What happens if your builder goes bust?

A perfect storm of rising costs, supply issues and labour shortages has hit the Australian building industry, compounding problems caused by Covid-19 shutdowns.

As a result, several building firms have collapsed in recent months – including industry giants Probuild and Condev.

Master Builders Victoria has already warned these challenging business conditions will see more building and construction companies collapse, particularly as the cost of building a home in Victoria is rising faster than in any other state.

So what are your options if your builder goes into administration or liquidation, leaving you with a half-built home?

Insolvent builders and work over $16,000

In Victoria, builders must take out a domestic building insurance (DBI) policy – also known as builders warranty insurance – for projects valued at more than $16,000.

So, generally speaking, you should be able to claim on the policy if your builder goes bust. That said, you may still find yourself out of pocket as your claim will be limited to $300,000, with incomplete works capped at 20% of the total contract price.

To make a claim, notify your builder’s insurer within 180 days of becoming aware of the builder’s insolvency.

Work worth less than $16,000

Builders are not required to have domestic building insurance for work under $16,000. Unfortunately, this typically means you need to submit a claim as an unsecured creditor, with the administration or insolvency process determining whether you get any of your money back.

However, if you paid by credit card, you may be able to request a chargeback from your card provider.

Freya Southwell is a property lawyer and principal of Sutton Laurence King Lawyers.

Need expert advice on insolvency or property law in Victoria? Contact Sutton Laurence King today on 03 9070 9810 or for help.