Proposed Changes to the Domestic Building Industry to Protect Consumers

On 4 March 2025 the Building Legislation Amendment (Buyer Protections) Bill 2025 (the Bill) was introduced to the Victorian parliament.  The Bill amends the Building Act 1993 (Vic) (Building Act), the Domestic Building Contracts Act 1995 (Vic), the Sale of Land Act 1962 (Vic), the Subdivision Act 1988 (Vic) and the VCAT Act 1998 (Vic).

The Bill will make significant reforms to Victoria’s construction legislation to protect consumers and impose additional obligations on developers and builders. By way of summary, the Bill proposes:

1. The merger of certain building authorities;

2. Updating the Builder’s Warranty Insurance scheme to make it first resort and not last resort in nature;

3. Providing the VBA with a monopoly over the issuing of domestic building warranty insurance policies;

4. Enhancing certain consumer protection mechanisms particularly in respect of multi storey apartments;

5. Requiring developers to pay bonds for residential apartment building above 3 stories; and

6. Changing and expanding the powers of the Victorian Building Authority (VBA).

These changes are some of the most significant reforms to the domestic construction industry in Victorian history.

What are the changes to the Authorities?

The Bill proposes to transfer the powers and operations of the Domestic Building Dispute Resolution Victoria (DBDRV) and the operations of the Victorian Managed Insurance Authority’s (VMIA) Domestic Building Insurance (DBI) functions to the VBA. A large part of the Bill concerns the transfer of the DBDRV and the VMIA’s DBI department, rights and powers to the VBA. Such changes would bring the VBA closer to the integrated ‘Building and Plumbing Commission’ proposed by the Victorian government late in 2024.^[1]

VBA’s Powers Expanded

The VBA, subject to the changes, would have greater powers to resolve unsatisfactory building work. Similarly to the current functions of the DBDRV, the proposed changes to the Building Act would allow the VBA to issue orders to builders to complete unfinished works or rectify incomplete, non-compliant or defective works.^[2] These powers may likely overcome the limitations on the VBA’s existing powers to only issue directions to fix before completion is reached or occupancy certificates are granted (see for example our previous article: ‘The Victorian Building Authorities’ statutory powers to issue directions to fix limited by the Supreme Court.’)^[3]

It is likely that the VBA will utilise its powers to make rectification orders as a vehicle to compel builders to fix / rectify unfinished works or rectify incomplete, non-compliant or defective works when owners make claims on DBI. This may reduce the volume of cash compensation payments made to owners and require builders to fix their own defective works. It remains to be seen when such orders will be made and when they will not be made in the circumstances which often involve a breakdown of trust and confidence between owners and builders.

Developer’s Bond for High Rise Apartments

The Bill amends the Building Act to provide for developer bonds that must be paid by developers to the VBA. These ‘developer bonds’ are an alternative way of providing buyers of high-rise apartments with some protection for defective or non-compliant works as the DBI insurance does not apply to houses with a rise of more than 3 storeys.

Developer bonds must be paid by developers of high-rise apartments to the VBA before the occupancy permit application date.^[4] The amount of the developer bond will be 3 per cent of the total build cost for the residential apartment building or the percentage of the total build cost prescribed by the VBA. The Sale of Land Act 1962 (Vic) will also give purchasers of off-the-plan properties the right to rescind the contract in the event that developers of high-rise apartments fail to pay the developer bonds or have not paid the bond in full^[5]. It remains to be seen whether developers will pass on some or all of these costs to buyers.

The Bill provides for the appointment of a building assessor who must prepare a preliminary inspection report and a final inspection report on the residential apartment building. These reports detail defective works which must be notified to the VBA and other parties such as the owners corporation. A claim may then be made to the VBA by the building assessor or by the owners corporation for payment or release of the development bond for the costs of rectifying defective building works in these reports.^[6] The VBA may also issue a rectification order to developers of high-rise apartments who have undertaken defective works.^[7] The intention of this scheme appears clear – to incentivse the developer to rectify defects so that the development bond is not drawn down upon.

First Resort Domestic Building Warranty Insurance

In Victoria the DBI scheme is currently a ‘last resort’ system under which builders warranty insurance is only triggered and indemnity is only given to owners in the event of the ‘death, disappearance or insolvency’ of the builder or if the builder fails to comply with a Court of Tribunal order or judgment. Under the Bill, claims for DBI will become the owner’s first resort rather than last resort. Therefore, claims can be made by owners on DBI for defective, non-compliant or incomplete works without owners first having to sue the builder in VCAT or Court and obtain orders or judgment against the builder and/or first wait for the insolvency of the builder before the DBI policy applies. This is a significant change that will likely result in far less claims being made by owners against builders because owners will likely claim on insurance instead of directly pursuing the builder.

Under the amendments in the Bill DBI will continue to apply only to homes with a rise in stories of 3 or less and DBI will therefore not apply to high rise apartments. High rise apartments will be covered by a separate arrangement discussed below for developers to pay a bond for consumer protection purposes.

The amendments to DBI in the Bill provide for a different scope of insurance coverage or ‘assistance’ for owners for ‘defective’, ‘non-compliant’ and ‘incomplete’ domestic building works for which a DBI policy applies (as those terms are defined in new section 137H of the Building Act).

The ‘assistance’ that is provided to Owners under DBI is either for the rectification of defective or non-compliant domestic building works, completion of domestic building works or the payment of compensation.^[8] The VBA has new powers to seek tenders for carrying out of rectification works.

