HOMEBUILDERS COMPENSATION

Will a home builder be entitled to claim compensation for services rendered if they are not registered with the National Home Builders Registration Council (NHBRC)?

Home Builders are legally required to be registered with the NHBRC in terms of Section 10 (1) of the Housing Consumers Protection Measures Act 1998 (‘‘the Act’’) in order to receive compensation for work completed. Enrolment with the NHBRC insures against poor building practices and permits home inspections to be conducted at various stages of construction.

A proposed Housing Consumer Protection Bill has recently been gazetted with an objective to address the challenges experienced in the home building industry. Should the proposed bill become law, it will task property practitioners, financial institutions, and conveyancers with additional responsibilities in ensuring compliance with the Act, as well as enforcing the existing sanctions in the event of non-compliance.

The harsh consequences of non-compliance with the Act were highlighted in the case of Cool Ideas 1186 CC vs Hubbard and Another [2014], ZACC 16, The Plaintiff (Cool Ideas), a Close Corporation, primarily engaged in property development undertook to construct a residence for the Defendant (Ms Hubbard), a homeowner, for a consideration of R2 695 000.00. Cool Ideas enlisted the services of a subcontractor, Velvori Construction CC (Velvori) to execute the building project. Cool Ideas was not registered as a building contractor in terms of Section 10 of the Act at the time the building contract was concluded, Velvori, however, was registered and duly enrolled the building project as envisaged in the Act.

Ms Hubbard raised certain issues regarding the quality of elements of the buildings works and refused to make the final payment due on the building project, claiming payment of R1 200 000.00 as the cost of the remedial work.

The matter was taken to arbitration and the Arbitrator found in favour of Cool Ideas. Ms Hubbard contended that Cool Ideas was not entitled to remuneration because it was not registered as a home builder in terms of the Act.

The decision of the Arbitrator was then taken to the High Court and Cool Ideas subsequently registered as a home builder before judgment was granted. The High Court held that as the work was done by Velvori, a registered home builder that met the requirements of the Act, payment was due to Cool Ideas.

Ms Hubbard subsequently took the matter on appeal to the Supreme Court of Appeal where her appeal was upheld, and Cool Ideas was prevented from enforcing payment under the building contract for the outstanding balance. The Court took into consideration Section 10 (7) of the Act that required both Cool Ideas and the subcontractor to be registered as home builders in terms of the Act.

Aggrieved with this outcome, Cool Ideas approached the Constitutional Court. The Court highlighted that the objective of the Act was to protect housing consumers and determined that both the contracting party and the building contractor needed to be registered with the NHBRC as a prerequisite to the commencement of building, failing which payment would not be enforceable. The question then arose as to whether the contracting party could have its claim settled by way of an unjust enrichment claim. The Court determined that this remedy was not available as the building contract was valid but the payment provisions in favour of the contracting party were unenforceable.

Home builders are cautioned to ensure the necessary compliance with the Act, as a prerequisite to commencement of construction,so as to ensure entitlement to compensation once services have been rendered.