How do Builder Warranties Work?

Builder warranties explained
Landconnect — 05 March 2020

A home is the most substantial investment most people will make in their lives. And by building a house, you can ensure that you’re investing not just in any old property, but the home of your dreams.


Understandably, you’ll want to guard yourself against any issues with your new home. And builder warranties, otherwise called home warranty insurance, residential building insurance, and building indemnity insurance, are designed to do just that.


Builder warranty basics


In most Australian states, a builder is required to offer a warranty on certain works by law.


This warranty covers both the builder and their clients in the event that work isn’t started, is left unfinished, or isn’t up to scratch, and the builder is for some reason is unable to remedy the situation themselves. 


You may not be able to recover funds or remedy issues if your builder has become insolvent, has had their licence suspended, has disappeared, or has passed away. 


Builder warranties can be used as leverage to ensure your builder delivers excellent workmanship, everything as per your contract, and that everything works as it should when the job is complete.


Builder warranties generally cover non-structural defects in the short term and structural defects in the longer term. These periods vary state by state.


State by state requirements


As of early 2020, the builder warranty schemes of each Australian state and territory are as follows:



State/

Territory

Scheme name

Project value at which warranty is required

Structural defect coverage period

Non-structural defect coverage period

ACT

Residential warranty insurance

$12,000

6 years

2 years

NSW

Home building compensation cover

$20,000

6 years

2 years

NT

Residential building insurance

$12,000

6 years

1 year

QLD

Home warranty insurance

$3,300

6 years, 6 months

7 months

SA

Building indemnity insurance

$12,000

5 years

5 years

TAS

No scheme

N/A

N/A

N/A

VIC

Domestic building insurance

$16,000

6 years

2 years

WA

Home indemnity insurance

$20,000

6 years

6 years


Other differences between the state schemes include the type of works covered, and the maximum value of the coverage. Use the links to check for both the specifics of and any updates to your state’s scheme.


How do I know I’m covered?


How do you ensure you enjoy the benefits of a builder warranty? Good news: provided your state has a scheme in place* and you meet the minimum project value, you don’t need to do anything. Builder warranty is a legal requirement, and it’s the builder’s responsibility to ensure they are covered. No work can legally be done without it. 


A builder must submit proof of warranty coverage before a council will approve an application. The warranty certificate should come as part of the contract, so check for it, and check that it is legitimate, before you sign. Perhaps of more importance is choosing a reputable builder, because:


  1. You won’t have to worry about a lack of builder warranty insurance, and
  2. You’ll be less likely to need the warranty.


*While Tasmania doesn’t have a builder warranty scheme, the state has other checks and balances that take its place. Learn more here.


Claiming builder warranty


The process of claiming builder warranty insurance is similar to claiming any insurance. 


The first step is to try to fix the issue directly with the builder. Builder warranty is only designed to be utilised when all other options have been exhausted, like in cases of builder insolvency, licence suspension, disappearance, or death.


If one of the above applies to your situation and you’ve exhausted all other avenues, you may need to make a builder warranty insurance claim. To do so, you’ll likely need the following information:


  • The builder’s details (company name, ABN, builder’s licence, etc.)
  • The builder’s warranty insurance policy/certificate of insurance number
  • Copies of the building contract that detail the work
  • Proof of payments made to the builder (invoices, receipts, bank statements, etc.)
  • Evidence of any termination to the contract


Once you have collected all the relevant documents, you’ll need to lodge your claim with the insurer, who will guide you through the process from there.


Builder warranty is a policy that you may not hear much about, or indeed even know about, and likely won’t need. But it does serve as an extra layer of protection for what is likely your largest investment, and one that could save you from severe financial distress should the unlikely and unfortunate happen.


The good thing is that builder warranties are a requirement in nearly every Australian state, and you don’t have to do anything to enjoy the coverage. But it is worth remembering that the best form of insurance against a bad builder is to choose one with an excellent reputation and track record.