Home Warranty

Home Warranty Guide

• HOW TO APPLY FOR HOME WARRANTY INSURANCE

• ELIGIBILITY APPLICATION PROCESS

• APPROVED MANAGED BUILDER SERVICE PROVIDERS

THE COVER

Effective 1 July, 2010, NSW Self Insurance Corporation, trading as the NSW Home Warranty Insurance Fund (SICorp), took over as the sole provider of Home Warranty in NSW.
Home Warranty Insurance is compulsory for works valued over $12,000 that are residential in nature. If the contract price is not known, the reasonable market cost of the labour and materials involved is over $12,000. (Effective 1 February 2012, threshold will be raised to $20,000).
Home Warranty is required to be taken out before any works start for each project (retrospective cover can be obtained, but not encouraged).
Home warranty insurance needs to be provided by:

a builder or tradesperson before taking any money (including a deposit) from a home owner (including an owner-builder) under a residential building contract and before starting any work under that contract;
a ‘spec’ builder before starting any residential building work on a property owned by the builder;
a developer before entering into a contract for the sale of a property on which a builder is doing or has done residential building work for the developer;
an owner-builder (ie a home owner who did owner-builder work under an owner-builder permit) before entering into a contract for sale of the property on which residential building was done within the previous 6 years (see below information on Owner Builder).

Effective 1 March 2007, cover provided is $300,000 in the aggregate for all claims made. (Effective 1 February 2012, cover will increase to $340,000).

$500 excess applicable – home owner must pay (effective 1 February 2012, excess will decrease to $250.00).

Cover triggers - if the Builder/Contractor dies, disappears or becomes insolvent:

4th trigger - effective 19 May 2009, cover is also provided if the builder/contractor license gets suspended/cancelled, due to a compensation order in favour of the home owner made by a court of the Consumer, Trader and Tenancy Tribunal (CTTT).

For policies issued from 1 July 2002 onwards, cover for all losses (including loss arising from non-completion) is provided in the event of the death, disappearance or insolvency of a builder, tradesperson, developer or owner-builder. Cover for loss arising from defective work is provided for a period of:

6 years from the date of completion of the work or the end of the contract for the work (whichever is the later), for loss arising from a structural defect;
2 years for loss arising otherwise than from a non-structural defect; and
7 years from completion of works prior to 1 July 2002.

Any Home Owner that sells their property within above time frame, is required to attach a copy of the Home Warranty Certificate of Insurance to the Contract of Sale.

HOW TO APPLY FOR HOME WARRANTY INSURANCE

If a Builder/Contractor holds a valid license through the Office of Fair Trading (OFT) and does any residential works over $12,000 (effective 1 February 2012, $20,000), they are required by law to take out Home Warranty Insurance before the works start.

In order to apply for a specific project/job to be insured, eligibility must be obtained first.

It is a two step process when starting to apply for Home Warranty Insurance. Builder/Contractor needs to apply for eligibility. Once approved, Builder/Contractor can then apply for specific projects to be insured on a job by job basis, before the contract starts.

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ELIGIBILITY APPLICATION PROCESS

Forms can be downloaded from: https://homewarranty.nsw.gov.au/portal/server.pt/community/a%3Bhome/255/forms___documents/1143

Home Warranty Insurance – Eligibility Application – If the Builder/Contractor is new to applying for Home Warranty Insurance; or
Renewal/Review - Builder Profile Change Application - to be used for a renewal, or a review.

Once downloaded, please read the Home Warranty Insurance – Application Checklist (on page 8 for New Eligiblity, page 6 for Renewal). All of this information (if applicable) is to be supplied with your application along with our assessment fee of $200.
Additional information to be supplied with application:

Evidence of ownership (eg Council rates notice) for all property shown in Section 5 or company balance sheet.
Copy of a current building licence for the company and licensed directors or nominated supervisors.
Confirmation of eligibility for home warranty in other states where building activity is being undertaken.
Current statement of personal assets and liabilities (as set out in the application form for each partner or principal).
Work-in-progress summary of all jobs under construction including:

Site address
Commencement date
Current stage of works
Estimated completion date
Contract value
Name of owner

Copy of Trust Deed for Trust applicants.
Copy of Franchise Agreement for Franchisee applicants.
Description of any group structures that include the building company as a subsidiary or related entity. This should include financial reports from the past 3 years for related parties with substantive financial transactions to the building entity.
Financial evidence – Sole Trader or Partnership.

