Disclosure of Building Works in a Contract for Sale of Land
Published on June 11, 2014 by Josephine Heesh, Patricia Monemvasitis and Paul Carroll
It is often the case when acting for Vendors that the first question we ask is whether any building works have been undertaken to the property. If the answer is yes, then there are a series of issues that must be considered:
- Is there a building contract?*
- Was the work undertaken on an owner-builder basis?*
- What was the value of the work?* (*These questions are necessary to determine whether a Home Owners Warranty Insurance Certificate is required).
- Has the work been completed?
- Are there any defects in the work and are they of a structural or non-structural nature?
- Has an Occupation Certificate been issued for the building works?
Whilst this list may seem overwhelming, it is important to be aware of the legislative requirements imposed when considering selling a property where building works have been undertaken, as there are certain disclosure requirements imposed on a Vendor, which may be applicable depending upon the date the work was completed.
In the circumstances where the building works were not carried out under a Building Contract and an Owner-Builder permit has been obtained from the Department of Fair Trading, section 96 of the Home Building Act 1989 (NSW), requires that a contract of insurance must be taken out. If the property is to be sold within 6 years of completion of the work it will be necessary for the Vendor to obtain home warranty building insurance from approved insurers where the value of the work exceeds $12,000.00. A Home Owners Warranty Insurance Certificate must be attached to any Contract for Sale of Land. Failure to comply with this obligation will result in statutory penalties and the Contract being deemed voidable at the option of the Purchaser.
One complexity for Vendors and in particular Vendors who have carried out the works as an Owner-Builder, is the need to determine the date of completion of the works, especially if an Occupation Certificate has not been issued.
Section 3B of Home Building Act 1989 (NSW) provides a presumption for determining the date of completion of the works, which will apply to work carried out by Owner-Builders. Section 3B(3) states:
3) It is to be presumed (unless an earlier date for practical completion can be established) that practical completion of residential building work occurred on the earliest of whichever of the following dates can be established for the work:
(a) the date on which the contractor handed over possession of the work to the owner,
(b) the date on which the contractor last attended the site to carry out work (other than work to remedy any defect that does not affect practical completion),
(c) the date of issue of an occupation certificate under the Environmental Planning and Assessment Act 1979 that authorises commencement of the use or occupation of the work,
(d) (in the case of owner-builder work) the date that is 18 months after the issue of the owner-builder permit for the work.
Essentially, section 3B provides, when there is no building contract to determine when the work is complete, the work is deemed to have been completed on the date of practical completion as determined under either section 3B depending on the circumstances, so long as part of the property where the works were undertaken are reasonably capable of being used for its intended purpose, despite any minor omissions or defects.
The case of Griffiths v Gates (Home Building) [2013] NSWCTTT 302 discusses the interpretation of section 3B, stating that “a successor in title to an owner-builder is entitled to exactly the same warranty as if he purchased the property from the contractor who did the work. The only issue is from which date the time for the warranty runs. In each case it is completion of the work as defined under section 3B”.
In this case, practical completion of the works was determined in accordance with section 3B and therefore lodging amended plans for approval (as the balustrade did not comply with the original Development Application), did not affect the date of practical completion, as the amended plans did not alter the fact that the property was perfectly capable of being used for its intended purpose.
Care must be taken when compiling all disclosure material for a Contract for Sale of Land to ensure that the disclosure of any previous building works and the inclusion or exclusion of evidence of the Home Owners Warranty insurance is compliant with the Home Building Act 1989 (NSW).
