After years of hard yards in the building game, including study and jumping through countless bureaucratic hoops, why would a registered builder let anyone else use their builder’s registration to carry out works? As the ancient Greek Sophocles wrote, “Profit is sweet, even if it comes from deception”. But as it often is with things that seem too good to be true, the sweet profit that Sophocles was talking about can quickly sour.

A “licence lending scheme” typically involves a registered builder lending their builder’s registration, for a fee, to a third party builder who usually does not hold registration themselves. The third party uses the registered builder’s registration details to obtain warranty insurance and a building permit to carry out works, but the registered builder doesn’t sign a contract with the owner/principal and often has little, if any, involvement in the works.

Usually, the registered builder is assured by the third party that they won’t have to do anything or carry any liability for the works. But the builder may find—often when it’s too late—that it has exposed itself to liability far greater than the value of any “sweet profit” and put their own registration in jeopardy.

Under the Building Act 1993 (Building Act), it is an offence for an unregistered builder to carry out major domestic building work or to use the title “registered builder”.  The Domestic Building Contracts Act 1995 makes it an offence for an unregistered builder to enter into a major domestic building contract. Given the possible fines (up to $108,000 for the above) a small lending “fee” may seem like a good investment to a third party builder.

Licence lending schemes are often used in circumstances where the third party doesn’t have registration or can’t obtain builder’s warranty insurance because the project exceeds their job or annual limit.  The third party’s objective is to fool the innocent party—be it a client, the registered builder or someone else—into thinking that they are competent and compliant with the law.

The source and extent of the registered builder’s liability in a licence lending scheme will depend upon how the law considers how the builder participated in the scheme and who else is at fault. In 2006, in Hill v Bastecky [2007] VCAT 2663, the facts involved a “sham contract” prepared by the third party builder and then presented by the registered builder in an application for a builder’s warranty insurance policy.  Although VCAT didn’t find any contractual liability for the registered builder, it did identify the scheme as a “nasty scam” involving misleading and deceptive conduct. As a result, , the registered builder was liable for damages suffered by the owner.

More recently in Theodor v Noonan [2015] VCAT 1390, VCAT identified a “joint venture” between a registered builder and third party builder in circumstances that might have been considered a licence lending scheme. The facts concerned a building contract that was executed for works to a holiday home near Mt. Buller. The third party signed the contract on behalf of the builder whose registration could have been considered to have been “lent”. The works didn’t go well and the contract was terminated.

VCAT found that there was a “joint venture”, between the third party builder and the registered builder, and therefore found there was a valid building contract between the registered builder and the owners. The finding of a joint venture was largely due to the builder’s evidence that there was a verbal joint venture in the past and that he had contemplated one when putting in an application for warranty insurance. Importantly, VCAT found that the registered builder had to accept responsibility for the works performed under the contract even though he did not perform or direct them and had no involvement in them.

In addition to any civil law issues, Master Builders members should be aware of potential criminal and disciplinary consequences of a licence lending scheme. The Building Act makes it an offence to make statements or provide information, to a person or body carrying out any function under the Act or regulations, which are false or misleading.  It is arguable that the registered builder would be guilty of this offence for misleading the warranty insurance provider and/or the building surveyor.

Such conduct may provide grounds for the Building Practitioners Board to conduct an inquiry. An adverse finding by the Board could result in, amongst other things, a fine, suspension or cancellation of the builder’s registration. Even if a registered builder doesn’t lose their licence, being listed on the Practitioner Disciplinary Register and the associated issue of obtaining insurance, could spell an end to the registered builder’s career.

Accordingly, the risks associated with lending your licence will far outweigh any possible profit that could be made in the short term.

Master Builders members should be careful to ensure they do not unwittingly become involved in a licence lending scheme.  For more information call Master Builders’ legal department on (03) 9411 4555.