Please attach Taxation Returns for the past 3 years, the most recent not being more than 12 months old (not Notifications of Assessment).
Statement of working capital (required where accounts are more than 3 months old) supported by:
- Bank and credit card statements
- Current creditors list
- Current debtors list

Financial evidence – Company or Trust.

Please attach financial statements for the past 3 years. These must be full and final accounts as prepared by an accountant and signed off by directors, including Trading Statement, Profit & Loss Sheets, Balance Sheet and Notes for Accounts. If financials are older than 9 months, please provide interim statements which are no more than 3 months old.

Additional supporting evidence required to demonstrate capability/experience for requested contract limits above standard limits or for multi-units (eg CV’s and technical references from architects or structural engineers setting out previous job values, job description, completion date, the role of the applicant and contract value). For new Entities requesting turnover of above $5 million:

Display home information
Business plan
Cash flow forecasts for builders with over $30 million turnover.

Builders License, ABN, and Financials are all to be under the same name.
Information can be emailed, faxed or mailed to Markey Insurance Brokers (please note - Underwriters may request further information form you in order to satisfy the eligibility criteria).
Assessment of the financial performance of the Entity applying:

Requested Turnover and Turnover Growth
Assessed Net Tangible Assets (ANTA)
Builder’s Margins and Profitability
Working Capital

Overhead Expenses
Capital and Retained Earnings
Return on Assets
Creditor Days
Debtor Days
Assessment of other factors such as:

Trading Structure
Trading Structure
Continuous years trading in this structure - experience
Builder’s licence history (including any adverse incidents)
Trade credit history
Previous home warranty insurance claim history with consideration of the builder’s size and trading history
Directors/principals profile
Directors/principals experience

Once information is satisfactory to Underwriters and any additional requirements are met, (ie Capital Injection, Securities, and other additional requirements, more information on these below), a Certificate of Eligibility will be issued, which shows the turnover and sub-limits approved.
Please note, usually at the time of the Eligibility being issued, we will advise you when the next review is required, it can be quarterly, half yearly, yearly, every 2 years, or every 3 years depending on assessment and turnover.
The policy works on a 12 months basis, ie:

Turnover Approved: $1,000,000

Sub Limit: Single Dwellings: $500,000
Sub Limit: Alterations and Additions Structural: $100,000
Sub Limit: Alternations and Additions Non Structural: $100,000

Under the above profile, Builder/Contractor is unable to do, eg, Single Dwelling valued at $600,000, the Builder/Contractor would have to apply to have the sub-limit increased by completing a Builder Profile Change Application and associated documentation.

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TURNOVER

The NSW Home Warranty Insurance Fund (HWIF) requires the turnover usage under builder eligibilities to be managed on a rolling 12-month basis. Currently, the annual turnover and utilisation amount automatically replenishes upon renewal of eligibility every 12 months.

Under the HWIF turnover methodology, as published in the HWIF Underwriting Guidelines, builders are also required to remain within their approved annual turnover limits on a rolling 12-month basis. Consequently, in any 12-month period, a builder should have access to cover where the cumulative contract value of all certificates issued in the preceding 12 months does not exceed the maximum turnover approved.

As this is a rolling limit, the usage of a builder’s eligibility will alter as certificates age to beyond 12 months since they were issued. Once a certificate ages beyond this point, the contract value applying to that certificate will be replenished against the builder’s available turnover limit.

PROJECT APPLICATION

Once eligibility is approved, you can then apply to Insure your specific projects, provided the project is within the turnover and sub-limits approved. Should it not be, you are required to complete a Builder Eligibility Profile Change Application, along with all additional information, and submit it to us for reassessment.
Must be taken out before project/job starts.
Must be total contract value over $12,000.
Two forms are available,

Single dwelling works, including renovations/alterations to single dwellings.
Two (2) or more dwellings/units on one site including duplex’s and alterations/additions to a multi unit building).

Additional Information required for Multi Unit Projects:

Evidence of ownership (eg rates notice) of the site address shown in Section 4.
Copy of Building Contract.
Evidence of Funding (ie loan approval).
Additional supporting evidence or documentation required to demonstrate ability to meet capability/experience criteria (eg CVs, appropriate references, etc.)

