Building a new home can be an exciting venture but the legal documentation can be daunting, particularly when you read about the spate of building company failures in the news, not to mention all of the anecdotes you hear about sub-par workmanship.
The good news is that the contract between a consumer and a licensed builder is a highly regulated one whereby, no matter which state or territory you’re in, you benefit from certain statutory warranties about the workmanship of the build. Statutory warranties, which essentially say that the work must be done with all due care and skill in accordance with the plans in the contract, cannot be contracted out of. They also apply to any subcontractor’s work that the builder may employ.
The other good news is that most contracts adhere to a standard form drafted by the Housing Industry Association (HIA) and that contract is a fairly even-handed one – although some builders will add their own special conditions which need to be looked at closely. Here’s what to look out for:
Clear Scope of Work:
Before signing any contract, ensure that the scope of work is clearly defined. This includes detailed plans, specifications, and a comprehensive list of what is included in the build. Ambiguities can lead to disputes, so clarity is paramount. Ideally the plans and specifications should be attached to the contract.
Approvals:
A high proportion of building work requires Council approval, or at least compliance with building codes. It is important that the contract sets not only that the building work must be done to all applicable building codes but that it will not be commenced / handed-over until the relevant Council approvals have been obtained. The contract should make clear whose responsibility it is to obtain the approvals – ideally it would be the builders but there may be some benefit in insisting on a completely independent certifier being used if possible.
Payment Terms:
The contract should contain a clear payment schedule. This should include the total contract price (including the GST component), deposit amount, and milestone payments based on the completion of specific stages. Be wary of contracts that demand a significant upfront payment before any work has commenced.
Variations and Changes:
During the course of the building project, changes may be necessary due to unforeseen circumstances or personal preferences. The contract should outline the process for variations, including the procedure for approving changes and any associated costs. Ideally, the contract should make clear that variations must be agreed in writing.
Completion Timeline:
A realistic and detailed construction timeline should be specified in the contract. Delays can be costly, so it's important to have a clear understanding of the timeframe for completion and any penalties associated with exceeding deadlines. For example it is common (and the HIA standard contract) does contemplate a concepted of liquidated damages, a per day fine that the builder must pay if they are late – and that fine is normally worth negotiating.
Quality of Materials and Workmanship:
Make sure the contract clearly defines the type of materials the builder proposes to use. This includes the specific brands or finishes if applicable, and what happens if those brands are not readily available (e.g. is the builder able to substitute for a similar standard product?). This helps in avoiding disputes over the quality of the finished product.
Insurance and Licenses
This is probably the most important check you need to do: make sure that the builder you’re engaging has a valid building licence (the license number should be in the contract) and confirm that the builder holds the relevant warranty insurers. The regimes vary slight from state to state but for non-minor building works and repairs, builders normally have to provide a warranty insurance certificate that consumers can claim against if the builder goes missing / insolvent.
Termination Clauses:
Familiarize yourself with the circumstances under which either party can terminate the contract. This includes breaches of contract, delays, or other unforeseen events. Understanding the termination clauses can protect your interests in case the need arises.
Conclusion:
Entering into a residential building contract in Australia requires careful consideration of various factors to protect your investment and ensure a smooth construction process. By paying attention to the details outlined in the contract, homeowners can mitigate risks and enjoy the journey of building their dream home with confidence. It is advisable to seek legal advice before signing any contract to ensure that it aligns with your specific needs and complies with local regulations.
