- THE COVER
- HOW TO APPLY FOR HOME WARRANTY INSURANCE
- ELIGIBILITY APPLICATION PROCESS
- PROJECT APPLICATION
- BUILDING CONTRACT REVIEW PROGRAMME
- APPROVED MANAGED BUILDER PROGRAMME SERVICE PROVIDERS
- CANCELLATION PROCESS
- OWNER BUILDER
- HELPFUL LINKS
- 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 $20,000 that are residential in nature. If the contract price is not known, the reasonable market cost of the labour and materials involved is over $20,000.
- Home Warranty is required to be taken out before any works start for each project (retrospective cover can be obtained, however is not encouraged).
- Home warranty insurance needs to be provided by:
- a builder or tradesperson before taking any money (including a deposit) from a homeowner (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 homeowner 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 February 2012, cover provided is $340,000 in the aggregate for all claims made (policies issued between 1 July, 2010 and 31 January, 2012 provide cover up to a maximum amount of $300,000).
- $250 excess applicable – homeowner must pay (for claims between 1 July, 2010 and 31 January, 2012 excess was $500.00).
- Cover triggers – if the Builder/Contractor:
- disappears, or
- becomes insolvent:
- License Suspension/cancellation – If the builder/contractor license gets suspended/cancelled, due to a compensation order in favour of the homeowner made by a court of the Consumer, Trader and Tenancy Tribunal (CTTT) (included effective 19 May 2009).
- 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
- Previous to 1 July 2002 – 7 years from completion of works.
- Any homeowner that sells their property within above timeframe, is required to attach a copy of the Home Warranty Certificate of Insurance to the Contract of Sale.
Limitations On Cover
- The amount of cover provided for claims for loss or damage arising from non-completion of work is limited to 20% of the contract price (including variations).
- The amount of a deposit that exceeds the maximum payment permitted under the Home Building Act 1989 is not covered by the policy.
- The amount of a progress payment that exceeds the amount specified under the building contract is not covered by the policy.
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 $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.
There are two steps when applying 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.
ELIGIBILITY APPLICATION PROCESS
- Forms can be downloaded from: https://homewarranty.nsw.gov.au/portal/server.pt/community/a;home/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 Eligibility, 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, Financials and all contracts entered into 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 from you in order to satisfy the eligibility criteria).
- The Eligibility assessment process includes:
- 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
- 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
- Assessment of the financial performance of the Entity applying:
- 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.
- Turnover Approved: $1,000,000
“Annual turnover” is where each certificate of insurance issued reduces the annual limit available for purchasing certificates for a period of 12 months. The contract value associated with a certificate of insurance only replenishes the annual turnover limit available after this 12-month period. It is the absolute intent of annual turnover limits to provide a control that limits purchasing of policies by a builder over a 12 months period.
- 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 will be 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 $20,000.
- Two forms are available:
- Project Application Form – All work other than Multiple Dwelling Projects – for all projects other than multiple dwellings projects.
- Project Application Form – Multiple Dwelling Projects Only – for all projects, which consist of two or more dwellings on site, including a duplex – also for alterations and additions to a multi-unit project.
- 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).
- Evidence of support for funding is not required where the owner’s corporation is listed as the homeowner when an application is made for multi-unit/strata titled developments.
- 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.
The preference of the Home Warranty Insurance Fund, in most instances, is not to request additional security.
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.
- A mercantile agency search is to be conducted as part of any future review to confirm that the injection has been registered with ASIC.
BUILDING CONTRACT REVIEW PROGRAMME
The Building Contract Review Program (BCRP) aims to assist new entrants to the building industry, as well as existing small to medium builders without demonstrated experience for proposed projects. This allows them to have an opportunity of obtaining experience. The program is intended to review the competence of the builder to price and manage a project rather than ensuring compliance with building standards. The BCRP replaces the former Managed Builder Program (MBP)..
The BCRP is intended to be a transition phase and builders can apply in future to have the condition removed. It is expected that a new builder will participate at least three times in the BCRP before being permitted to contract for similar projects without the program. The reports issued by the BCRP service providers will be used during all Eligibility reviews. The participating builder will be provided with a copy of all BCRP final reports.
The BCRP will be used in the following instances (where all other relevant financial and non-financial considerations are satisfactory):
- where the builder has never contracted and successfully completed a new single dwelling or alteration project for a homeowner;
- where the builder is proposing to contract a larger or more complex project than the builder’s experience supports;
- 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)
The BCRP is also appropriate where the Gross Margins of the builder are an issue of concern. The program can assist a builder to correctly price contracts and test actual cost against budget.
Builders can choose a BCRP service provider that suits their needs from a panel of authorised service providers. Information about the BCRP panel of authorised service providers is set out below.
The BCRP is not compulsory for all builders. However, where required, participation in the BCRP will be a condition of a builder’s Eligibility for each individual project with a contract price of $50,000 or more (GST inclusive) or such other higher amount as determined under the Eligibility assessment process.
Builders do not have to engage a BCRP service provider until such time as Certificate of Insurance is required for a project. However, builders should ensure that the likely cost of the BCRP is factored into preparation of a quote/tender. A Certificate of Insurance for a project required to be in BCRP will not be issued until the BCRP service provider has signed off on Components 1, 2 & 3 of the BCRP.