Should you be doing works that have been tendered by an architect, the Home Warranty Insurance - Owner Tender Statement is required to be completed and signed by the owner https://homewarranty.nsw.gov.au/portal/server.pt/community/a%3Bhome/255/forms_documents/1143 Owner Tender Statement (for architect managed projects only).
Indicative Premiums can be obtained by following this link https://homewarranty.nsw.gov.au/portal/server.pt/community/a%3Bhome/255/on-line_premium_calculator/1145

Please note: Broker fee will be added to this amount when Markey finalise quotation.

A minimum premium of $160 plus charges applies to all projects.
Payment can be made by Credit Card.
Applicable wording can be obtained from website: www.homewarranty.nsw.gov.au Forms and Documents Page.

SECURITIES

The preference of the Home Warranty Insurance Fund, in most instances, is not to request additional security.

Medium to large builders who do not hold sufficient assets within the building entity may give a commitment to secure the building entity by external assets. Where security is required it will be in the form of a director’s or related company Deed of Indemnity.

The standard form of security will end 3 years from the practical completion of the last job for which the security was applicable and will be for a nominated amount required to meet the Home Warranty Insurance Fund’s equity requirements.

Securities that can be required as part of Conditional Eligibility/Job Specific Applications:

Previously Bank Guarantees were an accepted form of Security, however, requirements for a Bank Guarantee to be supplied will not be sought, though a builder can provide a bank guarantee if they choose.
Deed of Indemnity for Eligibility – Single Party or Multiple Party.
Deed of Indemnity for a Project/Site – Single Party of Multiple Party.
Capital Injection into the company, by way of ASIC shares.
- A post injection balance sheet must be provided, which reflects the effect of the capital injection or bank statement showing cash injection deposit.
- A copy of the minutes of the company's board meeting, resolving to receive the capital into the business and resolving to:
  - retain the capital in the business and not to loan these funds out of the business;
  - use these funds for the productive use by the business.

MANAGED BUILDER PROGRAM

https://homewarranty.nsw.gov.au/portal/server.pt/community/b%3Bbuilders___contractors/256/managed_builder_program/1154

The Managed Builder Program (MBP) aims to assist new entrants to the building industry, as well as existing small to medium builders, to obtain eligibility (or home warranty cover for a specific project) where the builder is unable to satisfy all the requirements in order for the eligibility (or project) application to be approved.

Builders who only satisfy minimum eligibility (or project) requirements may be required to engage a managed builder program (MBP)service provider for contracts of $50,000 and over as a condition of eligibility or as a condition of approval for a specific project.

The MBP will be used as a condition of eligibility (or project) approval in the following instances (where all other relevant financial and non financial considerations are satisfactory):

where the builder has never before entered into a building contract with a homeowner of $50,000 or over (or has been a key manager within a building business that did so) and now wants to do so;
where the builder has never contracted and successfully completed a new single dwelling or alteration project for a homeowner and is proposing to contract a new single dwelling or alteration project or is proposing to contract a larger or more complex new single dwelling or alteration project than the builder’s experience supports;
where the builder has no demonstrated experience in commencing and successfully completing projects of a similar nature to the ones requested for home warranty insurance cover; and
for multi unit projects where the builder has never before contracted with a developer and successfully completed a multi unit project (as the multi unit contractor or key manager within a building business that did so) or where the builder is proposing to contract for a larger multi unit project than the builder’s experience supports.

The MBP is also appropriate to be utilised where the gross margins of the builder are an issue of concern – as the program can assist a builder to correctly value contracts. In some situations, builders may wish to take on one-off projects that are outside their eligibility approval and the MBPmay be appropriateto be utilised for this purpose.

Builders in these situations can choose an external MBP service provider that suits their needs from a panel of authorised service providers.Information about the MBP panel of authorised service providers is set out below.

The MBP allows builders to continue their business while at the same time providing suitable protection for homeowners and the NSW Home Warranty Insurance Fund.

APPROVED MANAGED BUILDER PROGRAM SERVICE PROVIDERS

Cunningham Lindsey Australia Pty Ltd trading as Sergon Building Consultants

• Phone: 1300 735720 • Website: www.sergon.com.au

HWIS Pty Ltd trading as Home Warranty Insurance Specialist

• Phone: (02) 95410111 • Website: www.hwis.com.au

Australian Building Services Home Owner Warranty Insurance Pty Ltd

• Phone: (02) 87131800 • Website: www.homeownerswarranty.com.au

Building Ethics Australia Pty Ltd

• Phone: (03) 93974166 • Website: www.buildingethics.com.au

CANCELLATION PROCESS

Cancellations or alterations to Certificates of Insurance previously issued (within the home warranty scheme) may occur in circumstances where the certificate has been issued well in advance of building commencement and changes have occurred to the owner’s or the developer’s original plans.

