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Exemption from Home Building Compensation Fund

From 31 December 2003, construction on unit buildings over 3 storeys of residential did not require consumer protection from the Home Building Compensation Fund.  That protection was only available to smaller developments with 3 storeys of residential units or less, a townhouse or villa or a single residential home.

In recent years there have been issues with defects in buildings over 3 storeys in height with some builders and developers closing the Company or restructuring to avoid or reduce the risk of claims for defective work.  The Department of Fair Trading is currently vetting builders who have been involved in this practice which is called ”phoenixing”.

New legislation is currently being introduced when developers will need to lodge a 2% of the contract sum deposit with the Department of Fair Trading to cover defects.  There will be a mandatory time for inspections for defects and resolution to rectify those defects.  At the end of 2 years, the developer can apply for a refund of monies not spent on defect repairs.

As this is new legislation, it is currently unknown how effective this will be in the standard of building construction.  Also as some larger developments are complex and some contain a number of defects, then it is unknown if the 2% levy will be sufficient to cover the cost of Expert’s Reports to identify those defects and solicitors to litigate.