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Owners’ Difficulties in Obtaining Required Certificates to Complete Work and to Occupy – Negotiate before Contract, if possible

21/01/2022

In our extensive experience one of the greatest difficulties faced by an Owner and sometimes faced by a Head Contractor (in relation to works undertaken by Subcontractor) is to obtain the necessary Certificates which are required for the eventual approval of the works and the occupation of the completed works. 

Most Contracts do not properly provide for the provision of the Certificates and the protection of the Owners.

We recently received instructions from an Owner of a property which he had owned for many years and he wished to subdivide the land, and construct two or three new residential buildings.

Incidentally he is also a successful Builder.

Our client obtained the necessary approvals required to subdivide the land.  This required civil works including driveway, access for services including plumbing and electricity to the separate proposed lots. 

Our client engaged a company to undertake the civil works as subcontract works. 

The civil works included the plumbing works which required approval by Sydney Water.  Those works are required to be undertaken by a contractor approved by Sydney Water.  The Subcontractor engaged by our client to undertake the civil works was a Sydney Water approved contractor to carry out those works.  The Subcontractor claimed that the works were 100% complete.  This was disputed and there were numerous defects.  The Contract provided that the Subcontractor would provide to Sydney Water the necessary Certification to enable Sydney Water to issue to our client, the Sydney Water Certificate.

The Subcontractor made a claim under the provisions of the Building and Construction Industry Security of Payment Act 1999 (Security of Payment Act) in which he claimed the whole balance of the Contract Sum.   Our client received the Payment Claim under the Security of Payment Act and provided a Payment Schedule noting the defects and the costs of rectification and noting the incomplete works.

Our client was acutely aware as to the issues that would arise if he could not obtain the documentation required to enable him to obtain the Sydney Water Certificate and without that, our client could not proceed with the subdivision.  Our client attempted to contact the Subcontractor and the Subcontractor did not respond and the matter could not be resolved.

The Subcontractor then made the Application for Adjudication under the Building and Construction Security of Payment Act and claimed that the whole of the works required to be undertaken had been completed without defects.  In providing an Adjudication Response our client was limited to the matters that were raised in the Payment Schedule when the Payment Claim was originally provided.

The question arose as to what extent our client should defend the Adjudication Application. 

In our view, this was the first opportunity an independent person could review the evidence and consider whether the works undertaken by the Subcontractor were incomplete and whether there was defective work.

We recommended that an appropriate Consultant be engaged to respond by providing the appropriate evidence to establish firstly, each defect and secondly, the costs to rectify the defects.  This was undertaken and it was submitted with the Adjudication Response by our client.  Our client claimed the cost of rectification of the defects should be off-set against the claim by the Subcontractor.

The relationship had broken down and there was no assurance that even making payment of the full amount claimed, that the Sydney Water documentation would be provided.  Attempts by our client to contact the Subcontractor to resolve the issue failed. 

As it happened, the Adjudication Determination allowed a significant amount to cover the costs of rectification of defects which significantly reduced the claim of the Subcontractor from the 100% as claimed.  A small amount was allowed by the Adjudicator in the Adjudication Determination. 

Our client’s initial reaction was to try and negotiate without making payment of the adjudicated amount.  Our advice was to make the payment of the adjudicated amount (which was a relatively small amount) and thereafter to negotiate the balance.

Within a short period of time the matter was resolved and the Subcontractor provided the necessary documents to Sydney Water and our client received the Sydney Water Certificate.

If our client had commenced Court action for the defects to be rectified, it was likely the project would have been delayed significantly and our client’s loss would be significant. 

This is one of many recent cases in which the Owner could have better negotiated to protect his position.

This is a timely reminder of our strong view that Owners should take action to attempt to negotiate a Contract which reduces areas of possible dispute in particular, in relation to obtaining the Occupation Certificate.  There are also various other conditions which could be negotiated.

We find that as long as the negotiations are on the basis that it is mutually beneficial, to consider what are the critical issues and to negotiate those issues.  Generally the Owner and the Builder can have their general needs protected.  It is better to undertake this at the beginning of the project before signing the Contract rather than later.

If you have a project that you wish to undertake or you find yourself in a dispute please contact Richard Watson Accredited Specialist Commercial Litigation (Building and Construction Stream) by contacting Richard Watson or his Personal Assistant Shereen DaGloria to discuss your important matter.

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

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