QBCC Insurance – Is there anything in it for us??
This is a question commonly asked by Bodies Corporate suffering building defects and questioning the utility (or futility) of lodging a complaint with the Queensland Building and Construction Commission (“QBCC”).
We recently published an article detailing the QBCC’s ability to issue a direction to rectify to a builder for defective building work identified in a scheme. If you missed it, you can view it here.
So now that we know all that, what happens if a builder fails to rectify the defective building work? Is there anything in the QBCC Insurance Policy that might assist a body corporate?
QBCC Insurance for Body Corporates
The QBCC Insurance is formally known as the Queensland Home Warranty Scheme (in this article we shall refer to it as “the Insurance”) and it is established by and set out in Part 5 of the Queensland Building and Construction Commission Act 1991 (“QBCC Act”). The purpose of the statutory insurance scheme is to provide assistance to consumers of residential construction work for loss associated with work that is defective or incomplete.
If a claim is approved by the QBCC, the QBCC will arrange and pay for the rectification of the work.
Good news, right? But wait, what is covered?
Residential Construction Work
Residential construction work includes, in its simplest terms, the construction of a ‘residence’, building work inside a ‘residence’ and work carried out for a residential purpose.
The QBCC Act defines “residence” as a structure that is fixed to land and used for residential purposes. For a Body Corporate, in order to be entitled to the benefit of the Insurance , it needs to be established that the building(s) on the scheme is/are limited to three (3) storeys (plus a basement carpark). Unfortunately, any scheme of four (4) storeys or more does not attract the benefit of the Insurance.
For schemes that are mixed-use (that is consisting of residential and commercial lots) it gets a bit more complicated, but that does not mean the Insurance doesn’t apply. There is no doubt the Insurance applies to the residential portion (providing it is 3 storeys or less), however a residence only includes lots used for a residential purpose. This means, on face value, commercial lots are not covered by the Insurance.
Obviously, a defect such as water ingress, can affect both the residential and commercial components of the scheme. Unfortunately, there isn’t any real guidance in respect of the Insurance’s application to a mixed-use development. If you are unsure of whether your scheme attracts the Insurance, please contact us.
Now, we wish we could say that’s all you need to know but unfortunately, there is more.
The finer points
The terms of the Insurance cover depends on the date of the contract (between the developer and builder) under which the scheme was constructed.
- Insurance Policy Conditions Edition 7 applies to contracts signed between 29 September 2006 and 30 June 2009;
- Insurance Policy Conditions Edition 8 applies to contracts entered into on or prior to 27 October 2016;
- Contracts entered into between 28 October 2016 to 31 October 2018 are regulated by the Terms of Cover as contained in Schedule 2C of the Queensland Building and Construction Commission Regulation 2003 (Qld) (“the Regulation”); and
- Contracts entered into on or after 1 September 2018 are regulated by the Terms of Cover contained in Schedule 6 of the Regulation.
The good news is there is not much difference between the terms of cover, even though they appear to have changed so often over the years. However, there has been one very important change since the introduction of the terms of cover in the Regulation. As of 28 October 2016, the QBCC does not have any discretion to allow a claim for defective building work that was not lodged within the time prescribed. This means Body Corporates need to be active in ensuring they appropriately protect their rights.
Cover for defective building work
As you may recall, the QBCC defines two (2) types of defects. The first type is a structural defect. This includes building work which adversely affects the structural performance of a building, allows water to penetrate into a building, affects the functional use of the building, or any defect that makes the residence unsafe or uninhabitable. The second type is a non-structural defect. This is a defect which is generally cosmetic in nature and does not meet the standard of finish expected of a competent builder.
For structural defects identified in the scheme, a body corporate must make a claim within three (3) months after the day they first become aware of the defect, or ought to have reasonably become aware.
For non-structural defects, the body corporate must make a claim within seven (7) months after the day the building work is substantially complete.
The timeframes for making a claim have not changed over the years, however, previously the QBCC had the option to allow a claim “within such further time as the QBCC may allow”. Therefore, for any buildings constructed after 28 October 2016, if you don’t make a complaint in time, you may not be entitled to assistance.
So this is where it starts to get silly/sillier – that therefore means that:
- For a non-structural defect:
- A complaint can now be lodged within 12 months after the work is complete for the purposes of obtaining a Direction to Rectify; however
- If it is lodged after the 7th month mark for any buildings constructed after 28 October 2016, under the terms of the policy whilst the QBCC can still issue a Direction to Rectify, the Insurance does not apply; and
- For a structural defect:
- A complaint can now be lodged within 6 years 6 months after the work is complete for the purposes of obtaining a Direction to Rectify; however,
- The body corporate is only entitled to assistance for six (6) years and six (6) months after the cover commencement date (with the cover commencement date being the earliest of the date the QBCC Insurance premium is paid, the construction contract is signed or the constructions works are commenced).
Obviously these timeframes therefore allow for the somewhat absurd possibility of a complaint being made within the timeframes required for the Direction to Rectify (which depending on the builder in question, can be completely worthless), yet the Body Corporate simply loses its entitlement to the Insurance.
It is important to note that irrespective of the position of whether the Insurance applies to any part of the building in the scheme, the QBCC is able to issue a direction to rectify to the builder or another relevant party. Therefore, it is important that the body corporate is not idle in its duties.
To protect the body corporate’s rights, we recommend the body corporate proactively engage an independent expert building inspector to undertake an inspection at the property and provide the body corporate with a report of their findings. We recommend this is done no later than four (4) years (or earlier if the construction took an excessive time) after the scheme is constructed to ensure the body corporate can seek recourse through the QBCC, if any.
Don’t wait until it’s too late! Active Law’s construction team are very experienced in all aspects of construction law, including statutory compliance and review of QBCC decisions, as well as all other aspects of law affecting the construction industry. The construction team at Active Law can swiftly identify your rights and obligations and can ensure you make the best submission possible in your circumstances.
Paul Hick is an experienced construction lawyer with 35 years of construction experience. Formerly employed with the QBCC, Emma Ward has invaluable insight into QBCC process and regulation and can assist with ensuring the body corporate has the best possible outcome with the QBCC.