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Residential Focus

23 March 2022

#Property, Planning & Development, #Construction, Infrastructure & Projects

Published by:

Nicholas Achurch, Lauren Boswell

Residential Focus

Dual role for owner builders?

The Home Building Act 1989 (NSW) (HBA) is primarily consumer protection legislation. Owner-builders occupy a special place in that regime, being both consumers and an object of regulation. Owner-builder permit holders are treated differently in some key respects, such as there being no requirement to insure owner-builder work under Part 6 of the HBA.

An area often questioned is whether an owner-builder permit can be obtained for a dual occupancy. An owner-builder can clearly only live in one dwelling, but as a matter of policy, should the regime be flexible enough to allow what could be seen as the generation of privately-funded affordable housing, or should the prospect be viewed as a potential loophole that allows for commercial exploitation and the avoidance of licensing and insurance requirements?

This issue is explored in the matter of McGufficke v Commissioner for Fair Trading [2022] NSWCATAD 84, which serves as a reminder that, where an owner-builder permit is sought for the purposes of dual occupancies, owners must objectively demonstrate to Fair Trading that if the permit is not granted, the owner would suffer unfair, unintended or unjust consequences. Those consequences should not be related to a loss of a commercial opportunity, as commercial exploitation does not align with the purposes of the HBA.

Background

The applicant was a licensed builder who lodged an application for an owner-builder permit with the Commissioner for Fair Trading for the construction of an approved dual-occupancy and one into two lot subdivision at a property in Wangi Wangi (Property), which was owned by the applicant since 2013, on which stood a three bedroom fibro cottage, occupied by tenants. A condition of approval required insurance under the HBA.

The Commissioner refused the application, on the basis that special circumstances did not exist which would enliven the discretion. The decision was affirmed at an internal review.

The special circumstances claimed by the applicant were an intention to live in the new dwelling and to use the existing dwelling like a granny flat for family accommodation.

The applicant commenced proceedings seeking administrative review in the NSW Civil and Administrative Tribunal (Tribunal), on the grounds that there were special circumstances within section 32(1A) of the HBA that would allow an owner-builder permit to be issued. That section provides:

“An owner-builder permit must not be issued to authorise its holder to do residential building work that relates to a dual occupancy unless the Secretary is satisfied that special circumstances exist that justify the owner-builder permit authorising its holder to do that work. The Secretary may issue guidelines as to the circumstances that will be considered to be special circumstances for the purposes of this subsection.”

No guidelines have been issued.

Applicant’s position

The applicant argued that the refusal to grant the owner-builder permit would impact the applicant financially because, if the permit was not granted, his professional qualification would require him to maintain homeowner’s warranty insurance. This placed him at a financial disadvantage to other owner-builders. The Tribunal rejected this argument on the basis that any owner-builder is subject to the requirement to show special circumstances when seeking a dual occupancy permit.

The applicant gave evidence that that owner-builder permit would be utilised to build a new dwelling for the applicant to reside for his retirement and the existing cottage would be used by family during visits. During the build period, he would reside in the existing cottage.

The applicant did not lead any evidence about his retirement plan or medical condition or infirmity that would require him to need assistance on an ongoing basis.

The Tribunal enquired whether the applicant’s purpose was to use the property for commercial reasons, noting that the applicant had previously developed two other properties as an owner-builder for financial gain. The applicant denied this suggestion and otherwise maintained that there was no financial benefit to him in retaining the fibro home on the Property, as well as a newly constructed dwelling.

The Commissioner’s position

The Commissioner submitted that the applicant’s intention in constructing another house beside the existing cottage on the property was to use it for commercial purposes, similar to how the existing cottage had been used since its purchase.

The applicant had not lead evidence about his retirement plan or medical conditions which would require assistance from his family and their use of the existing cottage. The applicant’s proposal to reside at the newly constructed dwelling did not itself constitute special circumstances.

The Commissioner otherwise submitted that its decision to affirm the refusal of the owner-builder permit was the correct and the preferable decision.

What are special circumstances?

The Tribunal was able to distinguish Hammoudi v Commissioner for Fair Trading[1] on the basis that Mr Hammoudi had a medical condition which required a family member to reside with him on the same property.

