What Deposit or Money on Account of Work to be Undertaken is Claimable – Residential Building Work – Home Building Act

27/06/2023

Watson & Watson have been engaged by Owners, Developers, Builders, Sub-Contractors, Consultants and others engaged in the building industry in particular, in relation to the building of residential buildings including high-rise buildings in particular, buildings subject to strata for sale to individual owners.

In New South Wales the Home Building Act 1989 (“HB Act”) has been subject to many changes over the period since 1989. 

Until the Design and Building Practitioners Act 2020 became law in New South Wales when the issues arose between Owners, Builders and Contractors fundamentally the dispute was determined or resolved having regard to the to contractual arrangements between the parties and the provisions of the Home Building Act including Statutory Warranties under the HBA.  We have previously posted a number of articles relating to Statutory Warranties which can be found on our website.

The Home Building Act provides for the regulation of residential building work and specialist work as defined in the HB Act.  The Statutory Warranties provided for by the Home Building Act are automatically included in the Contract or arrangement between the Builder and/or Developer and the Home Owner in relation to the construction of residential building works as defined in the HB Act. 

Post Covid in early 2020 many more difficulties between Builders and Owners surfaced having regard to the commercial circumstances that have occurred.  These include supply issues including increase of construction costs and delays in completion of the buildings.  The difficulties for Builders and Owners were greater for example when Contracts were signed years ago relating to land and house packages.  These take significantly longer from start to finish than a stand alone building Contract.

Recently we have seen more often than previously, Contracts which do not comply with the requirements of the HB Act.

Section 7 of the HB Act sets out the requirements of the form of the Contract (other than small jobs) and Section 7AAA relate to the form of the contract for small jobs).  Section 7A of the HB Act provides:

          “A person must not contract to do work under a Contract unless the requirements of Section 7, 7AAA and 7E in relation to the Contract are complied with”.

This article deals with issues that may arise as to the deposit and progress payments or progress claims that may be made by the Builder.

The starting point is that Section 10 of the HBA provides for requirements for a person, the Builder who contracts to do any residential building work or any specialist work. The consequence of the Contractor failing to comply with those requirements is that the:

(a)      Contractor is not entitled to damages;

(b)      Contractor cannot enforce any other remedy in respect of a breach of the Contract committed by any other party (for example the Owner) to the Contract; and

(c)      Contract is unenforceable by the Contractor who contracted to do the work. 

However the Contractor is liable for damages subject to any other remedy in respect of a breach of the Contract committed by the Builder or Contractor. 

This puts the Builder or Contractor in a very difficult position.

Deposit

The Home Building Act provides that a maximum amount of a deposit is 10% of the Contract Sum. 

Section 8 of the HB Act provides that it is an offence for a person (for example the Builder), to demand or receive a deposit that exceeds the maximum amount allowed under the HB Act.  This provision does not apply to Contracts between two persons who hold Contractors’ licenses.

Maximum Progress Payment

The second issues that arises referred to in this article is, what is the maximum progress payments allowed under the HB Act pursuant to Section 8A relating to residential building works (other than a small job) and provides a statement as to what is an authorised progress payment and sets out the various types which essentially are:

(a)      A progress payment for a specified amount or a specified percentage of the Contract price that is payable following completion of a specific stage of the work; or

(b)      A progress payment for labour and materials; which is subject to various conditions.

These provisions on the face of it, seem quite simple however we have found that in numerous circumstances there have been breaches by Builders of the sections of the HBA relating to the deposit and the progress payments. 

We often advise either Owners or Builders in relation to the issues that arise in relation to these matters and are instructed to attempt to resolve the issues that arise. 

In one of the many recent cases, we were instructed by the Owners who had been pressured by the Builder to make payments in addition to those allowed under Section 8 (deposit) and 8A (progress payments) of the Home Building Act and also the Owners were pressured by the Builder to make payments in excess of the amounts provided for in the written Contract.

Our clients, the Owners wanted and needed to have their home completed and made the payments as demanded by the Builder so the Builder would not stop or slow the completion of the works.

In that particular case on a review of the “standard” Contract which had been provided by the Builder to the Owners and was signed by the Owners as they were told by the Builder that it was a “standard form Contract”.

We ascertained that there had been many changes made to the “standard” form of Contract.  The changes were made within the typed version of the standard Contract and no indication was made or given that these were changes to the “standard” form.  This of itself is a serious matter.

Usually changes to a Contract are provided for example, by way of Special Conditions which indicates the changes to the “standard” form.  At least in such a transparent format, the Owners have an opportunity to consider the changes and to consider the basis of the changes.

As a general rule, almost any change requested by the Builder is for the Builder’s benefit and should be carefully considered before signing a Contract. 

However if the Owner is not aware of the changes to the “standard” form then this causes some difficulty.  We ascertained the changes by reading some of the critical clauses within the Contract and it became clear that the printed form utilised by the Builder was different to the “standard form of Contract”.  Thereafter we considered the form of the Contract and ascertained that there had been many changes to the standard Contract which were imbedded into the typed version of the standard form.  Some of those related to the issues relating to “deposits” and some relating to “progress claims”.  Some of the particular changes were in breach of Section 8A of the Home Building Act relating to progress claims.

Eventually the Builder completed our clients’ home under pressure on the Builder from correspondence from both Watson & Watson and separately from our clients, which set out the Builder’s wrongdoing. 

Such action of setting out the rights of our clients does not always result in compliance by the other party.  However mostly it is good encouragement for the wrongdoer to complete the project and deliver the product.  This has occurred on many occasions particularly in the last few years, when Builders had not complied with their obligations under the Contract before our client contacted us. There are many choices available to our clients in relation to this particular matter. There were numerous alternatives and having advice from our experienced Lawyers, assisted the Owners in making wise decisions to progress the matter having regard to the risks associated with alternatives that were available and the building works were successfully completed.

We have also acted on behalf of Builders in similar circumstances and almost all of those cases which have occurred in the last few years, have been resolved without requiring a Court case to determine the issue.

If you are at the beginning, middle or at the end of an adverse relationship in relation to a building or strata matter, contact the experienced Lawyers at Watson & Watson to obtain appropriate advice to enable you to consider and make an informed decision as to how to progress the matter.  Please contact Richard Watson, Accredited Specialist in the stream of Building & Construction or his Personal Assistant Shereen Da Gloria to discuss your matter and seek appropriate timely advice.

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