Buying a display home as an investment property and leasing it back to the builder for a premium rent for the life of the display village may seem like a great investment. However, a commonly overlooked aspect of this type of transaction is whether the house is covered by the Queensland Building and Construction Commission (QBCC) Home Warranty Scheme.
QBCC Home Warranty Scheme
The Queensland Home Warranty Scheme is a compulsory statutory insurance scheme for residential construction work carried out in Queensland. The scheme provides a degree of protection for homeowners (or future homeowners) from faulty or defective construction work completed by a licensed builder for a period of 6 years and 6 months.
Should you discover any faulty or defective structural work in this period and the builder fails to rectify this work, you are entitled to make a claim through QBCC.
The Home Warranty Scheme attaches to the construction work and can also be relied on by future owners of the home.
Home Warranty Scheme and Display Home
When you purchase a new house you are often provided with a QBCC Notice of Cover as confirmation that the new house is covered for the 6 years and 6 month period under the Queensland Home Warranty Scheme.
In some instances the Seller of a Display Home may also provide the purchaser with this notice of cover and the transaction will proceed with both parties assuming the home is covered by the Home Warranty Scheme. However, the legislation provides that the Home Warranty Scheme is only applicable to construction work carried out on a residence.
A residence is defined in the legislation as a structure used for residential purposes. Unfortunately, the legislation does not define residential purposes and purchasers may be left wondering whether a Display Home falls within this category.
Our recent investigations with QBCC revealed that the use of a property as a Display Home does not come within the definition of residential purposes. This means that a purchaser may be left with defective or faulty construction work and no avenue to claim through QBCC.
Effect on Purchaser
Most builders and Purchasers will not be aware that the Notice of Cover issued for the construction work does not actually cover their Display Home and should, in fact, be revoked by QBCC. The Builder and Purchaser, unaware of this, will proceed with the transaction and assume the Display Home is covered under the Home Warranty Scheme.
The practical reality of this situation is that if a future homeowner proceeds to make a claim through QBCC they may be making a fraudulent insurance claim.
Even if the Display Home is converted to a residence at a later date the construction work is still not covered under the Home Warranty Scheme as the legislation only provides for the revoking of the Notice of Cover.
Regulating your transaction
It is currently difficult for Purchasers to determine if the Home Warranty Scheme applies to their purchase. In some circumstances, Purchasers may not even be aware that the property they are purchasing has previously been used as a Display Home. One method of regulating this might be to add a section to Form 24 – Property Information, requiring the Seller to state if the property has ever been used for a purpose other than a residential purpose.
At present, without adequate regulation, the Purchaser is reliant on their solicitor to pick up this issue and advise them accordingly. If the Purchaser is aware of this issue prior to entering into a contract they may be in a stronger position to negotiate and reduce the risks associated with purchasing a property not covered under the Home Warranty Scheme. If you have any concerns that a property you are selling or purchasing has been used as a display home, or for that matter any other commercial purpose, please contact your solicitor.
How Can We Help
At Aylward Game Solicitors we pride ourselves on working toward a standard, not a price. It was through thorough investigation and attention to detail that this potential issue was revealed and we were able to inform our client and proceed with the transaction fully aware. If you are looking at purchasing or selling a Display Home and would like to discuss the QBCC Home Warranty Scheme, please do not hesitate to call our office on (07) 3236 0001.
Article Source: Buying a Display Home
