QBCC home warranty insurance: what it covers for a Queensland buyer

In this article

Written by

Kooky

Builder of Shaka, the payment router that pays every agent their commission on closing date.

About Kooky and Shaka →

A buyer inspecting a four-year-old house, or an older one with a new extension, is looking at building work that someone else commissioned. If a structural defect appears after settlement, the builder's contract was with the previous owner. What the buyer does have, in many cases without knowing it, is the benefit of an insurance policy that was taken out when the work was done and that stayed with the property when it changed hands.

That policy is cover under the Queensland Home Warranty Scheme, run by the Queensland Building and Construction Commission, the QBCC. It is compulsory for most residential building work in the state, it is paid for at the start of the job, and it has firm limits in money and in time. This guide explains what the scheme is, what it pays for, how long it lasts, what it leaves out, and how a buyer can find out before signing whether a property still has cover. It sets out the scheme's general rules as the QBCC publishes them. Whether a particular defect is covered is decided by the QBCC on a claim.

Source: Queensland Building and Construction Commission, Queensland Home Warranty Scheme pages.

What the scheme is

The QBCC describes the Queensland Home Warranty Scheme as a not-for-profit statutory insurance scheme, funded by premiums and run by the commission under State legislation. Its purpose is to protect home owners against loss where a licensed contractor fails to complete contracted work or fails to fix defects.

It is a scheme of last resort in an important sense. The first responsibility for building work lies with the contractor who did it, and the QBCC's ordinary response to a complaint about defects is to require that contractor to come back and fix them. The insurance matters when that route is closed: the contractor has become insolvent, has died, has lost their licence, cannot be found, or has been directed to rectify and has not. Where the QBCC pays a claim, it then pursues the contractor to recover the money.

Unlike ordinary home and contents insurance, the policy is not chosen by the owner and is not renewed each year. It attaches to a particular piece of building work, begins when that work is contracted and runs for a fixed period.

Which building work must be insured

Cover is required for most residential building work valued at more than $3,300, a figure that includes labour, materials and GST. The QBCC lists the kinds of work that are insurable: building, extending, altering, renovating or repairing a home, a townhouse, a duplex or a unit in a multi-unit building of up to three storeys above a carpark, as well as roofed residential outbuildings such as a garage or carport, and manufactured homes.

The premium is paid by the home owner but handled by the contractor. For a job over $3,300, the QBCC says, the premium must be included in the contract price and collected with the deposit, and the licensed contractor must pay it to the commission within 10 business days of entering the contract. A contractor who does not is exposed to significant penalties.

For a buyer, two consequences follow. A new house built by a licensed builder for a previous owner should have had a policy issued when it was built. And a substantial renovation by a licensed contractor, such as a new bathroom, a deck or an extension, should have one of its own, separate from any policy on the original house and with its own start date.

What the cover pays for

The scheme deals with two broad kinds of failure: the work is never finished, or it is finished badly.

For a buyer of an established home the second is the one that counts. After completion, the scheme covers the cost of repairing defects in the insured work and subsidence. Defects are divided into structural and non-structural, with very different periods of cover, described below.

For a person having a house built, the first matters as much. If the contract ends before the work is complete, for one of the reasons the scheme recognises, the cover pays to refund a deposit where work has not started, or to complete the unfinished work and repair defects found before completion. A related category covers fire, storm or tempest damage to incomplete work once a non-completion claim has been accepted.

How much it pays

The QBCC states the limit this way: the scheme covers a maximum of $200,000 for each of several categories of loss. The categories it lists are the refund of a deposit or the completion of unfinished work, the repair of fire, storm or tempest damage to incomplete work, and the repair of defects and subsidence after completion.

Within the $200,000, no more than $5,000 in total is available for alternative accommodation, removal costs and storage.

An owner can raise the limit. Optional additional cover, bought within set time limits near the start of the contract, lifts the maximum from $200,000 to $300,000 and the allowance for accommodation, removal and storage to $10,000. That is a decision for the person commissioning the work. A later buyer takes whatever cover was bought at the time.

The significance of the cap depends on the house. For a defect in a bathroom or a retaining wall, $200,000 is ample. For a house that needs to be substantially rebuilt, on a site where building costs have risen since the policy was issued, it may not be. Any cost above the cap falls on the owner.

How long it lasts

The periods of cover are the part of the scheme a buyer most needs to understand, because they decide whether there is anything left to rely on.

For structural defects, the QBCC says cover generally runs for 6 years and 6 months. The period is measured from the earliest of three events: the premium being paid, the contract being entered into, or work starting on site. Where a build takes more than six months to complete, the period extends to 7 years from the contract date. The commission states that this cover stays in place if the property is sold.

For non-structural defects, the period is short. The owner must become aware of the defect within six months of completion and lodge the claim within seven months of completion. In practice this cover belongs to the first owner. A buyer who purchases a house two years after it was built has no non-structural cover left.

