While most new homes and many renovations and extensions are built by registered builders, some are built by owner-builders. Owner-builders are people who own land and build a new home or extension on the land but are not in the building business. As many as 10 per cent of homes and 30 per cent of renovations and extensions are built by owner-builders.

All domestic builders must be registered with the Building Commission and carry insurance. If building work is incomplete or defective, owners and successive owners can have access to these insurance funds. This applies not only to the construction of a new home but to renovations and extensions. Building warranty insurance must be provided by a builder for any work in excess of $12,000 completed for the owner. Building work is covered for a period of six and a half years from the date of completion.

As the owner-builder is the owner of the home or renovation there is no need for builders’ warranty insurance. If however, the owner-builder decides to sell the property within a six and a half year period from completion of construction they must have building warranty insurance for the completed work. The Building Act 1993 (Vic) requires the owner-builder selling the house to undertake certain steps before entering into a contract of sale of land, which includes the need for building warranty insurance. The Act also sets out the consequences of not doing so. The most serious of these is the purchaser’s ability to terminate the contract of sale.

While there is a widely-held belief that it is the owner-builder’s responsibility to actually transfer the insurance policy to the new owner, this is not the case. Owner-builders are under no obligation to disclose the existence of builder’s warranty insurance, respond to requests about its existence or to facilitate its transfer. However, you will find most vendors will supply this information as part of marketing their property. The solicitor representing the purchaser of the property is expected to ascertain the details of any insurance policy and pass them on to his client.

The situation is different for commercial properties such as shops and small factories. Legislation does not place the same insurance requirement for domestic owner-builders on the sale of an owner-built commercial property. However, if the property is sold within 10 years of construction the vendor must warn prospective buyers of any defects in the property by attaching a condition report to the contract of sale. Before buying an owner-built commercial property, you should seek legal advice on the contract of sale and the information provided in the supporting documentation such as the condition report.