For most Australians, a new home is the most expensive purchase they ever make and so knowledge of how this purchase is insured is crucial should something go wrong. Every new residential development in Australia is insured under some kind of new home warranty, but these policies can be very confusing and differ substantially state to state, and depending on the conditions under which your home is purchased. Generally, warranties for new-build homes offer coverage on workmanship relating to the structure itself as well as various components of the home such as ventilation, heating and cooling, windows, plumbing and electrical systems. New home warranty insurance is developed and regulated by state governments and is designed to protect buyers as well as construction companies and developers. As with any legal policies, cutting through the jargon to understand what you’re covered for can be overwhelming. We’ve summarised everything you need to know about new property warranties in two key markets, Queensland and the Australian Capital Territory, so you can sign on the dotted line and make your purchase with confidence.
Most residential building work done in Queensland valued over $3,300 must have home warranty insurance. As well as the initial construction on your freestanding home, townhouse or apartment, this also includes any additional work you have done providing it’s valued at over the $3,300 threshold including home extension work, balconies, roofing and swimming pools. The builder or developer pays a premium to the Queensland Government to insure the construction which is included as part of the contract amount and paid before work begins to ensure every part of the construction process is under warranty. This protects buyers in the event of non-completion and contract termination, failure to rectify defective work or if subsidence occurs or the building is sold. Under this scheme, new work is insured for 6 years and 6 months from the date the contract is entered, however, this is extended if the work takes longer than 6 months to complete as is common with new-build apartment complexes.
To make sure you’re fully covered by the Queensland Home Warranty Scheme, make sure to avoid construction management contracts and cost-plus contracts that don’t cover a fixed price. This not only ensures the construction won’t exceed your budget but covers you if something goes wrong and the builder does not complete the job. If the builder defaults, you are eligible for compensation for the extra cost required to complete the work, which may be above the fixed-cost. If your contract is not signed at a fixed-cost rate, you are not entitled to any payout if the work is not completed.
If you ever need to make a claim, initially this will be processed by the Queensland Building and Construction Commission. If no resolution can be reached, this is when you will be eligible for assistance under the Queensland Home Warranty Scheme. There are strict time limits on when a claim can be placed and outside of these time limits, you won’t be covered by the warranties at all. For structural defects, you must lodge this complaint form within 3 months of noticing the defect, and for non-structural defects, you must lodge this complaint form within 7 months of the completion date. For a claim to be paid out, the government will pursue the builder to recover the claim amount.
The standard cover in Queensland protects home owners up to the value of $200,000, with $5,000 included for alternative accommodation and storage costs should that be necessary. There is also the option to purchase additional cover to boost this cover to $300,000.
As property contracts differ substantially in the ACT, so too does the insurance on new-build homes. To briefly explain, Canberra is a leasehold only market, as opposed to Queensland where the majority of buyers of new property own the land freehold. In Canberra, when the lease expires, the land is reverted back to the crown (the ACT government). Standard lease term from the crown in the ACT is 99 years, after which the lease is generally automatically renewed.
In the ACT, a Home Warranty Insurance policy is only required for works valued at over $12,000. This insurance must be finalised before any payment is exchanged or a building licence is obtained. Unlike Queensland, this does not cover swimming pools or any extension work that isn’t structurally attached to the main structure. When it comes to the nitty-gritty of building warranties, there have been quite a few changes since 2017, with changes to the Building Act improving protection for buyers. The Building Act states that building work must be done “in a proper and skilful way”, “fit for the purpose”, with “good and proper materials”, and completed promptly. Those obligations are implied into various contracts regardless of whether the builder or developer is a party to those contracts.
Similarly to Queensland, structural defects are covered by the Building Act for 6 years. Non-structural work is ensured for two years after the settlement of the new-build contract. This is extended by the Further Building Work section, which rules that your two-year warranty commenced once the building is deemed complete, and all initial issues have been rectified, regardless of whether or not you already occupy the building. For example, if you move in and immediately discover some minor water leaking in areas (providing you report this), your two years of non-structural statutory warranty begins only once this work is completed and the original building work is deemed complete.
A claim may be made if the building work is incomplete due to the builder’s insolvency, disappearance or death, during the contract period. A claim may also be made for defects that come to light after completion of the project. The legislation provides that a Fidelity Fund certificate or Home Warranty Insurance policy provides maximum coverage of $85,000 and a claim must be made within 90 days of you becoming aware of the defect.