New Builders Warranty Insurance (DBI) bill – March 2025

The new bill moves domestic building insurance (DBI) to a “first resort” insurance scheme which is great for the consumer, homeowner and off-the-plan buyer but will not be so welcomed by builders and developers.

The new DBI scheme moves from a last resort scheme, meaning that a homeowner can make a claim directly to the insurer, regardless of the builder’s circumstances (like insolvency or disappearance), for defects or non-completion of work.

The homeowner can make a claim directly to the insurer where the builder is no longer able, or is unwilling to complete the work, without the homeowner firstly exhausting all other avenues (like legal action) against the builder before they can claim from the insurer.

Under the new scheme the homeowner can make a claim to the insurer who will then manage the claim, ensure the builder completes or repairs the work, or pays for another builder to do so and then the insurer can seek recovery from the original builder.

The new bill also expands the VBA powers, introduces new offences and requires builders to ensure domestic building work is covered by DBI before accepting deposits.

A failure to comply may lead to suspension of their registration and penalties for noncompliance.

• Mandatory DBI for Major Contracts: Builders entering into major domestic building contracts (valued over $16,000) must ensure the work is covered by DBI before demanding or receiving money.
• New Offences and Penalties:
  The new offences include:
  o Knowingly or Recklessly: A builder who knowingly or recklessly demands or receives money without DBI, can face a penalty of up to $96,000 for an individual and $480,000 for a company.
  o Strict Liability: A builder who demands or receives money without DBI, can face a penalty of up to $46,000 for an individual and $230,000 for a company.
• VBA Enforcement Powers: The VBA now has expanded powers to enforce DBI obligations, including:
  o the ability to require builders to provide information or documents if there are reasonable grounds to suspect a breach of DBI obligations;
  o immediately suspend a builder’s registration if they fail to obtain DBI before accepting deposits, which means the builder cannot work as a registered building practitioner; and
  o any building permits issued in their name are suspended and fines imposed.
• DBI Scheme Expansion: The DBI scheme is being expanded to cover buildings with more than three (3) storeys of accommodation, requiring developers to provide a bond to cover the cost of fixing poor work.
• Rectification Orders: The regulator will have new powers to issue rectification orders, allowing action against a builder after the occupancy permit is issued.
• Developer Bonds: Developers of multi-story buildings will be required to provide a bond being 3% of the build cost to cover defects for poor work, payable before an occupancy permit can be obtained.
• Building Assessor: Developers must nominate and appoint a building assessor to provide inspections and a report, with a preliminary report at 18 months (after occupancy date), and a final report 2 years after.
• Minimum Financial Requirements: New financial probity requirements are proposed, including prescribed minimum financial requirements for builders.

Many builders (high profile and smaller local companies) have collapsed post Covid, as we know, many due to increased material and labour costs and simply being unable to cover their operating costs.

They have also had substantial increases in insurance premiums under the current VMIA last resort scheme and many fear that insurance premiums will further increase with the new first right scheme. They are also concerned that there will be no choice for builders to seek insurance now, other than through the VBA who will be the sole insurer and who will now have a monopoly on insurance for the industry.

Master Builders Association of Victoria CEO, Michaela Lihou said they are ‘frustrated and disappointed’ about the extent of premium increases and went on to say that major escalations in costs will not help build confidence in the industry and will be yet another significant barrier to securing projects and put builders under even more financial pressure than ever.

It seems there will be no turning back for builders and developers and they will need to find ways to adapt to the new costs, which usually means passing their increased operating costs onto the homeowner.

It is ironic that in the context of the governments ‘Big Build” policy tackling housing, they are putting the very sector that builds homes under such further financial pressure.

CONTACTS:
Robert Toth | Special Counsel | Accredited Commercial Law and Franchise Specialist
robert@sanickilawyers.com.au | Mobile: 0412 673 757