Any builder can undertake contracts below $50,000 without engaging a BCRP service provider.
The role of the BCRP service provider is to:
- review contractual documentation (ideally, prior to execution of the contract) for a project;
- ensure that the builder provides a detailed budget which provides a gross margin that is reasonable for the project requirements, type, size and value;
- determine the number of site and off-site construction reviews required, taking into account the nature of the project. The intent is to ensure that the builder’s supervision and contract administration is appropriate and that the project is running to budget and contracted completion date; and
- undertake the reviews and issue reports giving a comment on the progression or development of the builder’s competence relating to specific areas that have been reviewed. The report is provided to the Insurance Agent and builder.
A competitive tender has been utilised to select the panel of BCRP service providers. If you are participating in the BCRP, you must choose one of these service providers on a project-by-project basis. Details of the panel are set out below. Builders can choose a BRP service provider that meets their specific needs from the panel.
The costs will vary from project to project and provider to provider. Each BCRP service provider can give you a quote for your specific project. Each of the service providers will be able, on enquiry, to give builders a guide as to the likely costs for a particular project.
- Builder applies through broker/intermediary for eligibility.
- In cases where the Insurance Agent is not satisfied that the builder fully meets the eligibility criteria there may be a requirement for the builder to participate in the BCRP for projects with a contract price of $50,000 or more.
- Builder accepts eligibility conditions (including participation in the BCRP).
- Eligibility is granted subject to a condition requiring the builder’s participation in the BCRP for each project contracted by the builder with a contract price of $50,000 or more (builders are permitted to undertake contracts below $50,000).
APPROVED MANAGED BUILDER PROGRAMME SERVICE PROVIDERS
Techton Building Services Pty Ltd
• Telehone: 02 6681 5258 • Email: email@example.com • Website: www.techton.com.au
(Provides services to the Far North Coast, Mid North Coast & New England Regions only)
Archicentre Pty Ltd
• Telephone: 1300 657836 • Email: firstname.lastname@example.org • Website: www.archicentre.com.au
(Provides services to all NSW)
Blue Visions Management Pty Ltd trading as Blue Visions Management
• Telephone: (02) 8908 9888 • Email: email@example.com • Website: www.bluevisions.com.au
(Provides services to all NSW)
Censeo Pty Ltd
• Phone: 1300 799125 • Email: firstname.lastname@example.org • Website: www.censeo.com.au
(Provides services to all NSW)
Cunningham Lindsey Australia Pty Ltd trading as Sergon Building Consultants
• Phone: 1300 735720 • Email: email@example.com • Website: www.sergon.com.au
(Provides services to all NSW)
Schreiber Hamilton Architecture Pty Ltd
• Phone: (02) 4929 7888 • Email: firstname.lastname@example.org • Website: www.scha.com.au
(Provides services to the Hunter & Central Coast Regions only)
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 Markey; 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 works 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.
- Confirmation in writing from the homeowner (or developer) (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.
Effective 15th January, 2015, It will no longer be mandatory for owner-builders to obtain statutorily required insurance if they wish to sell a property within the warranty period. Vendors will be required to include a conspicuous note on the contract for sale that there is no insurance on the property. However, contractors working for an owner-builder will still need to provide home warranty insurance to owner-builders for all work over $20,000.
- Owner-builders will be required to name all other owners of the land on an application for an ownerbuilder permit. This will be recorded on the permit to prevent people using this system to carry out commercial unlicensed building work. Any owners named cannot apply for another owner-builder permit for a different property for 5 years.
- Owner-builders will be prohibited from getting a permit for a dual occupancy except in special circumstances.
- Owner-builders will not be able to get statutory insurance although contractors working for the owner-builder will still need to provide certificates for work over $20,000. If the property is sold within the warranty period, the contract for sale must clearly state that there is no statutory insurance on the property.
- The threshold for requiring an owner-builder permit has increased to work valued over $10,000. All owner-builders must provide evidence of having done basic work health and safety training, and for work over $20,000 they will need to do an owner builder course.
Further information can be obtained from: https://homewarranty.nsw.gov.au/portal/server.pt/community/d%3Bowner-builders/258l
NSW Office of Fair Trading Builder License Check: http://www.fairtrading.nsw.gov.au/About_us/Online_services/Home_building_licence_check.html
ABN Check: http://www.abr.business.gov.au/
NSW Home Warranty Insurance Fund: https://www.hbcf.nsw.gov.au
Office of Fair Trading Information on Home Warranty Insurance, and how to claim for policies issued prior to 1st July, 2010:
NSW Self Insurance Corporation: www.sicorp.nsw.gov.au
Legislation in NSW
Home Building Act 1989: http://www.austlii.edu.au/au/legis/nsw/consol_act/hba1989128/?stem=0&synonyms=0&query=home%20building%20act%201989
Home Building Legislation Amendment Act 2001: http://www.austlii.edu.au/au/legis/nsw/consol_act/hblaa2001320/
Home Building Amendment Act 2011: http://www.austlii.edu.au/au/legis/nsw/consol_act/hbaa2011208/
Home Building Regulation 2004: http://www.austlii.edu.au/au/legis/nsw/consol_reg/hbr2004219/index.html#s1
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