What you need to know about Victoria’s proposed new building laws

Integrated regulator

In October 2024, the Government announced plans to replace the Victorian Building Authority (VBA) with a new regulatory body - the Building and Plumbing Commission (BPC).

The BPC will create a new one-stop shop to regulate Victoria’s building and plumbing industries. It will bring together the following functions into a single agency:

• Oversight of builders, plumbers, registration, enforcement and discipline, currently the responsibility of the VBA. The new regulator will also be responsible for applying Minimum Financial Requirements (MFR) which builders will be required to satisfy in order to maintain registration and DBI cover. A failure to meet these requirements could also result in disciplinary action, including immediate suspension of registration. HIA understands that further consultation will take place regarding the MFR. 
• Domestic Building Insurance (DBI), which is currently provided by the Victorian Managed Insurance Authority (VMIA). This means the BPC will also be responsible for assessing a builder’s eligibility limits for DBI presumably through the new MFR.  
• Dispute resolution services provided by the Domestic Building Dispute Resolution Victoria (DBDRV).

It is expected that this transition will occur from the middle of 2025.

First resort DBI

Victoria currently has a ‘last resort’ model of DBI. Insurance can only be claimed as a ‘last resort’ when the builder has died, disappeared or become bankrupt and is no longer able to rectify or complete building work.

The Bill proposes a ‘first resort’ model. This means a homeowner can make an insurance claim for defective work, even if the builder is still trading. 

This approach will significantly expand the scope of coverage by allowing homeowners to make claims under the statutory insurance scheme if a builder fails to comply with a rectification order, rather than only in cases of insolvency.  

As is currently the case, insurance would be required in relation to domestic building work for buildings with two or more homes of up to three storeys. The Bill proposes to increase the threshold to require works over $20,000 have insurance, as opposed to the current $16,000. 

If the value of the building works increased by $5,000 or more, the builder must pay an additional insurance premium. The requirement to take out Statutory Building Insurance also applies prior to the commencement of a spec home. 

Under the proposed scheme, the BPC may recover payments made under the insurance scheme from the builder i.e. if a claim is made and paid, the regulator will seek to recover that from the builder. 

When must insurance be in place?

Under the Bill the builder must have insurance in place the earlier of:

• 10 days after the contract has been signed, or 
• The date the domestic building works start.

Insurance will also be deemed to apply if:

• There is an insurable domestic building contract on foot; or 
• There is an insurable domestic building contract on foot and the builder has represented that they are authorised to carry out the work when in fact they are not.

When can a homeowner make an insurance claim?

A homeowner can make a claim when there is:

• Defective building work 
• Incomplete building work 
• Non-compliant building work 

The scheme can also pay compensation directly to the homeowner. 

What is defective building work?

Under the Bill defective building work includes:

• A breach of statutory warranty as set out in section 8 of the DBCA; or 
• A failure to maintain a standard or quality of building work specified in the domestic building contract. 

This definition is incredibly broad, capturing e.g. workmanship issues. 

What is incomplete building work?

Incomplete building work means domestic building work that has not been completed by the date or within the period specified in the domestic building contract. This does not include any omissions or defects that do not prevent the domestic building work from being reasonably capable of being used for its intended purpose. 

It does not include domestic building work that:

• does not comply with the contract under which it is carried out:
  
  • because of a cosmetic difference; or 
  • because the contract has been terminated by agreement; or 
• is non-compliant; or 
• is defective. 

What is non-compliant building work? 

Non-compliant means building work that contravenes the requirements of: 

• this Act; or 
• the regulations; or 
• the building permit issued in relation to the building work; or 
• any binding determination that applies in relation to the work

Rectification orders

The Bill provides the regulator with the power to issue rectification orders for defective work up to 10 years from completion across both residential (including multi-dwelling developments) and commercial building work.

Under the Bill rectification orders can be issued for: 

• Defective building work; 
• Incomplete building work; and 
• Non-compliant building work. 

For commercial building work an order can be issued for a failure to maintain a standard or quality of building work specified in the contract. 

While the requirement to issue a rectification order and the trigger for an insurance claim are the same i.e. defective work, a rectification order is not required for a homeowner to make an insurance claim. A homeowner can go directly to the BPC claiming defective work and seeking a remedy through the statutory insurance scheme.

Can you dispute a rectification order?

