If your builder goes into liquidation, who will save you?
By Andrew MinAHAN, SENIOR SOLICITOR
The rights of home owners when the company they engage to build their homes will, yet again, be the subject to debate, if not controversy, given the collapse of Porter Davis and Lloyd Group building companies.
Their liquidators will try as valiantly as they can to ensure that the harm to building owners is minimised. But the powers of liquidators are limited, and there will be many other people whose interests will conflict with home owners, such as suppliers, sub-contractors and other creditors of those companies, not to mention the ATO, that the liquidators must also take into account.
Taking these unfortunate factors into account, all people who enter into domestic building contracts will, or should, be aware that if the contract price for the building work is more than $16,000, then the builder must take out insurance for that building work under the Building Act 1993 (Vic).
If you have engaged Porter Davis or Lloyd Group to build your home, and the building works have not been completed, what can you do, and what protection will the domestic building works insurance policy give you?
What not to do?
The first thing not to do is exercise the remedy of self help.
If you are an owner, do not enter the building site, or lock it up. If someone is hurt or injured, there may be no public liability insurance over the site. If the injured person takes legal action for compensation for the hurt or injury, you may be liable to pay any damages awarded out of your own pocket.
Furthermore, the builder had, and the liquidator has, the right to enter the building site. If you enter without the liquidator’s approval, you may be accused of breaching the contract, or trespassing.
Similarly if you are a sub-contractor or supplier do not enter the site to remove building materials, or your tools, without first obtaining the consent of the liquidator. Again you could be accused of trespassing, or theft.
In all of the above cases, obtain legal advice first.
When do you make a claim to the domestic building works insurer?
You should make a claim against the insurer within 180 days from when you become aware that the building company has gone into liquidation.
How much is the insurance cover?
The maximum amount payable for any insurance claim is $300,000.
What is included in the $300,000?
You are entitled to reasonable storage and removal costs and for 60 days alternative accommodation costs.
You are entitled to payment of your reasonable legal and other costs incurred with a successful insurance claim.
You are entitled to compensation for defective building works.
What is not covered
Liquidated damages: You are not entitled to compensation for any delays in the building works caused by the builder.
Completion costs: The amount payable for completion costs after the builder is liquidated is limited to 20% of the contract price. This limit may be of no consequence if your house is at the final claim stage, but could be disastrous if the building work is at, say, the slab stage.
Fair wear and tear: You are not entitled to compensation for loss and damage due to fair wear and tear.
Excluded works: Depending upon the nature of the work, and what building work the builder was required to carry out, landscaping, paving, retaining walls, driveways or fences are excluded from any insurance claim.
What now?
The liquidators may be able to find buyers for the companies, and the building works may recommence with minimal disruption. Given the number of homes under construction and amounts owned by the companies that may not be possible.
In that case, seek legal advice now.
This article should not be relied on as a substitute for obtaining legal, financial, or other professional advice. It is intended to provide general information only and is not intended to be comprehensive. The contents do not constitute legal, financial or taxation advice and must not be relied upon as such. Please seek specific professional advice tailored to your personal circumstances before taking any action based on this publication.
Should you require professional advice, please contact Andrew Minahan, Senior Solicitor.