Application to Residential Builds – Does the Security of Payment Act Apply to Small Developments?

19/12/2016

The Building and Construction Industry Security of Payments Act, 1999 provides for a scheme for the quick recovery of money owing under Building Contracts to Sub-Contractors.

The process allows for a Sub-Contractor who claims he or she is owed money under a Building Contract to make a rapid Application for an adjudication of a claim.  Where there is unpaid money under a Building Contract, the scheme attempts to provide a cheaper method than going to Court for recovery of money at first instance.

However the scheme does not apply where the Contract is with a person who resides or proposes to reside in the property being constructed.

What happens when a person proposes to develop land into not just one residence where one party proposes to reside but multiple residences or units and whether such a building is exempt from the Security of Payments Act.

In the usual course of events, as stated above, the law provides that a Construction Contract in relation to residential building work does not apply where the work is carried out for a person who is going to live in the property.  Accordingly, where a person enters into a Building Contract for the construction of a single house, if there was a dispute over payments due under the Building Contract, any unpaid Builder would not be entitled to apply for an Adjudication under the Security of Payments Act.

However, the law is different where the person who owns the property wishes to build several residences and only wishes to reside in one of the residences.  This situation was dealt with in a New South Wales Court of Appeal case in 2008 called Shorten v David Hurst.  In that case the owner of the property proposed to build 10 apartments and proposed to reside in one of the apartments.  The Court had to decide whether the fact that the owner of the property was going to reside in one of the residences meant that a Builder could not make a claim under the Security of Payment Act.

The Court decided that the Security of Payment Act did apply and the exemption referred to above did not apply.  Accordingly, the unpaid Builder could make a claim under the Security of Payment Act against the Owner for moneys due under a Building Contract.

The Court decided that the intention of the legislation was not to exempt a person who proposes to build multiple premises.

A similar fact situation came up in a 2012 NSW Supreme Court Case of Oppedisano.  In that case the owner of the property wanted to build 4 different units and reside in only one of them.  He intended that his mother would live in one of the others.  He also intended later on that other members of his family would reside in the other units.  The Court said that since the party to the Building Contract only intended to reside in one of the apartments, this did not make the premises exempt from the Security of Payment Act.  Accordingly, the unpaid Builder could make a claim under the Security of Payments Act.

Watson & Watson Solicitors are experts in the area of Building and Construction Law and can advise you in the law in relation to Building Contracts and disputes over building matters.  If you have any enquiries in relation to building matters, please do not hesitate to contact us to enquire about your issues.