Mackay Chapman Building & Construction July Update

Welcome back to our monthly building and construction update.

The commencement of the First Resort Home Warranty Scheme on 1 July 2026 marks the most significant change to Victorian domestic building regulation in a generation. The reforms are broad and consequential. Much of the detail was provided in guidance and ministerial directions issued in the final days before commencement, and how the Building and Plumbing Commission (BPC) exercises its new powers remains to be seen.

At the same time, ongoing economic pressures, rising insolvency activity and increasing scrutiny of financial and operational practices mean many construction businesses are facing challenges on multiple fronts. 

Strategic planning, strong governance and early engagement with regulatory issues remain critical.

First Resort Home Warranty Scheme commences on 1 July

The new First Resort Home Warranty Scheme commenced on 1 July 2026, replacing Victoria’s longstanding last-resort insurance model for domestic building work.

What has changed:

• Claim trigger: under DBI, a homeowner could generally only claim where the builder died, disappeared or became insolvent. Under Home Warranty, homeowners can claim for incomplete, defective or non-compliant work while the builder is still trading, where the builder is unable or unwilling to complete or fix the work.
• The insurance threshold rises from $16,000 to $20,000.
• Maximum cover increases from $300,000 to $400,000, with incomplete works now capped at 30% of the contract price (previously 20%) and accommodation and storage costs covered up to $12,000.
• The DBI Certificate of Insurance becomes a Notice of Cover. Cover now activates automatically on the earliest of the builder paying the premium, starting work, or signing the contract - with the premium payable within 10 business days of signing (or before work starts).
• The BPC is the sole provider. The private DBI market (i.e. AssetInsure) closed on 30 June 2026. Existing DBI policies issued before that date remain on foot under their original terms until they expire and do not transfer to Home Warranty.

Notably, after sustained industry advocacy, some things have stayed the same and preserved the status quo - at least for now - for existing builders under Government guidance released on 30 June. This was a last minute decision. Key things maintained include:

• Registered builders holding an active DBI Letter of Eligibility on 30 June 2026 transition automatically to Home warranty. Current limits roll over and there is no re-assessment from 1 July. 
• The Total Construction Limit is renamed Maximum Construction Capacity (MCC). The most onerous parts of the Minimum Financial Requirements (MFR) changes have been dropped - with MCC now set at 20 times of Adjusted Net Tangible Assets (ANTA), and trust assets are able to be included (at least for now). Project sub-limits are being phased out.

For builders, the long-term impact remains to be seen, businesses should expect materially increased scrutiny of workmanship, record keeping, subcontractor management and defect rectification. There will also be renewed focus on financial capacity and assets under the MFR minimum settings.

Rectification Orders: a new, retrospective power

Arguably the most significant - and contentious - new power is the BPC’s Rectification Order power, which commenced from 1 July. 

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Under the new Rectification Order rules:

• The BPC can order a builder, subcontractor or developer to fix incomplete, defective or non-compliant work at any time during construction, and for up to 10 years after the certificate of final inspection, occupancy permit or practical completion.
• The power operates retrospectively - it can capture work completed before the reforms commenced.
• When a rectification order is issued to more than one party, each party is jointly and severally liable. 

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The Rectification Order power is discretionary, and the BPC may apply to VCAT to extent the 10-year timeframe.

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The Ministerial Direction issued in the hours before the Home Warranty scheme commenced highlighted that the BPC is to prioritise the most serious cases - such as when a building is uninhabitable, cannot be used for its intended purpose, or poses a risk to life. How the BPC applies this discretion is untested and likely to be contentious.

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The new rules also now include a separate notification power, which requires developers of Class 2 (apartment) buildings to notify the BPC six months prior an occupancy permit is due, enabling inspection and the withholding of final payments where defects are unresolved.

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Impact of paid claims for a builder’s eligibility

A key question the new reforms raise - yet to be tested in practice - is what happens to a builder when a Home Warranty claim is made and paid. 

Under the Home Warranty scheme, a homeowner’s claim to the BPC is a trigger for the issue of a rectification order against the builder. If the builder is unwilling or unable to comply, the homeowner may claim under Home Warranty. A builder who either refuses to or cannot comply with the rectification order risks having their eligibility suspended - or cancelled.

Because Home Warranty operates on a first-resort basis with the BPC as sole insurer, the consequences for a builder’s MCC, registration and future eligibility once a claim has been made can be significant, in a way that wasn’t relevant before.

Builders: Review to ensure compliance with 1 July requirements

With the new Home Warranty scheme in place, builders should review key operational and risk management practices - particularly contract administration, variation processes, quality assurance and defect management. Given the retrospective potential of rectification orders, builders should also ensure project records are comprehensive and capable of demonstrating compliance if concerns are raised after completion - for existing projects, not just current ones.

Subcontractor management remains critical. Clear scopes of work, documented quality controls and effective supervision can help reduce disputes and minimise exposure where workmanship issues arise. This is particularly acute now that liability under a rectification order can apply jointly and severally to the builder and subcontractor.

The businesses best positioned under the new regime are likely to be those that focus on risk management before problems arise.

Home Warranty eligibility remains a critical issue

Obtaining DBI eligibility is only part of the challenge. 

Restrictive conditions attached to eligibility and the builder’s MCC can continue to affect growth plans, turnover capacity and operational flexibility long after approval is granted. 

Where conditions are commercially restrictive, unclear or no longer reflect the current risk profile of the business, there may be opportunities to seek amendments or engage with the BPC proactively.

Early advice is often critical in managing eligibility reviews, MFR assessments and responses to BPC concerns.

Experienced support for Victorian builders

Mackay Chapman continues to advise Victorian builders, developers and construction industry participants on Home Warranty under the new scheme, legacy issues around DBI eligibility, regulatory issues, insolvency matters and complex commercial disputes.

Whether your business is preparing for the First Resort Home Warranty Scheme, navigating eligibility requirements or managing financial and operational pressures, seeking advice early can help reduce risk and protect future opportunities.

The contents of this update do not constitute legal advice, are not intended to be a substitute for legal advice, and should not be relied upon as such. They are designed and intended as general information in summary form, current at publication, for general informational purposes only. You should seek legal or other professional advice concerning any particular legal matters you or your organisation may have.

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