Residential home warranty insurance attracts plenty of commentary from regulators, industry groups, builders and home buyers, all of whom seem to place self-interest at the core of their statements.
Owner builders are required to obtain home warranty insurance should they decide to sell their residence within the statutory home warranty period provided the building works were over a certain amount.
Owner builder home warranty insurance is consumer protection insurance. The beneficiary and consumer is the subsequent purchaser of the owner-built or renovated home, not the owner builder. In other words, the purchaser of the insurance cannot benefit from the insurance. Moreover, in most cases when the insurance is issued, the beneficiary is unknown – the policy is made in favour of the purchaser.
Home warranty insurance provides protection against loss or damage resulting from a structural defect and the owner builder fails to rectify the defect because of death, disappearance or insolvency. In NSW a fourth trigger may apply if the Owner Builder fails to respond to court or tribunal order.
Owner builders start out with the intention not to sell their home. Subsequently, home warranty obligations may be somewhere in the background, but not central to their construction activities. This mindset works against them when they decide to sell. Overwhelmingly, owner builders are just mums and dads setting out to improve their family lifestyles. So who’s watching out for owner builders when they rarely hold an insurance broker relationship and mostly lack working knowledge of insurance wordings.
Not all brokers are the same and not all are interested in owner builder activities. Owner builders should look for insurance accreditation, experience, qualifications and an inbuilt desire and culture to help young families understand the process and how a home warranty may impact them during the warranty period. The all too familiar answer ‘just meet compliance and get the insurance’ is too simplistic for the liability an owner builder will carry during the warranty period. Therefore, insurance professionals should deem it vitally important to protect an owner builder.
Professionals supporting the home building industry, such as building inspectors, engineers, educators and certifiers, are a central driver to successful owner building. The process of owner building is more than the physical tasks of constructing, and should include post-build warranty obligations. It’s everyone’s business to reinforce an owner builder's requirement to maintain accurate documentation which will support and reduce ongoing warranty risks. Owner builders may think moving home dissolves all obligations, but a knock on the front door often years after moving home will quickly grab some attention.
Owner builders can help themselves through 10 easy steps:
Understand the process of building before they start out;
- Engage home building professionals who are personable, accessible and prepared to work beyond compliance to build safely, in a timely and structured manner with a mutual appreciation of the ‘masterpiece’ under construction;
- Keep a detailed schedule of works with running budgets;
- Work only with documentation in hand. Keep copious notes, particularly meeting notes with subcontractors and suppliers;
- Use mandatory inspections as overall guide posts, and use regular additional inspections as quality check posts. The cost of additional ‘quality’ inspections is negligible against long-term home warranty risks;
- Obtain a certificate of completion or certificate of occupancy as soon as possible. The home warranty period kicks in at this time and reduces the liability period;
- Retain all documentation no matter how low in value an arrangement may be. Retain supplier details, and purchases, subcontractor scope of works, termite treatment, sewage, plumbing, electrical compliance documentation and inspection documentation. Avoid cash discount in lieu of not supplying receipts and compliance certificates;
- A defects report is an owner builder's best friend over the long term. Avoid the notion of ‘no defect’ is good. It may not be good for the ego, but a detailed defects report will reduce the owner builder's risk;
- Obtain home warranty insurance early in the sale process as it aids the sale process more than hinders. When the only thing between signing the contract of sale is the outstanding matter of home warranty and the appended defects report, prospective purchasers become focused on the defects report. The name itself rings alarm bells, but often it can interpreted as pre-purchase condition. The sale should not hang on the defects report;
- Seek an appropriately qualified insurance broker who displays depth and experience of owner builder home warranty insurance schemes – don’t confuse a licensed builder home warranty with an owner builder policy – they are not one and the same.
- Over recent times, a small but significant shift is playing out by home owners frustrated when owner builders fail to act on warranty requests. The home owner's goal is to access home warranty insurance funds by using the statutory and independent tribunal for dispute resolutions and thereby triggering bankruptcy. Either intended or unintended consequences of these practices ropes in more than the home warranty insurer. All parties with accessible insurance such as professional indemnity may be dragged into the action.
Building professionals play vital roles across all elements of the home warranty landscape. Underwriters engage and rely on their expertise and in particular their evaluations. This reliance is paramount when home warranty is sought for the more complex situations such as deceased estates, mortgage in passion, martial splits and incomplete works.
When out-of-the-ordinary home warranty situations arise, consulting early with underwriters will allow greater efficiency and ultimately effectiveness in helping owner builders meet their obligations.