Law Reform in the Construction Sector in Victoria

The Victorian Government recently announced several changes to support home builders and renovators. The recent collapse and liquidation of the privately owned home-building company, Porter Davis Homes, demonstrated an apparent failure of Victorian legal protections regarding customer deposits and builders obtaining domestic building warranty insurance. In response, the Victorian Government offered assistance to affected Porter Davis Homes customers and committed to offering support payments to customers who were prejudiced by not having builder’s warranty insurance at no fault of their own.

On 16 May 2023, the Victorian Government announced:

• reforms to the Domestic Building Contracts Act 1995 (Vic) (DBC Act) with intentions of strengthening the requirements relating to building warranty insurance; and
• plans to consider delaying the introduction of the new National Construction Code (NCC) requirements which were previously due for implementation on 1 October 2023.

This announcement did not foreshadow any legislative changes to, or consideration of, the fixed price nature of major domestic building contracts in Victoria that might allow builders to pass on some of the cost increases experienced in the construction sector.

Increasing insurance obligation under the Domestic Building Contracts Act 1995 (VIC)

The recent liquidation of Porter Davis Homes revealed that it was common practice for builders not to take out the required building warranty insurance (which protects customers) before accepting deposits from customers. As such, the Government identified that there was therefore, a need for legislative reform to the DBC Act to strengthen domestic building insurance requirements.

By way of background, builder’s warranty insurance is an insurance policy taken out by the builder for the benefit of a homeowner and subsequent owners, which applies to domestic building works carried out by the builder. The policy is ‘last resort’ in nature and is only triggered in the event of the death, disappearance or insolvency of the builder or in other limited circumstances, such as the builder failing to comply with a Court / Tribunal order for payment of a judgment sum.

It was announced that the Building Legislation Amendment Bill 2023 (Vic) (Bill) will reform the DBC Act to introduce new powers for Victoria’s building regulators. This will include giving building regulators more powers to monitor whether Victorian builders are meeting their obligations, including to take out building warranty insurance prior to taking a deposit from a customer. The reforms will also impose tougher penalties for failure to comply with these obligations. The VBA will also audit builders regarding the collection of deposits and the associated purchasing of building warranty insurance by builders for customers.

Delayed implementation of the National Construction Code requirements

The Victorian Government has stated that it understands that the Victorian building and construction industry is facing significant global economic challenges, particularly relating to the rise of supply chain costs. Given this, the Victorian Government will consider delaying the introduction of the new NCC requirements that are currently scheduled for implementation on 1 October 2023.

The new NCC adoptions relate to new liveable housing requirements and new energy efficiency and condensation mitigation requirements. It is arguable that these additional NCC requirements will add to the cost of the design and construction of domestic dwellings. The New South Wales, Western Australian and South Australian Governments have delayed the effective implementation dates for the new NCC requirements. In light of this announcement, it is likely that, in due course, the Victorian Government will also delay the introduction of the new NCC requirements in Victoria.

Reviewing the roles of CAV and the VBA

The Victorian Government also announced that the role of Consumer Affairs Victoria and the Victorian Building Authority as regulators of the domestic construction industry in Victoria will also be reviewed. There will be an increased effort to improve the information provided to customers about a builder’s obligation to take out domestic building insurance.

The VBA board has also recently appointed Anna Cronin as the new CEO to assist with the implementation of the Victorian Government’s reforms.

Benefits of the reforms

The proposed changes are favourable to Victorians who enter into domestic building contracts with builders. It is hoped that these legislative changes to the DBC Act will better protect customers in the event of building companies collapsing. The potential delay in the implementation of the new NCC requirements may provide benefits to homeowners who might otherwise pay additional costs to satisfy these requirements.

Queries

For further information regarding this article, please contact the authors or any member of our Building & Construction team.

Disclaimer

This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.