Basic conditions for a Certificate of Insurance to be considered for a cancellation or amendment are:

a period of no more than two (2) years has lapsed since the date of issuance of the particular certificate and the date the request to cancel is received by Markeys; and
there is no contractual dispute between the builder and the homeowner; and
work has not commenced and no payment has been made to the builder under the contract (or if a deposit has been paid and work has not commented that the deposit has been refunded in full); or
in the case of an owner-builder that the sale of the land on which the owner-builder work had been carried out did not proceed.

The application will then be assessed for cancellation and approval or declinature of the application will be in accordance with the circumstances and the evidence provided.

Documentation required to be supplied for cancellation:

Letter from builder addressed to the Insurance Agent advising the reasons for cancellation.
Statutory Declaration from the homeowner (or developer) (A Statutory Declaration is not required from the homeowner (or developer) for builders that issue 50 or more policies per annum) stating:

no “building work” has commenced – this is to be taken as meaning that there has been no commencement of land clearance;
any deposit paid by the homeowner has been refunded in full;
the reasons for the cancellation and attaching a copy of any document terminating the contract between the building entity and the owner;
no claim exists in respect of the project for which the certificate has been issued and that the homeowner or developer agrees not to rely on the certificate;
letter from the owner-builder’s solicitor or conveyancer confirming that the sale of land did not proceed (owner-builder certificates only);
Statutory Declaration from the owner-builder confirming that all copies of the certificate have been destroyed and acknowledging that the owner-builder cannot and will not utilise the cancelled certificate in any future sale of the land on which the owner-builder work was undertaken.

Above information should be returned to Markey Insurance Brokers for assessment. If approved, a refund will be issued.

OWNER BUILDER

In order to apply for Owner Builder Warranty Insurance, you must:

have held a valid Owner Builder Permit through The Office of Fair Trading;
have done works within:

the last 6 years structural or
2 years for non structural;

be selling the property.

If the above applies to you/builder/contractor, you are required at the time of sale to obtain Owner Builder Warranty Insurance.

An application form is required to be completed, signed, dated, and returned.

Form can be found on https://homewarranty.nsw.gov.au/portal/server.pt/community/a%3Bhome/255/forms___documents/1143 - Owner Builder Home Warranty Insurance Application.

To accompany this application form, the following to be provided:

Defects Report (no older than 6 months from the date of application). This can only be completed by a registered/accredited building surveyor/consultant/inspector, engineer or architect in the state of NSW, or accredited and insurer approved inspectors from any other state. This inspection is at your cost.
A copy of the current Professional Indemnity Cover of the above inspector. Please ask the inspector for this at the time of obtaining the above Defects Report.
Copy of the Development Consent and Construction Certificate of Complying Development Certificate. – This should have been issued prior to starting the works from your local Council.
Copy of the Certificate of Title/Council Rates Notice – as proof of ownership.
Copy of the Termite Treatment Report/Recent Inspection Report. Not required on all works. Please seek clarification from your local Council or inspector that reviewed the works.
Copy of the Electrical and Plumbing Compliance Certificate - Not required on all works. Please seek clarification from your local Council or inspector that reviewed the works.
Copy of the NSW Fair Trading Owner-Builder Permit – Proof of the works being authorised.
Copy of the Occupation Certificate – Issued by the Council to state that works are complete and dwelling is able to be occupied.

Should any information not be provided, or clarification as to why it is not supplied, the Insurer may come back asking for additional information. The cost of the inspection, and price of the certificate is at your cost. Please pay direct the Inspection Fee to the company you choose to provide the Defects Report.
Payment must be made before certificate is issued. Payment can be made by the following link to our website for payment, alternatively, we can take Credit Card details over the phone.
Applicable wording should be obtained from website: www.homewarranty.nsw.gov.au Forms and Documents Page
For further information, the following website has information on Owner Builder Warranty Insurance: https://homewarranty.nsw.gov.au/portal/server.pt/community/d%3Bowner-builders/258/introduction/1163