Home builders should take note: following the recent collapse of several builders, new legislative changes in Victoria have been introduced to strengthen consumer protections in the construction industry by introducing new penalties for builders. Many homeowners were vulnerable to losing their deposits due to builders’ failure to obtain domestic building insurance (DBI).
In response, the Building Legislation Amendment (Domestic Building Insurance New Offences) Act 2024 (Vic) (the DBI Offences Act) came into operation on 28 February 2024 and addresses gaps identified in the regulatory framework. Specifically, the DBI Offences Act introduces penalties for a builder’s failure to obtain DBI.
The DBI Offences Act complements the recommendations in the ‘Expert Panel’s Comprehensive Review of Victoria’s Building System – Stage Two Report to Government’; a report which proposed to develop new insurance products that are commercially viable for insurers while meeting the needs of consumers, to enhance Victoria’s building regulatory system.
Purpose
The main purpose of the DBI Offences Act is to amend the Domestic Building Contracts Act 1995 (Vic) (DBCA) and the Building Act 1993 (Vic) (Building Act) in relation to builders who demand or receive money under a major domestic building contract (for works valued at more than $10,000)1 where the work is not covered by DBI, by:
- inserting new offences2; and
- enhancing regulation and enforcement of offences under the DBCA3.
Amendments to DBCA
Additional offences are inserted into a new Part 3A of the DBCA. 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 section 135 of the Building Act,4 must not demand or received money from the owner, if the builder:
- knows that the builder has not ensured that the domestic building work is covered by DBI; or
- is reckless as to whether the builder has ensured that the domestic building work is covered by DBI5.
A contravention of these provisions would result in fines of up to 500 penalty units (currently $96,155.00) for individuals, and fines of up to 2500 penalty units (currently $480,755.00) for body corporates.
Where a builder failed to ensure that works are covered by DBI (whatever their intent), there may be fines of up to 240 penalty units (currently $46,154.40) for individuals, and 1200 penalty units (currently $230,772.00) for body corporates.6
Evidently, the element of “knowledge” as to whether DBI is in place imposes more stringent penalties.
These penalties will deter practices within the construction industry of not applying for DBI until after works are commenced, and ultimately protects consumers who may have difficulty independently verifying if a builder holds proper insurances.
Amendments to Building Act
To police contraventions of sections 43B(1) or (2) of the DBCA, amendments to the Building Act allow for the:
- exercise of investigation and enforcement powers by the VBA;7
- immediate suspension of a builder’s registration;8 and
- commencement of proceedings.9
Further, the amendments have extended the application of offences in the DBCA, particularly the contravention of section 43B(1) or (2) of the DBCA, to builders that are partnerships and bodies corporates.10
The Victorian Building Authority (VBA) will take a lead regulatory role in relation to investigations and the enforcement of offences. The Director of Consumer Affairs Victoria will continue to exercise other regulatory powers and functions under the DBCA and Australian Consumer Law.
Amendments to section 227G(1) of the Building Act provides the VBA greater investigative powers to procure information or documents from relevant persons if the VBA has reasonable grounds to suspect that section 43(1) or (2) of the DBCA has been contravened,11 or to determine whether these provisions have been complied with.12 A VBA inspector is empowered under section 227I(1) and (2) of the Building Act to inspect such documents.
The DBI Offences Act extended the powers of the court by amending section 241A(1) of the Building Act, stating that an unregistered builder who contravenes section 43B(1) or (2) of the DBCA will be ineligible to apply for registration for not more than 3 years.
Importance of these legislative changes
The DBI Offences Act represents a significant step towards improving consumer protection in the Victorian construction industry. By introducing stricter regulations and penalties for builders operating without appropriate insurance coverage, the legislation aims to prevent future incidents similar to the Porter Davis Homes Group collapse. Builders and stakeholders in the construction industry should familiarise themselves with these new provisions to ensure compliance and mitigate potential risks.
This article was written by Matthew Bliem, Partner and Angelo Lin, Law Graduate.
1Domestic Building Contracts Regulations 2017 (Vic) regulation 6.
2DBI Offences Act s1(a)(i).
3Ibid s1(b)(i).
4As outlined in the Ministerial Orders: Victorian Building Authority (Website) <https://www.vba.vic.gov.au/building/regulatory-framework/ministerial-orders>.
5DBCA s43B(1).
6Ibid s43B(2).
7Building Act s227(G)(1).
8Ibid s180(b)(ia).
9Ibid s241(3A).
10Ibid s242A, s243.
11Ibid s227G(ab).
12Ibid s227G(ba).
