New legislation is set to make major changes to the Victorian home building legal framework, with financial and regulatory implications for builders/trades/developers coming into effect on 1 July 2026 or possibly even earlier. These changes will affect the state's domestic construction industry across the board, making having the correct insurance cover essential.
Reforms of the Building Legislation Amendment (Buyer Protections) Act 2025 are designed to increase consumer protection, enhance developer accountability and establish a new industry regulator1.
The Act introduces a statutory insurance scheme (SIS) that will be available to owners of residential buildings with three storeys or less. This will allow owners to make claims directly with the VBA when they first identify an issue, without needing to prove the builder is insolvent, deceased or untraceable.
The SIS will apply to building contracts under which the value of the building work exceeds $20,000.
The Building and Plumbing Commission (BPC) will handle oversight, insurance and dispute resolution and will be responsible for several related regulatory controls.
- Mandatory registration: Builders and tradespeople must be registered with the BPC to perform major domestic building work.
- Enhanced powers: The BPC can issue rectification orders for faulty or incomplete work.
- Rectification orders: The commission can compel builders to rectify issues after the occupancy permit is issued.
- Insurance requirements: The BPC has oversight of mandatory domestic building insurance via SIS.
- Industry concerns: Stricter, longer-term liability means that for work valued at $10,000 or more, a written contract with a registered builder is required.
Similarly to recently enacted legislation in New South Wales, the Victorian legislation takes a two-pronged approach.
1. The BPC will be the unified regulator for domestic work, combining the functions of the Victorian Building Authority (VBA), Domestic Building Dispute Resolution Victoria (DBDRV) and Domestic Building Insurance (DBI).
Builders must be registered with the BPC to enter into major domestic contracts, with the commission empowered to issue rectification orders for defective, incomplete or non-compliant work, even after occupancy permits are issued.
To qualify to register builders must meet new minimum financial and professional standards. The BPC will have discretion over builders' financial capacity to reduce insolvency risks.
2. Developers and builders remain liable for faulty or defective work and meeting licensing requirements for up to 10 years after completion.
They are also required to pay new strata bonds on buildings higher than three storeys — a requirement that can be met by latent defects insurance (LDI).
How LDI provides extended protection for builders and homeowners
Developer Bond Scheme implications for residential property developers
Developers of residential apartment buildings higher than three storeys are required to lodge a bond equal to 2% of the total build cost with the BPC before applying for an occupancy permit3.
The bond is held for two years post-completion for the purpose of funding rectification of defects if the developer fails to do so.
Failure to lodge the bond can lead to penalties of up to 2,500 penalty units (~$500,000) and allow purchasers to rescind off-the-plan contracts.
The BPC is granted expanded powers to compel builders and developers to rectify defective or non-compliant work for up to 10 years after the occupancy permit is issued. These powers are expected to apply retrospectively to building work completed before the reforms officially commence.
Role of the new statutory insurance scheme as an avenue of first resort
Under these changes domestic building insurance becomes a first-resort resource rather than a last resort4.
Homeowners can claim against their LDI if a builder fails to comply with a rectification order, without needing to prove the builder has died, disappeared or become insolvent.
Other reforms that came into effect in 2026
Other changes to the Domestic Building Contracts Act 1995 (Vic) introduce stricter regulations on deposits, progress payments and variations5.
New rules allow for separate, early agreements for plans and specifications before a major domestic building contract is signed.
Key takeaways for the Victorian residential construction sector
- Transition risks: The Act doesn't explicitly outline a transition period, meaning projects already underway may be subject to the new bond requirements if the occupancy permit is applied for after 1 July 2026.
- Urgency: Developers may look to expedite project completion to obtain occupancy permits prior to 1 July 2026 to avoid paying the 2% bond.
- Compliance: Stricter standards and higher penalties mean developers and builders are advised to review their risk management, insurance and financial arrangements.
Benefits of insurance broker construction specialists
It's recommended that construction sector business organisations and owners access the support of an industry specialist broker who can help navigate the increased professional indemnity liability exposures and ensure you have the right protections for your business and employees for your projects.
Gallagher has thousands of construction clients, from major works to smaller projects, and experienced construction insurance specialists to advise on key coverage solutions.
