Licence lending – protecting your rights in domestic building contracts
Purchasing or building a new home is often said to be the largest financial commitment an individual or a couple will make in their lifetime. People will take on substantial mortgages in order to build their dream homes or investment properties. Therefore, it is extremely important that you ensure the legal goalposts are set from the beginning and understood by all parties, before signing on the dotted line. One of the major aspects that can be overlooked by people entering into domestic building contracts is the question: ‘who is my builder?’
Although this is a simple question (and one where people simply make an assumption by looking at the builder named on the contract), it is vitally important that you ensure the person or company undertaking building works is the same person or company named on the building contract.
The Domestic Building Contracts Act 1995 (Vic), provides that only a ‘registered builder’ may carry out domestic building works. Also, the builder must have domestic building insurance for all work over $16,000.00 to cover incomplete or defective works (up to $300,000) should the builder die, become insolvent or disappear. Under these insurance policies, the builder pays the premiums and the insurer pays the owner.
Most importantly, the insurer will only pay you for those incomplete or defective works if:
the builder (and their relevant details including their ABN) named on the contract and on the policy are identical; and
the builder named in the contract actually carries out the building works;
Licence lending is increasingly common and can leave unsuspecting home owners hung out to dry. In most circumstances, licence lending occurs where an unregistered builder either:
signs the contract in their own capacity, using a registered builder’s details to obtain domestic building insurance; or
purports to act as a representative of the registered builder and arranges for the registered builder to obtain the relevant domestic building insurance.
In both circumstances, the unregistered builder undertakes the building works on site and the registered builder receives some form of financial benefit. Unless the registered builder has authorised the unregistered builder to sign the contract and undertake the building works on behalf of the registered builder, it is unlikely that the insurer will indemnify you.
Therefore, if you are entering into a domestic building contract, it is critical that you ensure:
the builder named in the contract is registered with the Victorian Building Authority (which you can search for here: https://bams.vba.vic.gov.au/bams/s/practitioner-search);
the builder and the builder’s details as they appear on the contract and the certificate of insurance, are identical;
the builder named on the contract and warranty insurance policy, is the person or company carrying out the building works;
if a person signs the contract ‘on behalf’ of a registered builder, you need to obtain from the named builder, a signed authorisation confirming that the person signing the contract is duly authorised to do so; and
once the contract is executed and the builder has purchased the relevant domestic building insurance, ensure that the builder is continuing to pay those premiums and that the certificate of currency is up to date. You may contact the relevant insurer to do this.
There are many pitfalls in entering domestic building contracts. The Building and Construction team at Harwood Andrews has extensive experience in acting for both homeowners and builders in these disputes. For further information or advice on your specific circumstances, please contact:
Ben Broadhead
Principal
T: 03 5226 8549
M: 0413 561 332
E: bbroadhead@ha.legal
Thomas Howell
Lawyer
T: 03 5226 8526
E: thowell@ha.legal
