Legal obligations when working for an owner-builder

‘The three golden rules’ – RWC

Many builders and subcontractors believe that because an owner has taken out a building permit they don’t have to be registered or provide warranty insurance because the owner will obtain the required insurance. This is wrong. 

It is irrelevant who takes out the building permit. The only critical question you must ask yourself is whether the work or service you are supplying is over $5000. 

If the answer is ‘yes’, this triggers ‘the three golden rules’ expressed simply as ’RWC’. 

R – Registered – you must be registered with the Building Practitioners Board as a Domestic Builder (Unlimited, Manager or Limited) if the work is in excess of $5000, and

W – Warranty – you must provide domestic warranty insurance if the work is in excess of $16,000 to protect the owner against defective work, non-completion, non-complying work, etc., and

C – Contract – you must use a contract that complies, such as the HIA Plain English Contract, if the work is in excess of $5000. 

The following examples may assist you to understand your obligations clearly: 

John Citizen decides to build his own home and subcontract out different aspects just like a registered builder. John also obtains the building permit in his name, as an owner-builder, after obtaining consent to do so from the Victorian Building Authority (VBA). 

Concrete slab

John receives a quote for the installation of the concrete slab and it will cost more than $5000. As the cost is over $5000, the RWC rule applies and the concreter must be registered as either Unlimited, Manager or Limited floor slabs and footings and use a complying contract but as the cost of work is less than $16,000 the concreter does not have to provide warranty insurance. 

Frame and fix 

John obtains a quote from a carpenter to construct and erect the wall frames as well as the roof, including installing all the windows and external door frames ready for the brickwork. As the quote is valued at $18,000, then RWC applies and the carpenter must be registered as Unlimited, Manager or Limited carpenter, use a complying contract and provide warranty insurance. This would equally apply to a prefab wall and truss company who supplies and installs the framing. 

Brickwork

The bricklayer’s quotation to lay the bricks is in excess of $5000, but under $16,000, so RWC applies and the brickie must be registered as Unlimited, Manager or Limited to Brickwork, use a complying contract. As the contract price is less than $16,000 the bricklayer does not have to provide warranty insurance. 

The same rule of RWC applies to the roof tiler, the cabinet/kitchen contractor (if they supply and install the cabinets) and the carpenter who does the fix if their individual contracts exceed $5000. 

It is worthwhile to note at this point that a Domestic Builder Manager (DB-M) can only arrange or manage the carrying out of domestic building work. They cannot actually carry out the work themselves and must engage a registered builder to supervise or carry out the work for them. 

A Domestic Limited builder is limited to the specified Code so, for example, the bricklayer can only do brickwork. 

If the service provided is supply only, then RWC does not apply regardless of the cost. This would typically apply to a prefab wall /roof truss company or a kitchen/cabinet maker where they supply the goods only. 

Exemptions to the legislation

There are exemptions to the legislation, and the following types of building work are exempt if the contract involves only ONE of the following: 

• Attached external fixtures (awnings, security screens, insect screens, balustrades)
• Drainage (plumber covered under separate legislation)
• Electrical (electrician covered under separate legislation)
• Glazing 
• Installing floor coverings (carpet, vinyl, etc.)
• Painting
• Plastering
• Plumbing (sanitary, water, gas, roofing, air conditioning, etc.)
• Tiling (floor and wall)
• Erecting a chain fence to enclose a tennis court
• Erecting a mast, pole, antenna, aerial or similar structure. 

If you intend to do more than one of the above ‘exempt’ types of building work such as plastering and painting and the cost is over $5000 then RWC applies with warranty applicable if the cost exceeds $16,000. 

An owner may well end up with multiple warranty covers. However, they will still need to obtain an owner-builder report and warranty insurance (to cover the whole of the works) if they sell the home within six and a half years from the date of the Occupancy Permit or Certificate of Final Inspection. 

There are other exemptions where the legislation, or parts of the legislation, do not apply, such as works to the official residence of the governor, remand centres, youth training centres, works for public housing, etc. and specific advice should be sought if in doubt. However, it would be unlikely that the ‘owners’ would act as owner-builders in these instances. 

Acting as a ‘supervisor’

Another area where builders regularly get involved with owner-builders is when the owner asks the builder to ‘supervise’ the work for them. You have to act in a role similar to that of an architect to avoid RWC applying. 

If you are going to arrange or manage the carrying out of the work, then by definition you are the builder and RWC applies if your fee is in excess of $5000, and warranty will be required if the cost exceeds $16,000.

It is a fine line you are treading and ideally your role should be limited to contract administration where you advise the owner on quotes, variations, progress claims and payments, quality of work done and compliance with the contract documents. The key is that you are advising the owner on all these matters and the owner then takes the appropriate action, not you! 

You should also ensure if you are acting as a supervisor that the required trades are adhering to the rules of RWC (where not ‘exempt’) by overseeing that they use contracts that comply, ensuring the required warranty insurance is supplied and, of course, that they are registered in the appropriate category or code. If they don’t meet the RWC rules then you should be advising the owner not to engage them. 

In these instances you are acting in a consulting role and are not seen as acting as a builder by organising or arranging the trades, directly instructing them and/or paying them. Your fee in this type of arrangement (as a consultant) is not regulated and your role should be clearly specified in your contract with the owner. 

To find out more, contact HIA's Building Services team.

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