The amendments in the Bill also provide that DBI must be obtained for, and applies to, ‘speculative domestic building work.’ ‘Speculative domestic building work’ covers works not done under a major domestic building contract on land which is owned by the builder for the construction of a low-rise house (i.e. homes with a rise in stories of 3 or less) where the home is intended for sale or is subject to a contract of sale. In other words, under the new DBI insurance scheme, DBI must be taken out by the builder for off-the-plan contracts of sale that fall within this definition. The definition of ‘speculative domestic building work’ likely does not cover the sale of land by a developer (not being the builder of the home) via an off-the-plan contract of sale as the builder in that scenario does not own the land in question.

VBA’s Management of Domestic Building Warranty Insurance: Eligibility of Builders

Certain types of developers and companies and persons associated with a builder or developer cannot claim indemnity and cannot obtain assistance under DBI policies.^[9]

The VBA will take on responsibility for managing DBI including pre-qualifying builders for eligibility to take out insurance and assessing claims made by owners. The VBA will issue minimum financial requirements for registration as a domestic builder that must be meet by builders likely on an annual basis. The Bill will also introduce an offence if the VBA is not satisfied that the builder meets the relevant minimum financial requirements for registration as a builder. These are important safeguards which will likely make it harder for builders to obtain eligibility for DBI and to be registered as builders to carry out domestic building works. The bar for eligibility will likely be raised so as to improve consumer protection and reduce the risk of claims on the DBI issued by the VBA from time to time.

The proposed amendments to DBI include to register builders for insurance based upon an assessment of their finances, new offences regarding insurance and the VBA standing in the shoes of owners to recover against and pursue builders for the owners’ losses arising from defective works on a subrogated basis. Amounts paid out by the VBA to owners is deemed a debt due by the builder to the VBA.^[10]

New Payment Requirements For Domestic Building Warranty Insurance

Payments for DBI will be made by builders to the VBA on behalf of owners and such payments must be made before the first of 10 business days after the date that the building contract was entered into and the date that the works start (whichever occurs first).^[11] There are new offences for builders who fail to do this (up to 500 penalty units for an individual and up to 2,500 penalty units for a body corporate). Premiums for DBI will be set by the VBA at least annually. It is likely that the premiums paid by builders on behalf of owners will be passed on to owners in the contract price set in the domestic building contract. Premiums will be set by reference to factors determined by the VBA but the value of the works will be a relevant factor such that variations which increase the value of the works require the builder to pay an additional premium to the VBA.^[12]

There are transitional provisions in the Bill that provide that existing VMIA issued DBI policies remain valid and claims made on those policies may be made or continued after the transfer date on which the VMIA’s rights, property and function to administer DBI is transferred to the VBA.

VCAT’s Review of VBA Decisions on BWI Claims

Under the amendments proposed by the Bill, a person affected by certain decisions of the VBA may appeal that decision to VCAT for review of that decision within 28 days of the date of the decision or receipt of statement of reasons if requested.^[13] The matters which can be reviewed by VCAT include decisions to not provide ‘assistance’ (i.e. not providing indemnity), a decision to provide assistance and decisions to cover or not cover certain losses (i.e. heads of loss or defects). This review mechanism will allow owners and builders an opportunity to challenge the decision making of the VBA. Significantly, the grounds of review do not include the exercise of the VBA’s discretion as to what type of ‘assistance’ to provide – e.g. to require rectification of the works or payment of compensation etc.

It is expected that VCAT will be the venue for a large number of applications to review the decision making of the VBA in relation to assistance commenced by owners and/or by builders and other persons affected (perhaps also by plumbers and others involved with the works).

When does the Bill Come into Effect?

The Bill will come into effect on the earlier of the day that it is proclaimed or 1 July 2026.

Conclusion

In conclusion, the Bill significantly changes the landscape for builders, developers and owners of domestic building works. The amendments in the Bill will likely significantly reduce the number and scope of domestic building disputes between owners and builders in VCAT and the Courts for defective and incomplete building works. Many owners will likely seek assistance under the first resort DBI scheme. The types of disputes that will likely arise will include those in relation to the determination of first resort DBI claims and challenging decision making around developer’s bonds. Whilst these mechanisms do provide for greater consumer protection the cost of such protection is likely to be passed on by the development industry directly to consumers.

Disclaimer

This information is general in nature. It is intended to express the state of affairs as of the date of publication. 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.

Queries

If you have any questions about this article, please get in touch with the author.

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[1] See: https://www.premier.vic.gov.au/new-building-watchdog-teeth-protect-victorians

[2] See section 75B of the Building Act 1993.

[3] https://www.cornwalls.com.au/victorian-building-authorities/

[4] See section 137ZP(1) of the Building Act 1993 (Vic).

[5] See section 102 of the Bill which introduces new section 9AEA of the Sale of Land Act 1962 (Vic).

[6] See section 137ZZN of the Building Act 1993 (Vic).

[7] See section 75B(1)(b) of the Building Act 1993 (Vic).

[8] See section 137M of the Building Act 1993 (Vic).

[9] See section 137L of the Building Act 1993 (Vic).

[10] See section 137ZD of the Building Act 1993 (Vic).

[11] See section 137O of the Building Act 1993 (Vic).

[12] See section 137X of the Building Act 1993 (Vic).

[13] See section 137ZK of the Building Act 1993 (Vic).