text, “Disciplinary Hearings and Advocacy”. Justin Cotton has represented building practitioners and building surveyors successfully for nearly fifteen years and has established leading precedence in a number of Australian tribunals. If the reader knows of anybody who needs legal representation in this complex and gravity-laden area, feel free to contact us via our website or by emailing enquiries@lclawyers.com.au.