Introduction
Engaging a builder to build your home can be daunting – you are committing a significant amount of time and money into developing a valuable asset. In such circumstances, the last thing you want is a dispute with your builder that will take significant time to resolve and extensive legal costs.
The following actions are recommended steps for you to take when engaging or dealing with a builder who is undertaking domestic building work at your property:
1. Seek legal advice prior to signing the building contract
Obtaining legal advice prior to entering into a Contract can be invaluable. A conference with a lawyer can save you significant stress and expense at a later date, and ensure that you are well-advised regarding both your own rights and the rights and obligations of your builder. It can not only ensure that you know what to expect going forward, but also that you are prepared to deal with any disputes or issues that may arise in the manner that best protects your interests. Legal advice can also provide you with a better understanding of the risks associated with certain contractual clauses, and place you in a better position to negotiate any amendments that may provide protection moving forward.
2. Ensure payments are only made once progress stages have been completed
The progress stages of the building works will be set out in your domestic building contract. The contract may either adopt the schedule set out in the Domestic Building Contracts Act 1995 (‘the Act’) or you and your builder may deviate from the schedule by agreement. Builders are not legally allowed to make requests for payment of the progress stage or a portion thereof prior to the stage being completed. Where any such requests have been made by your builder, you are not required to pay.
To ensure there is no confusion as to when a stage has reached completion, you should make sure that you understand what work is included in each relevant stage prior to commencing the building works. In this respect, as well as a general sense, communication is key to avoiding disputes.
3. All variations should be in writing
Most domestic building contracts will stipulate that any variations to the building works or contract terms are required to be in writing, and will provide specifications as to how variation requests are to be made by either you or the builder. Despite this, parties frequently request and/or agree to variations outside of these specifications. This often leads to disputes regarding the cost or details of the variations at a later date. In order to avoid such disputes, you should ensure that all variation requests, whether they are made by yourself or the builder, are made in writing and in accordance with any contractual requirements.
4. Liquidated damages should be a genuine estimate of your loss if the works are not completed on time
A common dispute that occurs between owners and builders is the delayed completion of building works. Where the completion date has passed and the works have not been completed, most building contracts will provide that the owner is entitled to liquidated damages for the amount specified in the contract.
Many owners and builders either do not provide an amount for liquidated damages or provide a minimal amount, such as $200 per week. This is generally an insufficient amount to compensate the owner for their loss, as there may be other subsequent costs associated with the delay, such as:
- any rent paid for accommodation as a result of the delay, or
- any loss of profits due to an inability to tenant the property.
The amount should not be such that it could be considered a penalty, but rather should be a genuine estimate of your loss as a result of the delay. Ensuring that liquidated damages are a genuine estimate of your loss will not necessarily result in the prompt completion of the works however they will ensure that you are appropriately protected in the event of delayed completion. This may also serve as incentive for the builder to ensure the works are completed on time.
5. Follow contract notice and termination procedures
Finally, in the event that a dispute arises between yourself and the builder where you feel it is necessary to terminate the contract, it is imperative that the contract is terminated in accordance with the contract terms. Incorrect termination of the contract may amount to a repudiation of the contract, which, if it is accepted by the builder, can potentially give rise to a claim against you for damages. For these reasons, it is a good idea to seek legal advice prior to issuing any notice of default under the contract.
How can Sharrock Pitman Legal help?
If you require advice on a Domestic Building Contract or a dispute with a builder, please feel free to email litigation@sharrockpitman.com.au or call 1300 205 506. Our Litigation team can provide advice on construction and building issues and assist you resolve your matter expeditiously. We are able to provide you with advice regarding your options, in addition to guiding you through the steps that are appropriate in your circumstances.
The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.
Liability limited by a scheme approved under Professional Standards Legislation.
Kevin Li is an Associate Lawyer in our Commercial Litigation team. He has an advisory and advocacy practice in the areas of Commercial Litigation, debt recovery, insolvency, liquidation, and shareholder, commercial and contractual disputes. Kevin can be contacted on (03) 8561 3315.
