The New South Wales Government is considering ‘Decennial Liability’ insurance (or inherent defect insurance) - with the NSW Building Commission undertaking research, and due to report back to the Government in early 2022.
Currently, owners of new apartments are protected for the costs of rectifying builder’s defects by:
- a claim against the builder or developer;
- Home Warranty Insurance under the Home Building Act (for buildings less than 3 storeys in height), which applies if the builder is dead, insolvent or has disappeared (a policy of last resort); and
- a claim against the developer’s Building Bond under Division 3 of the Strata Schemes Management Act 2015, where the bond is 2% of the contract price for the building works.
With this in mind, it is possible that the builder or developer may not have assets, the Home Warranty Insurance may not cover the full cost of rectifying the defects - or the rectification costs may exceed the building bond.
For example, the owners of the Opal Tower Building at Sydney Olympic Park face more than $17 million of rectification costs relating to cracking, and the Mascot Towers’ owners have a repair bill that could be around $53 million.
A Financial Review article found that 72-85% of new unit owners have structural problems with newly built apartment buildings, and most residential property insurance policies exclude cover for building defects, and damage caused by building defects.
The Decennial Liability insurance proposed is a ‘first resort’ insurance policy to provide cover for up to 10 years after the completion of the building and covers the cost of rectifying defects that threaten the structural integrity of the building.
Kevin Anderson, NSW’s Minister for Better Regulation and Innovation told the Financial Review that the proposal is for a:
“10 year product on that building, which basically says a building is of sound quality, high quality, will stand the test of time over a 10-year period, and if there are defects … they will be covered”
One proposal is for the insurance to be mandatory and to be obtained by the builder or developer.
Holman Webb Lawyers will provide readers with an update once further information becomes available.
If you have any questions with regard to the above, or would like to discuss an insurance-related concern of your own, please don’t hesitate to get in touch with Holman Webb’s Insurance Group today.