Victorian builders entering into major domestic building contracts must ensure the building work performed is adequately covered by domestic building insurance (DBI) or face strict new penalties.

From 28 February 2024, the Victorian Building Authority (VBA) has been afforded greater powers thereby allowing it to take stricter enforcement action against builders who breach their insurance obligations.

The Building Legislation Amendment (Domestic Building Insurance New Offences) Act 2024 (Vic) (Amendment Act), passed by the Victorian Government on 22 February 2024, introduces new Part 3A (sections 43A and 43B), ‘Offences related to major domestic building contracts and domestic building insurance’ into the Domestic Building Contracts Act 1995 (Vic) (Part 3A) (DBC Act).

Part 3A introduces a definition of “domestic building insurance” (section 43A) and prescribes that a builder who has entered into a major domestic building contract for the carrying out of domestic building work (for which the builder is required to be covered by insurance under the Building Act 1993 (Vic) (Building Act), must not demand or receive money from the building owner under the contract, or from a person acting on behalf of the building owner, if the builder:

1. knows that the builder has not ensured that the domestic building work is covered by domestic building insurance (section 43B(1)(a));
2. is reckless as to whether the builder has ensured that the domestic building work is covered by domestic building insurance (section 43B(1)(b)); or
3. has not ensured that the domestic building work is covered by domestic building insurance (section 43B(2)).

APPLICATION OF THE NEW PENALTY REGIME

Importantly, the Amendment Act has changed who the penalties apply to. The changes set out to apply to individuals who manage or arrange the carrying out of work.

To summarise, where the builder has not obtained DBI for the domestic building work being carried out:

• it is an offence for the builder to demand or receive money (including deposits) under a major domestic building contract without first ensuring that the domestic building works are covered by appropriate domestic building insurance;
• if the builder is found to have committed the offense knowingly or recklessly, they are subject to maximum penalties of $96,000 for an individual or $480,000 for a body corporate; and
• if the builder is found to have committed the offense under strict liability, they will be subject to penalties of $46,000 for an individual or $230,000 in the case of a body corporate.

If a builder is found to have contravened section 43B of the DBC Act, the VBA is afforded the authority under the Building Act to suspend a builder’s registration for a period of time deemed appropriate by the VBA. Additional powers have also been given to the VBA to assist in its investigations of possible contraventions of section 43B. It can now request documentation from a builder if it has reasonable grounds for believing that DBI has not been taken out.

DBI REQUIREMENTS IN VICTORIA

DBI is a mandatory policy that is to be taken out by builders who are conducting works on a major domestic building contract. DBI protects the owner from loss or damage arising from non-completion of the works or a breach (or breaches) of the DBC Act’s implied warranties and subsequent non-completion of rectification works due to the builder:

• dying, disappearing, or becoming insolvent; or
• failing to comply with a Tribunal or Court Order where DBI was issued on or after 1 July 2015.

In the wake of several high-profile insolvencies in the residential building industry in recent years, the failure to properly insure domestic building works became more apparent. Separately, the Victorian Managed Insurance Authority (VMIA) released an update last year that as of 1 September 2023, the purchasing of policies attracted an increase of 43%. This was attributed to the growing number of claims due to builder insolvency in Victoria.

REASONS FOR CHANGE

The Amendment Act was also introduced to change the way a major domestic building contract is defined. Previously, builders were required to purchase DBI on behalf of the owners in contemplation of domestic building projects that were over $16,000. The Amendment Act has varied that specific amount to one that can be changed from time to time in the regulations as they evolve. Currently any domestic building project over $10,000 and requiring various construction disciplines (i.e. more than just one trade) will require the builder to take out DBI.

The DBC Act and the Building Act have both been updated by the Amendment Act, thereby seeing the respective legislation now contemplate the new Part 3A penalty regime and the consequences that will follow if contravention is established.