CAMBRIDGE INSURANCE BROKERS
Residential building work contracts in
Western Australia are governed by the
Home Building Contracts Act 1991 (the Act).
If residential building work valued over $20,000
is to be undertaken, the Act requires that a builder
take out home indemnity insurance in the name
of the owner before accepting payment or commencing work.
Cambridge Insurance Brokers are experts in
Builders Warranty (Home Indemnity) Insurance and
can assist you with your requirements.
What is home indemnity insurance (hii)?
HII protects owners against financial loss if a builder cannot complete residential building work or meet a valid claim for faulty or unsatisfactory building work because of death, disappearance or insolvency.
In most instances, the insurance policy must cover the residential building work during the
construction period and for six years from the date of ‘practical completion’
(the six year insurance period). Practical completion is when the building,
extensions or renovations are completed and ready for occupation.
The Act applies to all areas of the state, however, the provisions of the Act are different
when a person builds, extends or renovates their own home as an owner-builder or
a builder seeks exemption to build their principal place of residence.
Is all residential building work over $20,000 required to have HII?
Residential building work is defined in the law to mean:
•construction of a new dwelling;
• extension or renovation of an existing dwelling;
• placing a dwelling on land; or
• construction, extension or renovation of multi-unit grouped homes
except for some multi-storey developments and fully leased retirement villages.
HII cover is required for all residential building work contracts including:
• A ‘cost plus contract’. HII must be taken out prior to any payment
or building work commencing and provide cover for six years from practical completion.
• Building or buying a ‘spec’ home. A home built by a registered builder
on their own behalf and then sold as a completed home
(usually by offer and acceptance). The builder must take out HII prior to the
building permit being granted to protect purchasers and any subsequent
owners for six years following practical completion.
• Placing a dwelling on land for the first time. The cover must include the cost
of the residence as well as placement and any work to the dwelling after placement.
An example of this might be a transportable home.
• Relocating an existing dwelling to a new site. HII must cover work connected
with the relocation, placing the dwelling on the land and work to the dwelling after placement.
Subject to the Home Building Contracts (Home Indemnity Insurance Exemptions)
Regulations 2002, home indemnity insurance cover is not required for
the following types of residential building work:
• multi-storey multi-unit developments, as defined by the regulations; or
• retirement villages that are intended to be leased.
Residential building work is required to be covered by HII,
however it is not required in the following circumstances:
• building work under $20,000; and
• associated work performed alone under separate
contracts such as installation of a swimming pool, fence, pergola or landscaping.
Who is responsible for obtaining HII?
A builder carrying out residential building work on behalf of an owner is responsible
for taking out HII and for giving the owner a copy of the certificate of insurance BEFORE:
• starting any residential building work;
• asking the home owner to pay a deposit; or
• asking the home owner to pay any other money under a residential building contract.
This protects subsequent owners, if the property is sold during construction or
during the period of indemnity insurance.
The insurance premium is paid by the builder. Builders need to make provision in the contract
price for the cost of the insurance policy and apply to the insurer to have the work covered.
The premium is a one off payment.
The policy will be in the name of the owner so that if the owner sells the residence
within the six year insurance period, the benefit of the policy will pass to a subsequent owner(s).
What if the builder cannot obtain HII or fails to take it out?
Builders will be able to obtain HII provided they satisfy the insurers criteria.
If insurance is refused, the builder should seek advice from their industry association.
A builder who does not take out indemnity insurance as required or fails to comply with
any other of the provisions of the Act can be prosecuted and fined up to $50,000,
and may risk losing their builder’s registration.
If HII cannot be obtained, the owner should engage another builder who can or if an owner
finds that the insurance is not in place when a claim is made,
the matter should be referred to the Building Commission on 1300 489 099.
For further information please contact our office or visit the Department of Commerce website: https://www.commerce.wa.gov.au/publications/home-indemnity-insurance