Last Updated on 03/11/2025 by Damin Murdock
When construction defects arise, homeowners often seek to understand who they can hold accountable, especially if the builder was unlicensed or the work was uninsured. Under the Home Building Act 1989 (NSW) (HBA), there are circumstances where a director of a development company may be personally liable for allowing unlicensed or uninsured building work to proceed. However, the success of such a claim depends on the factual matrix, including the extent of the director’s involvement and the legal remedies available.
Unlicensed Building Work: A Breach of the Law
Under section 4 of the HBA, it is unlawful to carry out residential building work without an appropriate contractor licence.
The courts and tribunals have made it clear that:
- Builders must be licensed to legally undertake residential construction.
- Contracts entered into by unlicensed builders are unenforceable by the builder.
- Unlicensed parties cannot sue to recover payments or enforce the contract.
For homeowners, this means you cannot be compelled to pay an unlicensed builder, unless it would otherwise be unjust to the builder. However, it also means that rectification orders are limited, and monetary compensation may be the more appropriate remedy.
Insurance Obligations: A Non-Negotiable Requirement
The HBA also mandates that developers and builders must obtain proper home building insurance prior to commencing any work. The absence of appropriate insurance coverage categorises the work as “uninsured work”. Developers must secure a contract of insurance that complies with the HBA, and failure to do so may render them vulnerable to legal action. However, it is also established that subsequent insurance can sometimes remedy the initial non-compliance, if acquired before damages are incurred.
Can a Director Be Personally Liable?
In certain cases, a director of the development company may face personal liability, particularly when they have knowingly permitted unlicensed or uninsured work. Under the HBA, statutory warranties are implied in all residential building contracts, regardless of whether the builder was licensed. These include:
- Work must be done with due care and skill.
- Materials must be good and suitable.
- Work must comply with plans and specifications.
Where a developer breaches these warranties, the director may be liable if they had actual knowledge of the breach and failed to prevent it. Moreover, a purchaser from a developer enjoys the same rights as an owner against a builder, which can extend liability to those directing the company’s actions.
Available Remedies and Legal Limitations
Compensation for defective work carried out by unlicensed builders is usually limited to monetary damages, as the courts and tribunals may be unable to compel unlicenced builders to appoint a licenced builder to carry out rectification works.
Factors That Influence a Claim
When assessing potential liability or compensation, the courts and tribunals will consider:
- Did the director have knowledge of the unlicensed or uninsured work?
- Was there a failure to obtain or maintain required insurance?
- Are there defects or incomplete works, and how extensive are they?
- Were statutory warranties breached?
What Evidence Is Required?
Homeowners pursuing such claims should gather the following:
- Proof the builder or developer was unlicensed at the relevant time.
- Evidence that no valid home building insurance was in place.
- Expert reports showing building defects or unfinished work.
- Any communications or internal documents showing the director’s awareness or authorisation of the conduct.
Conclusion
While it is not automatic, a director of a developer can be held personally liable under the HBA if they knowingly permitted unlicensed or uninsured residential building work. The success of any legal action will depend on a range of factors including the evidence available, the timing of any insurance, and the extent of defects.
At Leo Lawyers, we have the expertise to guide homeowners through these complex matters and help them secure the remedies they deserve. Feel free to contact Damin Murdock at Leo Lawyers via our website, on (02) 8201 0051 or at office@leolawyers.com.au. Further, if you liked this article, please subscribe to our newsletter via our Website, and subscribe to our YouTube , LinkedIn, Facebook and Instagram. If you liked this article or video, please also give us a favourable Google Review.
DISCLAIMER: This is not legal advice and is general information only. You should not rely upon the information contained in this article and if you require specific legal advice, please contact us.
Damin Murdock (J.D | LL.M | BACS - Finance) is a seasoned commercial lawyer with over 17 years of experience, recognised as a trusted legal advisor and courtroom advocate who has built a formidable reputation for delivering strategic legal solutions across corporate, commercial, construction, and technology law. He has held senior leadership positions, including director of a national Australian law firm, principal lawyer of MurdockCheng Legal Practice, and Chief Legal Officer of Lawpath, Australia's largest legal technology platform. Throughout his career, Damin has personally advised more than 2,000 startups and SMEs, earning over 300 five-star reviews from satisfied clients who value his clear communication, commercial pragmatism, and in-depth legal knowledge. As an established legal thought leader, he has hosted over 100 webinars and legal videos that have attracted tens of thousands of views, reinforcing his trusted authority in both legal and business communities."
