In a number of states and territories in Australia, legislation mandates the inclusion of, or implies, in contracts for domestic building work, certain promises or ‘warranties’ made by the builder to the consumer in respect of building work carried out under the building contract. Such regimes have been in place now for many years, with the Victorian regime under the Domestic Building Contracts Act 1995 (VIC) (‘DBCA’) being around for some 25 years.
This article discusses the importance of these statutory warranties and their centrality to much of modern day domestic building litigation. By way of comparative analysis, this piece highlights some of the issues faced by consumers in New South Wales as compared to Victoria and the ACT, and vice versa, particularly with regards to the scope of building works covered by such regimes.
1. Understanding Laissez Faire Contracting
Across Australia’s numerous industries, the legislatures of states, territories, and the Federal Government have often seen fit to draft consumer protection regimes to protect vulnerable consumers against unfair and overbearing contract terms.
Legislation such as the Australian Consumer Law, the Legal Profession Uniform Law, and Residential Tenancies Acts, all impose requirements upon contracts, including implied statutory terms and required procedures for termination.
2. Why Consumer Protection is Necessary
The reason this is often seen by parliaments across Australia as necessary is that consumers often lack equivalent bargaining power to service and goods providers, and other commercial operators. In an ideal totally free-market world, market competition would be sufficient to ameliorate harsh or unfair contract terms. However, this rarely ever happens.
Contracts are often incredibly hard to understand, and consumers are usually time-pressed and do not have the energy to pry through the terms of sale of their new iron or steam machine. Industries are often dominated by huge corporate leviathans that create a monopoly or duopoly, resulting in harsh contracts that allocate as much risk as possible to the consumer.
3. The Unique Case of the Building Industry
In Australia, the only context in which two parties can bargain entirely on their own terms is the commercial sector where two commercial parties are contracting, as they are each deemed commercially sophisticated enough to protect themselves from risk arising from a contract.
It follows that in the building industry, residential property owners are usually afforded certain statutory protections to ameliorate the harshness of bargaining power disparity. However, not all “vulnerable” consumers of as-built products are protected. The below comparative analysis of Victoria and New South Wales will illustrate that certain vulnerable consumers can be left without protection.
4. Victoria – The Domestic Building Contracts Act Explained
In Victoria, the Domestic Building Contracts Act 1995 (VIC) (‘DBCA’) regulates the contents of domestic building contracts by implying certain terms as regards consumer warranties, access to building sites, restrictions on contract contents, and procedural requirements after the contract is signed. For the purposes of this paper, the focus will be on the statutory warranties.
5. Implied Domestic Building Warranties in Victoria
Part 2, Division 1 of the Domestic Building Contracts Act provides for the implied domestic building warranties in domestic building contracts and provides that such warranties “run with the building,” which means that subsequent owners can avail themselves of the consumer warranties as if they were party to the contract themselves.
6. Key Warranties Under the Domestic Building Contracts Act
The implied consumer warranties under the Domestic Building Contracts Act are as follows:
1. Proper and Workmanlike Manner: The builder warrants that the work will be carried out in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract.
2. Materials: The builder warrants that all materials supplied for use in the work will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new.
3. Compliance with Laws: The builder warrants that the work will comply with all laws and legal requirements, including the Building Act 1993 and its regulations.
4. Reasonable Care and Skill: The builder warrants that the work will be carried out with reasonable care and skill and will be completed by the date specified in the contract.
5. Suitability for Occupation: If the work consists of the erection or construction of a home, or is work intended to renovate, alter, extend, improve or repair a home, the home will be suitable for occupation upon completion.
6. Fitness for Purpose: If the contract specifies the purpose for which the work is required, the builder warrants that the work and any materials used will be reasonably fit for that purpose or expected result.
7. Grounds for Legal Action in Victoria
These statutory warranties provide grounds under which a consumer (being an owner or a subsequent owner) can sue for breach of a contractual warranty. If a successful claim is made, damages are usually awarded to compensate for the costs of rectifying the breach, usually defective building work.
This field is highly litigious and requires the involvement of an experienced construction lawyer, along with technical experts, to ensure a claim is properly made out.
8. New South Wales – The Home Building Act Explained
New South Wales has an equivalent set of domestic building warranties outlined under the Home Building Act 1989 (NSW) (‘the Home Building Act’). They are as follows:
9. Key Warranties Under the Home Building Act
1. Due Care and Skill: The work will be done with due care and skill and in accordance with the plans and specifications set out in the contract.
2. Materials: All materials supplied will be good and suitable for the purpose for which they are used and, unless otherwise stated in the contract, those materials will be new.
3. Compliance with Laws: The work will comply with all relevant laws.
4. Due Diligence: The work will be done with due diligence and within the time stipulated in the contract or within a reasonable time.
5. Fitness for Occupation: If the work involves the construction, alteration, or addition to a dwelling, it will result in a dwelling fit for occupation.
6. Fitness for Purpose: The work and any materials used will be reasonably fit for the specified purpose or result if the purpose or result is expressly made known.
10. Similarities and Differences with Victoria
These warranties are reasonably similar to those contained under the Victorian regime, with subtle differences. Other states and territories, such as the Australian Capital Territory, have similar warranty provisions that work to similar effect.
11. Scope of Building Work Covered by These Acts
An important aspect to consider with any consumer protection regime is: “Who is in?” and “Who is out?” – namely, to whom the statutory protection applies, and to whom it does not. This has been a significant area for Australian legal analysis, particularly in New South Wales.
Under the Home Building Act, certain residential parts of hotels or motels and other similar accommodations are excluded from the definition of “dwelling” and thus from the statutory warranties.
A similar distinction between commercial components of a mixed-purpose building and residential components is also reflected under the Victorian Domestic Building Contracts Act.
12. Varying Limitation Periods in Different Jurisdictions
In New South Wales, there is a distinction between “major building defects” and other types of defects, which determines the period within which a claim must be made under the statutory warranties. This depends on the severity of the defect and its impact on habitability.
In the Australian Capital Territory, the limitation period varies based on whether the defect is structural or non-structural. In Victoria, there is no such distinction, and the standard building industry limitation period of 10 years applies for commencing a ‘building action.’
Conclusion
In many circumstances, such as building work for a stand-alone residential home, the applicability of the statutory warranties will be relatively clear. However, in multi-purpose residential and commercial buildings, the scope of these protections can be less clear.
In jurisdictions such as New South Wales and the Australian Capital Territory, the opportunity for redress may vary depending on the kind of defect. Where statutory warranties do not apply, proving a negligence claim can be challenging unless the injured party can demonstrate a duty of care, breach, and reliance on the duty.
For anyone dealing with statutory warranties or facing related claims, it is crucial to consult an experienced construction law firm familiar with the varying domestic building statutory warranty regimes across the country.
This article contains examples of some of the many variations between Victoria, NSW, and the ACT’s respective domestic building contract legislation and is by no means exhaustive, only illustrative.
Author: Justin Cotton, Director, Lovegrove & Cotton – Construction and Planning Lawyers
About Justin Cotton
Justin Cotton is a leading Australian construction lawyer and widely respected in the building fraternity. He has been a member of the HIA Industrial Relations and Legal Services Committee and the Regional Executive Committee for the HIA Victorian Chapter for a long time. Lovegrove & Cotton can help practitioners, corporations and property owners resolve any type of building dispute.
This article draws and extrapolates key takeaways from a previous paper written by Justin Cotton and a former paralegal with the firm, Jordan Davies.
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Disclaimer:
This article is for informational purposes only and does not constitute legal advice. For specific legal advice, please consult with a construction lawyer.