Domestic building insurance (DBI), also known as builder’s warranty insurance or home warranty insurance, is necessary to protect you whenever you have works carried out on your home with the help of registered builders, whether that’s a renovation or an addition to your property .

The builders warranty ensures your tradesman executes everything in the building contract with good workmanship, so that the job is done right and gives you peace of mind.

If you’re curious about what your rights are when it comes to defective work or poor quality of materials supplied, read on. We will discuss what domestic building insurance covers, how long the work is guaranteed for, and the legal requirements of an owner builder.

Domestic building insurance

Currently, any domestic building projects carried out by a builder that exceed the value of $16,000 must be covered by domestic building insurance (DBI) in Victoria. This is governed by the Victorian Managed Insurance Authority.

Whether renovating or building, the builders or tradespeople you hire are legally required to take out DBI to protect you from faulty workmanship or non-completion of the building work.

These warranties are covered by the Domestic Building Contracts Act 1995 and consumer guarantees by the Australian Consumer Law.

Regardless of what a builder may say, implied warranties cannot be signed away. Before you hand over a deposit or any other funds to a builder, ensure they provide you with a certificate of insurance and a copy of the policy for your property.

What’s covered under builders warranty insurance?

DBI doesn’t fully protect you from all the problems that can arise across the stages of a building project. Domestic building insurance protects home owners when the build is not complete or when defects have not been repaired in these circumstances only:

• If the contractor or builder dies,
• If they declare bankruptcy,
• If they disappear,
• Or in the case of a building dispute when the builder fails to comply with a final order ruled by either a court or the Victorian Civil and Administrative Tribunal (VCAT).

For any other issues that may occur, your contractor must fix or complete works to the standard of the written contract, and your building surveyor will make a final inspection report to check for defects.

What do implied warranties cover?

You can exercise your implied warranties to ensure your builder meets the expectations of the contract within the appropriate time period. According to The Domestic Building Contracts Act, implied warranties apply to all residential work and ensure your contractors:

• Carry out the work in a proper and workmanlike manner, in accordance with the plans and specifications set out in the contract.
• Ensure all materials supplied are good and suitable for the purpose and are new, unless otherwise stated in the contract.
• Carry out the work in accordance with all laws and legal requirements.
• Carry out the work with reasonable care and skill and complete works by the date (or within the period) specified by the contract.
• Ensure new homes, extensions, renovations, repairs and kit homes (or similar) are suitable for occupation when completed.
• Ensure other types of work and the material used are reasonably fit for the intended purpose.

When your property is sold, implied warranties are transferred to a new owner for a maximum of 10 years from completion of the work.

Defect liability period

In Victoria, DBI has a maximum limit of $300,000, protecting both the owner and subsequent purchaser against any building defects that might be found.

As a general rule, non-structural defects have an insurance coverage period of two years, while the length of time to fix structural defects is six years. Claims on the policy for incomplete work are generally capped at 20 per cent of the contract price.

The defect liability period should be stated clearly in the contract between you and your builder. Products supplied by third-parties, which become faulty, such as stoves and electrical appliances, will be covered separately by the appliance manufacturer’s warranty and should be followed up directly with them.

Owner builder warranty insurance

If you’re an owner builder or are renovating, you will still need to have warranty insurance. Obtaining the warranty is your legal responsibility and without one you risk fines and penalties of up to $10,000 if your property is sold.

The Building Act requires owner builders to have warranty insurance to protect a prospective purchaser within six years of the final inspection completed by an approved inspector. A defect inspection report should list whether there are any defects, incomplete works or if second-hand materials were used. If you’ve taken the correct steps, the purchaser then cannot claim against those items.

Selling a property without an Owner Builder Warranty Insurance Certificate means the buyer can walk away from the sale agreement without penalty, and the policy must be issued before the Contract of Sale is signed.

Final thoughts

Always discuss your rights with your builder before commencing any build, extension or renovation and make sure contracts are signed and that the relevant insurances have been taken out. Make sure to ask your builder for a copy of their current certificate of public liability insurance.

When renovating, it’s a good idea to get in touch with your home and contents insurer before work commences to see what they cover. You may need extra cover on your policy to be fully protected on the changes that will be made.