HBCF insurance and your granny flat: what you are entitled to

Home Building Compensation cover, usually called HBCF, is required for most residential building work in NSW over $20,000 including GST. It protects you if your builder cannot finish the job or cannot fix defective work, because they have become insolvent, died, disappeared, or had their licence suspended for not complying with a court or tribunal order to pay you.

It is last resort cover. That phrase does a lot of work, and this article explains what it means for you.

HBCF is required for most residential building projects over $20,000 including GST, unless the project is exempt. A granny flat is well over that threshold.

The timing matters as much as the requirement. The builder must have cover in place before they start work or take any payment, including a deposit.

If you are asked for a deposit and told the insurance is coming, that is the wrong sequence.

HBCF is not general building insurance and it does not cover ordinary disputes.

It steps in only when your builder cannot put things right themselves. According to icare NSW, that usually means the builder has:

• become insolvent, for example bankrupt or in liquidation
• died
• disappeared and cannot be found
• had their licence suspended for failing to comply with a court or NSW Civil and Administrative Tribunal order to pay you money

If your builder is still trading, you generally need to pursue the issue with them first, including through dispute resolution.

If you find a defect in the last 6 months of the cover period, you may have another 6 months to notify.

There is a maximum claimable on each policy:

That total is for the property, including any claims made by previous owners. It is worth knowing if you are buying a property where work has been done before.

• General wear and tear
• Maintenance issues
• Changes of mind about design or materials
• Work done by unlicensed builders
• Disputes where the builder is still trading and able to fix the problem
• Costs outside the policy time limits
• Costs above the maximum cover amount

That fourth one deserves emphasis. Work done by an unlicensed builder is not covered. Using an unlicensed builder to save money removes the protection that exists precisely for when things go wrong.

You do not have to take anyone’s word for it. icare maintains the HBCF Certificates Register, accessible through Verify NSW.

The register shows:

• whether a policy was issued
• the insured builder
• the property address
• whether any claims have already been paid

Check it before you pay a deposit, and check it again before construction starts. It takes a couple of minutes.

That last field is also useful if you are buying a property with an existing granny flat, because prior claims count toward the same policy limit.

Three things follow from all of the above.

• Verify the licence. Unlicensed work is not covered at all, so the licence check is also an insurance check.
• Sight the certificate before paying anything. Cover must be in place before work starts or payment is taken.
• Check the entity matches. The insured builder on the certificate should be the same entity signing your contract.