The effect of land title on home warranty insurance (HWI) premium can be significant. Don't get caught out - here's what you need to know.

HWI is generally the last step in the process before you can begin construction work. The first step of the process is often the submission of the development application. The construction category of the project for HWI purposes is usually determined by the development application.  This is where we see builders (and homeowners) run into trouble.

From a development point of view, strata subdivision can have many benefits for the homeowner. Often, due to the lot size, there is no other option available.

Strata titled lots are usually smaller in size (as compared to Torrens titled blocks). The smaller size blocks seen in strata titled lots can result in shared services.

From the home warranty insurers perspective, strata titled lots carry a greater risk and so incur a higher premium. The difference in premium can be significant and can impact the viability of an entire project.

iCare HBCF guidelines state that any lot subject to strata title subdivision is a multi-unit project. 

There is little practical difference between the construction of a duplex on a strata titled lot as compared to a Torrens titled lot, but the effect on the HWI premium is significant. The difference in premium can run to tens of thousands of dollars. In one extreme case that MBIB has seen, the difference in premium was over $265,000 dollars.

The correct issuance of Certificates of Insurance (COIs) is a key focus of iCare HBCF.  If a COI is issued under the duplex category instead of the multi-unit category, iCare are able to recover the difference in premium at a later date. In some circumstances, it can even impact a builder's HBCF eligibility facility.

As part of MBIB’s HWI process, builders supply a copy of the development application and plans every time they apply for a COI for a duplex/dual occupancy/triplex project.  This way, MBIB's specialist team can make sure that builders get the right Certificate of Insurance - and avoid any nasty surprises down the road.

Sometimes homeowners will choose to amend or change their development application through council to avoid the higher premium. In MBIB's experience, this process can take more than four weeks, causing delays for the builder and the homeowner.
MBIB recommend that all our builders speak to their clients about the effect of land title early in the tender/contract phase of a project. We often find that not factoring in the cost of HWI correctly can throw off a homeowner's budget resulting in the job either not going ahead or being delayed.

NB: Community and company subdivision has the same effect as strata subdivision on HWI construction category.

Want to know more?

Visit mbib.com.au or talk to our specialist team on 1800 150 888.