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Proposed legislative changes

Posted by Mark Snell | 24 February 2010
The NSW Government is currently reviewing two pieces of legislation relevant to owner-builder co-operatives: A proposed Cooperatives National Law and the Home Building Act.


Comment on the National Cooperatives Law is being accepted until this Friday, February 26. Comment on the Home Building Act is being accepted for a further three weeks, until March 19. Links to both proposals are listed under "Have your say" on the NSW Fair Trading website at www.fairtrading.nsw.gov.au.

In both cases, the proposals have, or potentially have, national significance.


COOPERATIVES LAW

The National Cooperatives Law is proposed to replace separate co-operatives legislation in each State and Territory with a single national law. The plan is that New South Wales will enact the national law in 2010. Other States and Territories will then have 12 months to apply the national law or enact consistent legislation.

Objectives of the National Cooperatives Law include providing a mechanism for efficiently applying and maintaining nationally consistent cooperatives legislation - including Regulations.

Among the options canvassed, one is to encourage cooperatives to incorporate under Corporations law.

Part of the exercise is to bring cooperatives more in line with corporations law, and is justified on the basis that the expense and ease of establishing a cooperative should be no greater than alternative legal forms.

This would mean, for example, a relaxation of requirements for auditing, but this will not be available to larger cooperative communities.

One concern would be that the changes might imply that corporate paradigms (which have led to the demutualisation of many cooperatives) will now be encouraged in all cooperatives and the collective nature of many small cooperatives will be ignored. For example, rather than a community being seen as the collective responsibility of all members as equal participants, it might in effect create two classes of membership. It might regard the relationship of member directors to general members as one of supplier and consumer, which would not allow as broad a range of occupancy arrangements as currently exist. This could also have a range of ramifications which could add to the difficulty and expense of buying and selling homes, and for publicising a cooperative community and seeking new members, as has recently happened in the United States.


HOME BUILDING ACT

The Home Building Act, and its equivalent in each state, is the act under which owner-builders are licensed and regulated, and the requirement for insurance is specified.

Of course, the focus of the act is commercial builders and contractors, and the purposes of the rewrite of the act are:
- making the Act clearer and more accessible
- reducing red-tape for consumers and licensed contractors
- strengthening disciplinary and enforcement powers
- providing greater certainty and transparency for both consumers and licensed contractors
- clarifying and modernising home warranty insurance arrangements
- facilitating the shift to a uniform national licensing system.

It is the signalled shift to a uniform national licensing system (as soon as July 2012) that gives national relevance to this proposal.

For example, there is a major difference between the Victorian and NSW Acts when it comes to licensing owner-builders on cooperatively-owned land.

In NSW, members of cooperatives may apply for owner-builder permits. (http://www.austlii.edu.au/au/legis/nsw/consol_act/hba1989128/s29.html)

In Victoria, they may not - only their directors - as one large Victorian cooperative community has found recently when a member had to become a director before he could be issued with a permit. However, in Victoria, beneficiaries of land owned in trust may apply. (http://www.austlii.edu.au/au/legis/vic/consol_act/ba199391/s25f.html)

In neither act are co-operatives specified. In NSW, the term company is used. In Victoria, the term is body corporate. Currently, both are interpreted to include cooperatives. However, it remains open for cooperatives to be excluded from these provisions and therefore not be entitled to owner-builder permits at all.

Under the NSW Act, owner-builders may not take out a second permit within five years, while in Victoria it is three years. Exceptional circumstance provisions apply in both states, but the circumstances are not spelt out.

In NSW, any building work of greater than $5000 requires a permit. In Victoria, it is $12,000. In both states, this is "market" cost/value but it is not described how this is calculated in cooperative community situations and does not appear to have regard to realistic resale pricing.

Options for change to the NSW Act raised in the Government's discussion paper include:
- More clearly restate the existing requirements for disclosure in cases where insurable owner-builder work has been undertaken on a property and that property is sold within 6 years of completion of this work.
- Clarify the situations where a purchaser can void a contract for purchase where an owner-builder fails to provide a certificate of insurance in relation to owner-builder work.
- Increasing the monetary threshold for owner-builder work which requires an owner-builder permit from $5000 to $12,000 to take into account increased building costs.
- Stating that home warranty insurance provisions requiring home warranty insurance be obtained and attached to building contracts (per section 92 of the Act), do not apply to homeowners (being an owner-builder, licensed contractor or developer) or successors in title including mortgagees in possession or receivers.
- Clarifying that home warranty insurance cover in relation to a residential multi-dwelling building, such as strata, community scheme or company title home units, does cover common property.
- Clarifying the date from which home warranty insurance cover is required for residential building work undertaken by owner-builders.

The discussion paper does not raise issues commonly faced by owner-builders in cooperative communities including:
- The involvement of owner-builders in electrical wiring, plumbing (including roofing), draining and gasfitting, particularly where there is no connection or prospect of connection to external sources of water or electricity and all waste water is contained within the property.
- The opportunity to sell owner-built houses without statutory warranty or home warranty insurance.
- The meaningfulness of insurance in a cooperative community context where the ownership of the home does not change on vacation of the occupant and where claims in any case cannot be made by related entities including directors or former directors or those who may be seen to have a familial relationship.
- The meaningfulness of applying market and consumer models and principles to cooperatives where members are effectively at once supplier and consumer, and that "free" market forces do not apply.

I would encourage you to register your comments with the NSW Government.