Current Difficulties for Builders to Comply with their Obligations for the Construction of Homes – Affects both the Builder and Owner

26/08/2022

Watson & Watson Lawyers have for many years acted for those parties involved in the building and construction industry.  We have advised Principals, Home Owners, Builders, Subcontractors, Consultants, Designers and Certifiers in relation to major projects including residential building works regulated by the Home Building Act.  This includes new homes and renovations for Home Owners.

The Building Industry has over many decades been through highs and lows of various cycles.  Some Builders were more adversely affected by some of those cycles and were unable to comply with their obligations.  Similarly, some homeowners were unable to comply with their contractual arrangements for the building of their home. 

This article relates to common issues that have arisen since 2020 which are now occurring more frequently.

Additional problems have occurred for many Builders as a result of the problems that have arisen due to the difficulties in the supply chain for building products which have resulted in some significant increases in costs and significant delays in the availability of products.  For example, there have been significant cost delays in relation to the supply and cost of steel, timber and concrete and the supply of overseas products required for the construction of the home.  This has put a financial pressure on Builders who have for many years, been able to proceed in their business of home building in an orderly manner.  However the additional burdens have caused financial difficulties for the Builders in relation to compliance with their contractual obligations.  This has occurred in particular, where contracts (with a fixed contract sum) were entered into more than 12 moths before the works could commence.  One example is the contracts for land and house packages.

Such difficulties do not only affect the Builder but also affect the Owner who entered into a Contract for a particular home to be built within an agreed period of time and an agreed price.  Many of those Owners do not have the financial capacity to absorb additional costs or are willing to absorb the additional costs for the completion of their home.  Consequently the building works are delayed and issues and disputes arise between many Owners and the Builder of projects. 

For the Owner who has entered into a Building Contract for a single dwelling (as distinct from the purchase of a strata title unit), there is a requirement for Builder’s Warranty Insurance (previously referred to as Home Owners Warranty Insurance) however, the Insurance is not available to the Owner until one of the “trigger” events under the Policy has occurred.  The trigger event in effect is mostly that the Builder is dead, disappeared or insolvent (as required in terms of the Home Building Act).  Unless the Builder is in Liquidation at the time of the issue arising, the Owner would have to commence proceedings and obtain Judgment or Order against the Builder.

Often but not always, where there is a Judgment of a Court or an Order of New South Wales Civil and Administrative Tribunal (NCAT) in favour of the Owner for payment of a set amount and if that amount is not paid, an Application could be made for the suspension of the Builder’s Licence and that would trigger an event which would allow the Owner to make a claim under the Builder’s Warranty Insurance.  Where there is an Order in favour of the Owner, there is also often an Order that the Builder pay the costs of the Owner in those proceedings.  In the event that the costs order is not satisfied by the Builder, that of itself would not amount to a triggering event under the Builder’s Warranty Insurance.  Care needs to be taken to consider the exact nature of the Orders and the effect in relation to the claim under the Builder’s Warranty Insurance.  It may be that the Builder for one reason or another, will pay an award in favour of the Owner however the Builder will not pay the costs.  The question of the amount payable for costs will have to be determined.  The proceedings to have the amount of costs determined, is an administrative proceedings through the Supreme Court of New South Wales which requires the preparation of an assessment, and a determination of that assessment.  There are normally significant costs in relation to proceeding with such an Application.

Further the cost of proceeding through the various processes to assess the amount of costs payable, can be large and put significant financial burden on the Owner if the Owner wants to proceed to have an assessment of the quantum of costs payable.  Often the Owner does not have the capacity to proceed and there is the possibility the Builder may not have the capacity to pay the costs.  At this stage, the Owner again needs to carefully consider his or her options and alternatives.

There are many issues that arise for the Builder and/or the Owner including but not limited to the scope of the work, progress claims, variations, delays and extensions of time, completion of the works, suspension of the work by the Builder, date for practical completion, dispute resolution and specified rights for termination by either the Owner or the Builder.  There are also other issues which arise outside the Contract.

Each of the above issues will have a bearing on the processes to be adopted or perceived by either party and the outcome of the dispute.  At each stage, the matters need to be seriously considered. 

One of the issues that has arisen on many occasions and certainly more frequently since 2020 is whether the Owner can terminate the Contract, the consequences of terminating the Contract and the consequences of getting it wrong.  We consider this in our separate article “Is it appropriate for the Owner to Terminate the Building Contract?”

Some protection can be obtained from having the terms of the Contract considered before entering into the Contract.  This will assist the Owner and/or the Builder to understand their obligations and the other party’s obligation; and secondly may give the person obtaining the advice some opportunity to negotiate some reasonable adjustments to the terms of the Contract.

Watson & Watson are highly experienced Building and Construction Lawyers in particular, in relation to Building Contracts for Residential Building which are covered by the Home Building Act.  If you have any issue that arises as a Home Owner or Builder, please contact Richard Watson or his Personal Assistant Shereen DaGloria to discuss your important matters and obtain the appropriate advice in a timely manner.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 9221 6011.