Home Owners Beware of Builder’s extended rights in relation to residential building works undertaken subject to Contracts that were entered into after 28 February 2021

28/08/2023

Builders who have entered into Contracts after 28 February 2021 to undertake residential building works for Owners, have the benefit of the Building and Construction Security of Payment Act.

A Builder previously was not entitled to make a claim under the Security of Payment Act (SOP Act) against an Owner who was intending to reside in the property once constructed, if the Contract had been entered into before 1 March 2021 however the law has now changed.

The rights of Builders or Contractors claiming against an Owner under the Security of Payment Act have been in force for many years in relation to non-residential buildings for example, commercial and industrial building and there is an Adjudication process whereby claims can be made by for example, a Contractor against an Owner for sums without proceeding through a Court process to obtain a Decision or Judgment.

General summary of the process

The process under the Building and Construction Security of Payment Act is that:

A Builder makes a claim by service of a Payment Claim for example, an invoice with appropriate particulars as required by the SOP Act.  However “any claim” (including a request for payment) should be carefully considered to ascertain whether it is a Payment Claim under the SOP Act.

There are strict limits that apply to the process and requirements of the SOP Act.

Within the strict time allowed under the SOP Act if the Owners wishes to dispute the claim, it must be disputed in the format (A Payment Schedule) as required by the SOP Act. 

Section 14(4)(b) of the Security of Payment Act sets out the relevant period in which the Respondent to the Claim namely, the person against whom the claim is made for example, an Owner has to serve a Payment Schedule.  One also needs to consider the terms of the Contract.

The first stage of defending a Payment Claim by the Builder is the preparation of and serving the Payment Schedule, which sets out the ambit and reasons why the Owner believes that the Owner does not have to pay the amount claimed. 

The default position is that if the Respondent to the claim does not respond to the Payment Claim, the Claimant will obtain a decision in the Claimant’s favour that the Respondent pay the amount claimed notwithstanding that it may not be an amount properly payable, if the dispute was considered on the basis of the merits of the case and the terms of the Contract.

If the Respondent does not serve a Payment Schedule, and the Builder proceeds to enforce the Payment Claim in Court proceedings rather than an Adjudication Application, the provisions of the SOP Act provide that the Respondent cannot raise any Defence based on the Contract; however there may be other possible defences which most often are not available.

Adjudication Application

Under the Security of Payment Act the Builder has an opportunity to make an Application for Adjudication in relation to the Builder’s claim having regard to the Payment Claim and the Owner’s Response by way of the Payment Schedule (if the Owner provided a Payment Schedule).

The Adjudication process under the SOP Act is essentially a paper driven process by which each party makes their own submissions in writing which needs to be supported by proper evidence.

An Adjudicator will be appointed to determine the Claimant’s Claim.  The Adjudicator will consider the matter and determine the amount to be paid by the Respondent to the Claimant and who is to pay the costs of the Adjudication.  Other than costs the Adjudicator does not determine or order that the Builder pay a sum to the Respondent.

Owners response to the Builder’s claim

The Owner should be very vigilant and aware of the issues that arise and the problems that can arise if the Owner does not prepare for the circumstances of a claim, having regard to the strict time limits and more particularly, for the default position if an Owner does not take steps to properly respond to the Builder’s claims.

In our view, it is critical that you take whatever steps are required to defend the claim, taking into consideration the probable costs, benefits and detriments of not defending the claim.. Each case should be considered having regard to the circumstances.

However after you have made a payment as referred to above or consequent of a Determination by an Adjudicator, the Respondent would be at liberty to bring proceedings against the Claimant Builder to ask for repayment.  Such proceedings would have to be in a Court of competent jurisdiction. 

The problems with this include:

1. It involves relatively very large costs to bring a case; and
2. There is no guarantee that the Builder will have the ability to repay you either

any sum that a Court may order be paid to you or any costs that the Court might order be paid to you.

If you are a Homeowner who is having a home built for you by Builder we recommend that you become aware of these circumstances and contact the experienced Lawyers at Watson & Watson to advise you in relation to your options, the rights of the Builder and process to prepare for your response to the claims.

In addition you as the Owner or Builder will need to consider such things as the relationship with the Builder or Owner and other commercial matters, so that you can properly consider your position and make appropriate commercial decisions.

If you are an Owner in the process of building a home, please contact the experienced Lawyers at Watson & Watson to discuss these matters to enable you to protect your position by proper preparation.  We can assist you and advise in relation to what preparation you might be able to do to assist in the process.  Please contact Richard Watson an Accredited Specialist in Commercial Litigation Building and Construction Stream by contacting his Personal Assistant Shereen Da Gloria 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 Lawyers on 9221 6011