While this is possible, it appears that the party seeking to dispute the order is required to get permission from the BPC to do so. Further, and in respect of disputes more generally, if there is a possibility that a homeowner may make a claim under the Statutory Building Insurance scheme the builder must also get permission from the BPC to make a claim. This is also the case where a homeowner has already made a claim for insurance. 

Also problematic is that if a party seeks to challenge a rectification order through VCAT, that order must be complied with irrespective of a dispute. This means that should the builder not comply with a disputed order the homeowner can make a claim under the Statutory Building Insurance scheme.

Finally, the Bill introduces a power for the regulator to issue a rectification order on a ‘residential apartment building’ i.e. above four storeys for a serious defect, during construction and/or prior to the issuing of the OP. 

Case Studies – Dispute resolution, insurance and rectification orders

Case study #1

Joe Builder has not been paid his final payment for the construction of a new home. His clients Mr and Mrs Bloggs are claiming the works are defective. Specifically, they are claiming there are a number of workmanship issues.

Joe Builder has agreed to fix these issues once his final payment is made. Mr and Mrs Bloggs continue to refuse to make payment.

Joe Builder would like assistance in resolving this dispute and makes an application to the BPC. Under the Bill, given that Mr and Mrs Bloggs are claiming defective work, they could make a claim under the Statutory Building Insurance Scheme. This means that Joe Builder would require the approval of the BPC before his dispute can be heard.

Case study #2

Glenn Home Improvements has been issued a rectification order by the BPC to rectify a range of issues, including for example, water ingress due to overflowing gutters and deterioration of a garage door. Glenn disagrees with the rectification order arguing that the homeowner has failed to maintain their property. Glenn is refusing to comply with the rectification order. 

Under the Bill, the homeowner is entitled to make a claim under the Statutory Building Insurance Scheme. 

While Glenn can challenge the rectification order in VCAT, this does not prevent the insurance claim progressing or relieve Glenn of his obligations to comply with the rectification order. 

It is expected that in these cases, a homeowner will succeed in their insurance claim and the works will be rectified. The BPC will then pursue Glenn to recoup those costs. It is unclear from the Bill the outcome: 

• If Glenn’s application to VCAT is successful, noting an insurance claim has already been paid. 
• If Glenn’s application to VCAT is unsuccessful, the impact on his registration given the non-compliance with a rectification order. 

Developer bond and inspection regime 

A developer will be required to provide a bond of 3% (we understand the Government’s intention is that this will be amended to 2%) of the contract price, for buildings four storeys or higher, prior to applying for an occupancy permit (OP) to ensure funds are available to rectify defects after the OP is issued.

Under the proposal, a developer would be required to appoint a building assessor (and cover all of the costs associated with that) to carry out a mandatory inspection. The inspection regime requires: 

• A preliminary inspection and report between 15 and 18 months after the issue of the OP. The report must specify the defective building work and its cause. At this time, the developer is provided an opportunity to rectify any defects identified. 
• A final inspection is to be arranged at least 18 months after the issue of the OP with a final report issued between 21-24 months after OP. The final inspection and report is required to: 
  
  • inspect the defective work set out in the preliminary report, and 
  • identify whether the defects identified in the preliminary report have been rectified and any reportable defects from the rectification work. This report is confined to assessing defective work identified in the preliminary report. 

A claim on the bond can only be made if the affected lots amount to a majority of lot entitlements and to cover the costs of rectifying defective building work. 

The bond amount paid must be approved by the regulator. If there is a dispute, the regulator will either determine the amount or commission an independent report. 

The bond will be released back to the developer if:

• There are no defects in the preliminary report; and 
• The developer secures the consent of the owners’ corporation.

The proposal is heavily modelled on the NSW approach which has been in place since 2015. 

The success in NSW is unclear. However, the NSW Government has announced they will be replacing their developer bond and inspection regime with decennial liability insurance; a model of first resort insurance that applies to multi-rise buildings for 10 years to rectify structural defects. 

What’s next?

The Bill is currently being considered by Parliament. At this stage HIA understands that most of the reforms will not commence until July 2026.

Members should be aware that there several issues that have little explanation or detail regarding their operation. We continue to press Government for further clarity around these issues, for example how existing eligibility and DBI limits will operate under the new statutory insurance model.

HIA will keep members up to date as more details come to light.