In terms of interpreting the expression special circumstances, the Tribunal noted that Topp and Secretary, Department of Families, Housing and Community Services[2] indicated a broad discretion on the part of a decision maker as to what constituted special circumstances. Further in Beadle v Director General of Social Security[3] the AAT considered that if something unfair, unintended or unjust had occurred which was out of the ordinary, this might constitute special circumstances.

Consumer protection and the HBA

The Tribunal turned to the Second Reading Speech of the Home Building Amendment Act 2014 (NSW) which inserted section 32(1A) into the HBA. The Second Reading Speech explained that the purpose of the amendment was to reform the permit system to curtail owner-builder permits being used for commercial reasons, such as subdivision for later sale, or to circumvent licensing requirements. 

The Tribunal concluded that the purpose of the section was to prevent commercial exploitation of dual occupancy for sale or renting part or the whole of the property for financial gain, or subdivision for sale.

Regarding special circumstances, the Second Reading Speech refers to the circumstances as “where a family could demonstrate legitimate non-commercial reasons for the work or where refusal of the permit could cause family hardship.”

Findings

The Tribunal found that the applicant did not objectively establish that the purchase of the property and the purported construction of a second dwelling and subdivision of the Property was for the purpose of the applicant’s retirement.

The Tribunal concluded that the applicant’s ultimate goal in obtaining the owner-builder permit was to circumvent paying home owner’s warranty insurance. This was not a special circumstance for which the Commissioner could exercise the discretion to issue an owner-builder permit.

Lessons

In the absence of guidelines establishing what are special circumstances for the purpose of the discretion in section 32 (1A) of the HBA, owners seeking the exercise of the discretion should consider carefully whether their circumstances align with the second reading speech and caselaw, noting that the fullness of their family circumstances will be examined by the decision maker.

Authors: Christine Jones, Nicholas Achurch & Lauren Boswell

[1] [2016] NSWCATOD 57
[2] [2010] AATA 99
[3] [1984] AATA 176

In the media

Australian Building and Construction Commission – industry update March 2022
This month’s industry update covers the Federal Court’s interpretation of section 13(2)(j) of the code for the Tendering and Performance of Building Work 2016 for union flags, logos, mottos and indicia, and wage payments for the building and construction industry (16 March 2022).  More...

FAIR initiative to expedite infrastructure reforms
“FAIR is about driving innovation, improving productivity, building capability and capacity and improving the culture of the Australian construction industry so that it is an industry of choice, able to deliver the infrastructure that Australia needs – when it needs it – and for a price that it can afford” says Jon Davies, CEO of the Australian Constructors Association (9 March 2022).  More...

Gold Coast building giant Condev collapses, experts say more pain on the way for industry
Queensland construction firm Condev has collapsed and appointed a liquidator only weeks after the announcement of Probuild entering liquidation. Condev’s owner Mrs Marais says Condev could not pay its accounts in June (16 March 2022).  More...

Costs of rebuilding a flooded home to climb 20pc
Flood affected homeowners in NSW and Queensland may face a 20 per cent rise in rebuilding costs due to labour shortages and increases to building materials (21 March 2022).  More…

In practice and courts

Engineers Australia supply and demand discussion paper
Engineers Australia has published a March 2022 discussion paper to address engineering skills shortages in Australia. The discussion paper calls for collaborative discussions from industry participants and government stakeholders to address strategies to boost STEM subjects in early education, and create pathways to retain graduate engineers and employ international engineering graduates. Read the discussion paper here.

Australian Broadband Advisory Council released the construction expert working group study for tech in the construction sector
The study identifies the current use of technology in the construction sector and identifies opportunities and barriers to the utilisation of technology in the construction sector. The scoping study identified that technology uptake is affected by competition within the sector with smaller residential firms less likely to incorporate technology in training. The scoping study report is a preliminary step for the Australian Broadband Advisory Council to formal recommendations for later in 2022. Read the report for the scoping study here.

