On a Proper Construction Issue 1: Warranties Against Defects: The Interplay of the ACL and Residential Building Work in WA

05 December 2019

Domestic builders in WA need to review their standard form building contracts to make sure that they account for the latest changes in the Australian Consumer Law (ACL). While the changes create a collision between state and federal legislative regimes we think there are some relatively straightforward tweaks that builders can make to their contracts to avoid falling foul of the ACL.

Before turning to the tweaks we need to go through some law. It’s a bit dry but hang in there, we’ll get to the good stuff shortly.

ACL prescribed requirements

On 9 June 2019, changes to the ACL came into effect that require specific wording to be included where any warranty against defects is provided for goods and/or services.1

A warranty against defects is a representation communicated to a consumer in connection with the supply of goods or services, at or about the time of supply, to the effect that a person will (unconditionally or on specified conditions):

  • Repair or replace the goods;
  • Provide again or rectify the services; or
  • Compensate the consumer if the goods or services are defective.

And includes any document by which such a representation is evidenced.2

Services include any rights, benefits or facilities that are provided under a contract for or in relation to the performance of work.

A home owner building a house under a home building work contract would be likely to be considered a consumer because the goods and services provided by the Builder are of a kind ordinarily acquired for domestic, household or personal use or consumption (therefore, the general $40,000 limit on when goods or services are acquired as a “consumer” does not apply).3

The new mandatory text requirements for warranties against defects are prescribed in the Regulations. For example, the mandated text where goods and services are supplied is as follows:4

‘Our goods and services come with guarantees that cannot be excluded under the Australian Consumer Law. For major failures with the service, you are entitled:

    • to cancel your service contract with us; and
    • to a refund for the unused portion, or to compensation for its reduced value.

You are also entitled to choose a refund or replacement for major failures with goods. If a failure with the goods or a service does not amount to a major failure, you are entitled to have the failure rectified in a reasonable time. If this is not done you are entitled to a refund for the goods and to cancel the contract for the service and obtain a refund of any unused portion. You are also entitled to be compensated for any other reasonably foreseeable loss or damage from a failure in the goods or services’.5

Warranties against defects must be included in a document that is transparent and concisely states, amongst other things, the warranty period, the procedure to claim against the warranty, the benefits to the consumer given by the warranty, etc.6

Failure to include the mandatory text in a document where a warranty against defects is given may result in the imposition of a pecuniary penalty up to $50,000 for a corporation.7

A warranty against defects is separate (and additional) to the consumer guarantees (fitness for purpose and the like) provided in the ACL.

For a more detailed discussion about the changes to the ACL, click here for our earlier article ‘New mandatory wording required when warranties are given for services‘, written by Teresa Torcasio (Partner) and Marian Ngo (Senior Associate).8

What does this mean for home builders?

That’s all very nice in theory but what does it mean for home builders in WA?

Voluntary warranties

The provision of a lifetime or 10 year structural warranty (commonly provided within the residential construction industry), would be a warranty against defects over and above the usual consumer guarantee that building services be provided with due care and skill, and be fit for purpose. So, if a builder chooses to provide a warranty of this nature to a consumer, the mandatory text set out above must be included in the warranty document and comply with the other requirements in the Regulations at the time that it is provided.

Further, home builders regularly pass on the warranties provided by manufacturers of goods to their customers. Where warranties of this nature are provided, builders should ensure that the mandatory text is in the warranty document (and that it otherwise complies). It is insufficient to include the warranty information on a website.

Implied condition

While it is conceivable that Mum and Dad home owners might need some protection from the home builders (who, at least in theory, hold a superior bargaining position in an economic sense) that issue has been addressed via an entire suite of legislation in Western Australia aimed at protecting the rights of consumers who are building homes.9  That regime operates in conjunction with the consumer protections in the ACL.

For example, s11 of the Home Building Contracts Act 2004 (WA) (HBCA) provides that it is a term of every contract that a builder is liable to make good defects at its own cost notified within 4 months of practical completion (Implied Condition). That is a statutory obligation, not a warranty that a Builder voluntarily elects to give to its customers. Builders are obliged to include the Implied Condition in their written home building works contracts.10

A warranty against defects is generally supplied free-of-charge and offered voluntarily as a competitive advantage over other products. The policy reason behind the warranty against defects legislation is to ensure that consumers are alerted to the ACL and not misled in warranty documents.11

While it is unlikely that it was the legislative intent (given the policy reasoning described above), it is at least possible that the inclusion of the Implied Condition in a home building works contract could meet the definition of a “warranty against defects” under the ACL.

Certainly, if a Builder repeats the Implied Condition in the home building works contract in a way which makes it sound like it is being voluntarily offered or if the Builder decides to offer something over and above the Implied Condition (such as a six month rectification period instead of four) the risk is heightened. This is because the Builder may be making a representation, communicated to a consumer (by contract), in connection with the supply of goods and services, that the builder will repair, replace or rectify goods and services that are defective. This would mean that the mandatory text from the ACL ought to be included in the home building works contract although the wording is not usual for contracts of this kind. In particular, the cancellation rights may well be inconsistent with the termination rights included in such contracts (which would usually require written notice and an opportunity for the Builder to remedy).

Builders should carefully scrutinise the warranties against defects which they are providing to their customers (particularly in the residential space where the legislation applies in an uncapped way) to ensure that all warranty documents and standard terms and conditions accurately include the prescribed requirements and mandated text.

If you would like assistance reviewing your documents to ensure compliance, please contact the authors of this article David Ulbrick, Kate Morrow or Lynn Wolfe, or any member of the Perth Construction team.

This article has been written by David Ulbrick, Partner, Kate Morrow, Special Counsel and Lynn Wolfe, Solicitor.

ACL s 102(1), r 90.
ACL s 102(3).
ACL s 3.
Note: there is separate wording where either goods or services are supplied.
ACL r 90(1)-(4).
ACL r 90(1).
ACL s 224(1)(a)(vii).
Building Act 2011 (WA); Building Services (Complaint Resolution and Administration) Act 2011 (WA); Building Services (Registration) Act 2011 (WA); HBCA.
10 HBCA s4(1)(a)(i).
11 Consumer Affairs Australia and New Zealand (CAANZ), Australian Consumer Law Review – Final Report, March 2017, p 26.

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