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Building Legislation Amendment (Domestic Building Insurance New Offences) Act 2024 – what it means for builders in Victoria

• 14 March 2024 • 6 min read
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Overview

Domestic Building Insurance (DBI) is (subject to a small number of exemptions) a mandatory precondition to the carrying out, or the managing or arranging of the carrying out of domestic building work where the contract price is more than $16,000 (including labour and material costs). The requirement is prescribed by the Building Act 1993 (Vic) (Building Act). DBI covers consumers for rectification costs of up to $300,000 if, before work is complete, the builder dies, is declared insolvent or disappears.

The Building Legislation Amendment (Domestic Building Insurance New Offences) Act 2024 (Amendment Act) passed both houses on 22 February 2024 and was proclaimed to commence on 28 February 2024. It is now an offence under the Domestic Building Contracts Act 1995 (DBC Act) for a builder to demand or receive money under a Major Domestic Building Contract (MDBC) if the builder has not ensured that the domestic building work to be carried out under the contract is covered by DBI.

The key changes are summaries below:

MatterBefore amendmentsAfter amendments
What is a MDBC? A domestic building contract in which the contract price is more than $5,000, or any higher amount fixed by the regulations (currently $10,000).A domestic building contract under which the amount of money that a builder will receive is more than the amount fixed by the regulations (currently $10,000).
What is an ‘insurable’ domestic building contract?A domestic building contract (which by virtue of the threshold will also be a MDBC) in which the contract price for the carrying out of domestic building work is more than $16,000.No change – this will still be the threshold amount required in an order of the Minister under section 135 of the Building Act.
What is ‘domestic building work’?Specified under s 5 of DBC Act. Note: the definition of ‘domestic building contract’ includes a contract to arrange or manage the carrying out of domestic building work.Under the new s 5(1)(ga) of the DBC Act, ‘domestic building work’ will now also include ‘the managing or arranging of the carrying out’ of various works as specified in the preceding sub-paragraphs of (a) to (g).
What happens if a builder is not covered by DBI under a MDBC? It is an offence under s 136(2) of the Building Act if a builder carries out (or manages or arranges the carrying out) of building work when not covered by DBI.

Maximum 500 penalty units ($96,155) for a natural person or 2500 penalty units ($480,775) for a body corporate.
In addition to the s 136(2) offence under the Building Act, it is also an offence under the DBC Act for a builder to:
  • demand or receive money under a MDBC when knowing the work is not covered by DBI, or being reckless as to whether the work is covered by DBI (s 43B(1) of DBC Act).
    Maximum 500 penalty units ($96,155) for a natural person or 2500 penalty units ($480,775) for a body corporate.
  • demand or receive money under a MDBC without ensuring that the work is covered by DBI (s 43B(2) of DBC Act). Maximum 240 penalty units ($46,154.40) for a natural person or 1200 penalty units ($230,772) for a body corporate.
*One penalty unit is $192.31 for the period 1 July 2023 to 30 June 2024
What can happen to the builder’s registration?It is a ground for immediate suspension of registration for contravening s 136(2) of the Building Act.Contravention of s 43B of the DBC Act is a separate and additional ground for immediate suspension of registration.

The amendments have the following effects:

  • harmonising the definitions of ‘builder’, ‘domestic building work’ and ‘major domestic building contract’ in the DBC Act;
  • inserting a statutory prohibition in the DBC Act which was previously only contained in the Building Act, removing a ‘blind spot’ for owners and builders when it comes to understanding the statutory requirement regarding DBI; and
  • clarifying the industry position that a builder may enter into an insurable MDBC without being covered by insurance, but must not demand or receive money from the owner under the contract until the domestic building work is covered by DBI.

The starting position under the Ministerial Order remains that a builder must not enter into an insurable MDBC unless the building work is covered by DBI, but allows this if the contract expressly provides a condition that:

  • requires a compliant policy to be issued before the builder can enforce any provision of the contract; and
  • requires a compliant policy to be issued before any domestic building work is carried out under the contract; and
  • states that no money (including deposit money) is payable under the contract before that policy is issued; and
  • requires the builder to ensure that a copy of the policy is provided to the owner within 7 days after it is issued.

The Victorian Building Authority (VBA) has the power to require production of information or documents to determine if s 43B of the DBC Act has been complied with, or where it has reasonable grounds to suspect that an offence has been committed under that section. The VBA may also seek an injunction from the court for a contravention of s 43B of the DBC Act.

The offence and penalty provisions under the Building Act have also been expanded, in that:

  • if a person or company is found guilty of an offence against s 43B of the DBC Act, a court may, in addition to imposing any penalty for that offence, direct that the person or company is ineligible to apply for registration for not more than 3 years;
  • if a builder (in a partnership) is found guilty of an offence against s 43B of the DBC Act, the offence may be extended to the partnership; and
  • if a builder (that is a company) is found guilty of an offence against s 43B of the DBC Act, any person who is concerned in or takes part in the management of the company may be taken to have committed that offence.

If you would like to discuss how the Maddocks Construction and Projects team can assist you, feel free to contact a member of our team.

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