A worked example shows how the structural period runs. Suppose a building contract for a new house was signed on 1 March 2022, the premium was paid the same week and the house took five months to build. Cover for structural defects runs for 6 years and 6 months from the contract date, to 1 September 2028. A buyer who settles on that house in November 2026 inherits a little under two years of structural cover. A buyer who settles on it in 2029 inherits none.

The deadline to claim is separate from the period of cover, and it is short. A claim for a structural defect must be lodged within three months of noticing the defect. An owner who sees cracking, waits a year to see whether it gets worse and then claims may be out of time even though the policy period has years to run.

What is not covered

Several gaps in the scheme matter to buyers.

Tall buildings are outside it. The QBCC's list of insurable work covers multi-unit dwellings only up to three storeys above a carpark. A building of more than three storeys, not counting a storey that is mainly carpark, is not residential construction work for the scheme's purposes. A buyer of an apartment in a tower has no cover under the scheme, however new the building. That buyer's protections lie elsewhere, in the contract with the developer and in the body corporate's own rights.

Small jobs are outside it. Work valued at $3,300 or less does not require cover.

Unlicensed work is a problem of its own. The scheme is built around licensed contractors paying a premium on each contract. Work done by someone without a licence, or done without a contract and a premium, may leave nothing to claim on.

Retirement villages and commercial premises are excluded, as are roofed buildings that are not residential, such as farm sheds.

And owner-builder work is not insured at all, which is important enough to need its own section.

Owner-builder work

A home owner may, with a permit from the QBCC, act as their own builder. Work done under an owner-builder permit is not covered by the scheme. The law deals with the gap by requiring disclosure.

Where a property is sold within six years of the completion of owner-builder work, the QBCC says, the seller must give the buyer a notice before the buyer signs the contract. The notice must describe the building work, name the permit holder, state that the work was done under an owner-builder permit, and carry a warning in set words that the building work to which it relates is not covered by insurance. The buyer is given two copies and signs and returns one on or before signing the contract.

If the notice is not given, the law treats the seller as having warranted that the building work was properly carried out, which may leave the seller liable for faults that emerge later.

A buyer has a second way of finding out. An owner-builder notification is recorded on the title to the land and stays there for seven years, the QBCC says, so a title search will show it.

How a buyer checks the cover

A buyer does not have to take anyone's word for whether a property is insured. The QBCC offers an insurance search.

The search shows whether cover under the scheme is in force for the property and, if it is, whether a claim has been made on the residence and any amount paid on that claim. It is available for houses, duplexes, townhouses and low-rise units up to three storeys above a carpark.

A registered owner can order it, and so can a prospective purchaser, defined as someone who is looking to buy or has entered a contract to purchase, or an agent acting for them such as a solicitor. The fee the QBCC lists is $54.84 for each search request, and the search is free for the current owner of the home.

The seven working days matter for timing. A buyer who wants the result before a contract becomes unconditional needs to order it early, or to ask the solicitor to order it as soon as the contract is signed.

The search has a limit that follows from the scheme's own. If the house or the renovation was completed more than six and a half years ago, the QBCC notes, the policy has probably expired and the search may show nothing. For older work, the commission suggests a right to information request as a way of identifying the builder, the work done and any past claims.

Reading the result

A search can come back in several ways, and each says something different.

Cover in force and no claims is the simplest result. The buyer knows there is a policy, can work out when it ends, and knows the scheme has not been called on.

Cover in force with a claim paid is a fact to follow up. It means something went wrong with the work and the scheme paid to deal with it. The questions are what the defect was, whether it was fully rectified, and how much of the policy limit the claim used. A building inspector should be told.

No cover found on a house less than six and a half years old is the result that needs explaining. The work may have been done under an owner-builder permit, in which case the title search and the seller's notice should confirm it. It may have been done by an unlicensed person, or without a premium being paid. Or the search details may not have matched the property's original description, which is why the QBCC asks for the original address and lot numbers as well as the current ones.

No cover found on an older house is what one would expect, and tells the buyer only that the scheme is no longer a source of protection.

Where it sits among a buyer's protections

Home warranty cover is one layer of protection and a narrow one. It responds to defects in insured building work, within fixed periods and up to a fixed sum. It does not cover wear and tear, damage from storms after completion, termites or anything a house simply suffers with age.

It therefore does not replace the building and pest inspection, which looks at the condition of the house as it stands, or the buyer's own building insurance, which covers events after the risk passes. It does not replace the seller's disclosure either. What it adds is a remedy that survives the builder: if the company that built the house no longer exists when a structural fault appears in year five, the scheme may still pay.

For a buyer choosing between two similar houses, one built three years ago and one built eight years ago, that is a real difference between them, and it is one of the few that can be confirmed for a modest fee before the contract is signed.

Kooky, from Shaka

Kooky edits Queensland Estate and builds Shaka, the payment router he made for Queensland property professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.

About Kooky and Shaka →