The Standing Committee on Tax and Revenue published its report for the federal inquiry into housing affordability and supply in Australia
The report finds that “Stamp duty is one of the most egregious offenders. Support from the Australian Government will enable states to accelerate reforms to remove this tax. The recommendation that states reverse the bracket creep that has seen stamp duty costs sky-rocket in recent years is also important recognition of the direct impact this tax has on housing affordability.” Read the report here.

Australian Bureau of Statistics conducting surveys for the quarterly building activity collection
The surveys capture information to measure the construction industry’s contributions to the national economy and inputs into the Australian National Accounts. Provide your responses here.

Cases

NuStone v McInerney [2022] NSWCATCD 23
BUILDING AND CONSTRUCTION – home building – defects claim – repudiation – termination – damages for breach of contract – term of good faith implied into the contract; Civil and Administrative Tribunal Act 2013 (NSW); Civil and Administrative Tribunal Rules 2014 (NSW); Home Building Act 1989 (NSW).

Foresight Construction Pty Ltd v MRW Plumbing Group Pty Ltd; MRW Plumbing Group Pty Ltd v Foresigh Construction Pty Ltd [2022] NSWCATCD 6
BUILDING AND CONSTRUCTION – home building – claims between builder and sub-contractor – builders claim for defective and/or incomplete works – sub contractors claim for payment of retention monies – whether the contract has been validly terminated by the builder; Home Building Act 1989 (NSW).

SDL Project Solutions Pty Ltd v Kim; Kim v SDL Project Solutions Pty Ltd [2022] NSWCATCD 10
BUILDING AND CONSTRUCTION – home building – termination of contract – repudiation – which party lawfully terminated contract – building defects – incomplete work – payments made under contract – assessment of damages – quantum meruit claim by builder – principles applicable; Civil and Administrative Tribunal Act 2013 (NSW); Home Building Act 1989 (NSW).

Chouhan v Morrison Homes Pty Ltd [2021] NSWCATCD 155
BUILDING AND CONSTRUCTION – defects – expert evidence; Home Building Act 1989 (NSW).

Clark v Universal Property Group Pty Ltd [2021] NSWCATCD 151
BUILDING AND CONSTRUCTION – defects – whether rectification should be ordered – assessment of damages – no question of principle; Civil and Administrative Tribunal Act 2010 (NSW); Home Building Act 1989 (NSW).

McGufficke v Commissioner for Fair Trading [2022] NSWCATAD 84
ADMINISTRATIVE LAW – owner building permit – s32(1A) Home Building Act – special circumstances – dual occupancy; Administrative Decisions Review Act 1997 (NSW); Home Building Act 1989 (NSW); Standard Instrument (Local Environmental Plans) Order 2006.

Harding v Horitcultural Holdings Pty Ltd [2022] NSWCATCD 22
BUILDING AND CONSTRUCTION – defective work – repair or replacement – work order or money order – Civil and Administrative Tribunal Act 2013 (NSW); Civil and Administrative Tribunal Rules 2014 (NSW); Home Building Act 1989 (NSW).

Project 4301 Pty Ltd v Buildcarp Constructions Pty Ltd [2022] NSWCATCD 30
BUILDING AND CONSTRUCTION – parties to contract – ostensible authority – extension of time claims – practical completion – notices – compliance – liquidated damages; Home Building Act 1989 (NSW).

SDL Project Solutions Pty Ltd v Kim; Kim v SDL Project Solutions Pty Ltd [2022] NSWCATCD 10
BUILDING AND CONSTRUCTION – home building – termination of contract – repudiation – which party lawfully terminated contract – building defects – incomplete work – payments made under contract – assessment of damages – quantum meruit claim by builder – principles applicable; Civil and Administrative Tribunal Act 2013 (NSW); Home Building Act 1989 (NSW).

Legislation

Bills introduced by NSW Government
Home Building Amendment (Medical Gas Licensing) Bill 2022

Bills introduced by Commonwealth Government
Renewable Energy (Electricity) Amendment (Cheaper Home Batteries) Bill 2022 (14 February 2022)
The bill amends the Renewable Energy (Electricity) Act 2000 to add home batteries as eligible technology under the Small-Scale Renewable Energy Scheme (SRES). The SRES create financial incentives for individuals and small-business owners to install eligible energy systems.

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Nicholas Achurch, Lauren Boswell

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