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The Pitfalls of being an Owner/Builder

Commercial Law

Think Owner/Builder work is an easy way to save a few bucks?  Think again!  As a DIY savvy homeowner, it might be tempting to undertake renovation work as an Owner/Builder.  It’s easy to obtain an Owner/Builder permit and to engage the subcontractors you need to do the job: all you have to do is manage the project and pay the subbies.  You’ll likely save a lot of money as you cut the builder (ie, the middle-man) out of the equation, and you’ll add to the value of your house so it’s a double swing in your favour.  Sounds great if you fancy yourself a handyman/woman.

While these savings are real, the downside is that, if you have any intentions of selling the house within 6 years after you complete the work (a common intention for someone who renovates an investment property, for example), you will have a sword hanging over your head in the form of Statutory Warranties.

Any builder, including an owner/builder, owes Statutory Warranties with respect to the building work that is performed under their supervision.  These warranties arise under the Home Building Act 1989, and include (for example), a warranty that the work will be performed in a proper and workmanlike manner, that the materials used will be fit for purpose, that the work done will comply with applicable laws et cetera.  They are very broad in scope.  If there are any defects in the construction, it is a safe bet that the work done is in breach of statutory warranty.  There may not even be any visible defects, but if the construction does not comply with (for example) the Building Code of Australia (which an owner builder is unlikely to know intimately), then it will be in breach of statutory warranty.

A builder, including an owner builder, owes these warranties to the person for whom the work is performed (not relevant for an owner builder, who performs the work for themselves), but more importantly they owe these warranties to any successor in title.  In other words, if an owner builder sells their house after completing the renovations, they owe statutory warranties to the new purchaser.  This circumvents the usual ‘caveat emptor’ clauses that generally apply in a purchase of property scenario.  You cannot contract out of statutory warranties.

Statutory warranties are owed for 6 years after the completion of the work with respect to a structural defect, and 2 years for any other defect.

So the risk is, you will do the work, sell the house, and then find yourself getting sued by the purchaser for the costs of rectification.  You cannot simply direct the purchaser to the subcontractors that performed the work: as owner-builder you are 100% liable for the purchaser’s claim, and statute-barred from pleading proportionate liability as a defence.  Your only means of mitigating that loss will be to file cross-claims against the subcontractors who performed the work (who may or may not have any money), resulting in a quagmire of risk and expensive and stressful litigation.

Before determining to undertake any owner builder work, we recommend you seek advice as to the possible legal consequence for you, as they could be severe.  Please contact our disputes team if you require any further information.