Home Building Compensation Fund Cover Explained

Home warranty insurance, now the Home Building Compensation Fund, is one of the more misunderstood parts of building in NSW.

What it is

HBCF cover is a last-resort insurance that protects the homeowner if the builder cannot complete or rectify the work because they have died, disappeared, become insolvent, or had their licence suspended for failing to comply with a money order.

That short list matters. It is not general defect insurance.

When it is required

For residential building work in NSW where the contract price is over $20,000, including GST.

The builder must obtain the cover and give you the certificate before taking any deposit and before starting work.

What it covers

If one of the trigger events occurs:

• Incomplete work: the cost to complete, up to the cover limit
• Defective work: the cost to rectify defects

Cover currently extends for six years for major defects and two years for other defects, running from completion or from when work ceased.

There is a maximum claim amount per dwelling, which is set by the scheme and periodically adjusted.

What it does not cover

This is where people are caught out.

It is not a warranty you can claim on because you are unhappy. If the builder is still trading and still licensed, you deal with the builder, not the insurer. The scheme only responds to the trigger events.

It does not cover work under $20,000.

It does not cover owner-builder work for the owner-builder themselves, though it affects a subsequent purchaser.

It does not cover the builder’s own losses, only the homeowner’s.

It does not cover consequential losses such as alternative accommodation, in most circumstances.

It does not replace statutory warranties. Those are separate obligations owed directly by the builder.

Statutory warranties, which are different

Independently of insurance, the Home Building Act imposes warranties that the builder owes you directly:

• Work performed with due care and skill
• In accordance with plans and specifications
• Materials good and suitable
• Work compliant with the law
• Completed within the agreed time
• The result reasonably fit for purpose

Six years for major defects, two years for others. You cannot contract out of these.

In practice this is what you rely on most of the time, because most of the time the builder is still there.

What to do with the certificate

Check it names you as the homeowner and the correct property address. Check the builder name matches your contract. Check the cover amount is appropriate to the contract value.

Then keep it. You will need it if you sell within the warranty period, and a purchaser’s solicitor will ask for it.

Red flags

A builder who wants a deposit before providing the certificate. Not permitted.

A builder who says the job does not need it when the contract is clearly over $20,000.

Splitting a job into multiple contracts under $20,000 to avoid the requirement. This is not legitimate.

A builder who cannot obtain cover. Insurers assess builders before issuing cover. A builder who cannot get it has failed that assessment, and that is worth knowing.

That last point is quietly the most useful thing about the scheme. The fact that a builder can obtain HBCF cover means an insurer has looked at their financial position and history and been satisfied.

Owner-builders

If you take out an owner-builder permit and later sell within six years, you must disclose it and obtain cover for the purchaser. Many people do not realise this until they try to sell.

Practical advice

Get the certificate before you pay anything. Check the details. File it with your contract and your compliance certificates.

We arrange HBCF cover on every residential job that requires it and provide the certificate before any deposit is taken.