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In light of NSW's efforts to reform the building industry, the introduction of latent defects insurance (LDI) (also termed decennial defects insurance), presents a possible solution to decreasing consumer confidence in builders.1 Recently introduced in Australia by Resilience Insurance and with other insurers soon likely to offer competing policies, LDI insures property owners against structural defects for 10 years post building completion. Whilst still a relatively new product in Australia, Resilience reports that large developers/builders have already begun to utilise the product, especially as a sales incentive to potential buyers.
LDI aims to offer consumer protection by providing consumers with the ability to claim the costs of defect rectification of structural defects on a first resort basis. The main points to note are:
The authors gratefully acknowledge the help of Olivia Bisset in preparing this client alert.
1 As shown in the McCrindle report commissioned by the NSW Government, only 3 out of 10 consumers are confident in purchasing medium to high-density properties, with 64% of respondents having concerns that properties may have defects. 2 QBCC, (2021): Building classes—Building Codes of Australia | Queensland Building and Construction Commission (qbcc.qld.gov.au) Note if the developer is dissolved, builders themselves are generally not liable to subsequent owners for defects as per Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36.
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