The Home Building Act 1989 (NSW) (“the Act”) implies a number of warranties into contracts for all residential building work carried out in NSW. Statutory Warranties are in effect for six (6) years for major defects and two (2) years for all other defects commencing from the date when the work was completed. Generally, owners won’t have any recourse against a builder under the Act for defects arising outside these timeframes.
While the Act requires a written contract for most types of residential building work (namely work valued over $5,000), there is no pro forma or mandated contract required to be used. A written contract however must satisfy the requirements of section 7(2) of the Act which among other things, requires the Statutory Warranties applicable to the work to be included.
Basic residential building contracts are available via the Department of Fair Trading NSW. Residential Building Contracts are also available for members of associations such as the Master Builders Association (MBA) and the Housing Industry Association (HIA). Typically, these form the main residential building contracts used in NSW.
In the recent Supreme Court case of NSW in Onslow v Cullen [2022] NSWSC 1257, the Court had to consider the terms of a HIA residential building contract against competing limitation periods of the Act and the Limitation Act 1969 (NSW).
Facts
In Onslow, the builder used a standard HIA contract for residential building work. At clause 39 of the contract, the Statutory Warranties were expressed in accordance with clause 7(2)(f) of the Act. The owner commenced proceedings against the builder for defective works (including for minor defects) more then 2 years after the works were completed but not before the expiry of 6 years.
The builder submitted the owner was out of time and the Statutory Warranties afforded under the Act did not apply. The owner maintained that as the warranties provided for in section 18B of the Act were replicated and inserted into the terms of the contract, the owner was entitled to sue for damages for breach of contract, for which the limitation period was six (6) years pursuant to the Limitation Act. In other words, the owner’s claim was a claim for breach of contract and not for breach of statutory warranty meaning the owner’s claim was not statute barred. The Court in the first instance agreed with the owner and the builder subsequently appealed.
Consideration and findings
On appeal (which also involved purported errors with respect to calculation of damages and the application of credits), Adamson J took the view that the Court in the first instance erred for a number of key reasons.
Firstly, proper consideration had not been given to section 7(a) of the Limitation Act which has the effect that, if there is another limitation period specified in another “enactment”, the other limitation period will apply rather than the one specified in the Limitation Act.
Secondly, Adamson J determined that clause 39 was plainly designed to comply with section 7(2)(f) of the Act which holds that the Statutory Warranties applicable to the work must be contained in the written terms. The prefatory (explanatory) words of the clause, “[t]o the extent required by the [Act], the builder warrants that” were deemed significant in this regard.
Thirdly, section 18G of the Act makes it clear that the parties cannot exclude the statutory warranty “to remove the rights of a person” and any provision which purports to do so, is void. It is important that section 18G refers to “rights of a person”. The word “person” in this context includes not only the owners but also the builder.
Key takeaways
Onslow highlights that a contract’s prefatory words should serve to limit any warranty to the extent otherwise provided under the Act. If the terms of a contract are not clear, there is a risk that the builder will be deemed to give additional warranties which may be preferred over the usual (and intended) limitations under the Act.
Careful drafting is required to ensure the requirements of section 7(2) of the Act are satisfied while at the same time making sure that in doing so, a builder is not inadvertently extending or giving further warranties and putting itself in a worse position.