Home Building Contracts – Renovating or New Homes – Protect Yourself - A Stitch in Time Saves Nine

17/11/2017

Watson & Watson are experienced building and construction lawyers who have been involved in advising different parties in relation to Contracts and disputes concerning the building and construction industry for in excess of 30 years.  We have advised owners, builders, subcontractors, project managers, architects and building consultants in relation to their obligations and in relation to Contracts utilised for the purposes of regulating the building of your new home or renovating your home.

There are many “standard form Contracts” which are in existence including NSW Residential Building Contract for Homes issued by Home Industry Association (HIA), Master Builders Association (MBA) or Australian Building Industry Contracts (ABIC) to name a few. There are some clauses which we recommend which we have never seen in any Contract over our many years of experience.  Some of the clauses that an owner would dearly like will not always be agreed to by the Builder.  However it is best to try and resolve those issues at the time of contracting rather than at the time of dispute, which may arise.

Over the many years and hundreds of cases, we have become aware of the traps and hotly contested issues in relation to building matters.

One thing that is for sure is that the “standard from Contracts” do not protect the owner.

The Home Building Act requires that the Builder enter into a Building Contract which complies with the Act.  One might think that if the Builder did not do that then the Builder would have some difficulty in receiving payment.  This is what one would think if you read the Home Building Act superficially.

In our view the owner is better to have a complying Building Contract which protects the owner rather than either a standard form Building Contract or a non-complying agreement.  There is some debate or areas of disagreement as to whether an owner is better to have a non-complying Contract or a standard form Building Contract.  The standard form of Building Contracts all have a Schedule of particulars to be completed.  Most Builders say they will not amend the standard form Contract.  However, many of those Builders in the Contracts that are submitted to the owners as “the standard form which cannot be changed” includes special conditions which are not in the standard form.  Further there are default provisions in the Schedules which are largely in favour of the Builder.

One inadequate clause is a standard form clause relating to liquidated damages and the default position is sometimes that the owner will receive $1.00 per day in the event that the Builder does not complete the building works within a certain period.  Liquidated damages should be calculated as the pre-estimate of ones loss if the Builder does not complete the building work within the time allowed for under the Contract.  You cannot rent a home similar to the one that you are building for $1.00 per day.  This is a clear example of the inadequacy of the standard Contract for the owner.  There are many more.

Fundamentally if a commercial deal has been agreed upon between the Owner and the Builder as to the critical terms of the agreement as to:

1.        Who is to obtain the approvals;

2.        What works are to be carried out by the Builder;

3.        What works are excluded from the Builder’s Scope of Works;

4.        What are the payment terms;

5.        When is the building required to be completed; and

6.        What variations to the price or time are allowable and on what basis;

One would hope that the Contract sets out a fair basis for achieving that outcome.

Some of the articles on our website demonstrate areas where we have found that there are many disputes which we believe, could have been easily resolved if a Contract had been properly considered and agreement reached before commencing the works in relation to those critical matters.  In many cases at the beginning of the process there is an ability for the parties to agree as to the conditions.  Some are so fundamental that one would think that the term was part of the standard Contract terms.  There are numerous terms that fall within this category that are not part of the standard form Contract.

Builders (in particular good Builders) have one fundamental aim and that is to understand what they are building and to build according to the Scope of Works and be paid.  The owner’s expectation might be slightly different; they may expect the building to be built within budget and for the owner to be able to occupy their home in accordance with the time that they understand the building works will be completed.

One problem is that if the Contract is deficient a party may use the deficiency if it is in their favour to their advantage in particular, in relation to negotiations when a dispute arises. No matter is too small for an argument.  Arguments range from very minute to fundamental principles.

Also for the owner it is critical that there is an agreed price for the works subject to agreed parameter for a change in the Contract sum and/or scope of works.  Some Contracts appear to be an agreed price Contract but when one looks more carefully at the terms of the Contract they are in effect almost a Cost Plus Contract.

Over 30 years of advising and being involved in disputes in relation to building and construction matters in particular residential building, we have become very experienced as to not only the contractual terms but the “tricks” of the industry.

If you enter into a Contract presented to you by a Builder without consideration of its terms there could be a very expensive outcome for the owner.  This is not necessarily to say that the Builder will achieve more than the Builder is entitled.  The difficulty is that in resolving these matters one needs to produce appropriate evidence in relation to each of the items or elements that are in dispute.

If you are embarking on a home renovation or new home construction and you wish to seek some advice please do not hesitate to contact Richard Watson an experience building and construction Lawyer or his Personal Assistant Shereen Da Gloria who can assist with your enquiry or any concerns you may have.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 02 9221 6011.