Whether you are renovating an existing home or building from scratch, most domestic building contracts involve considerable sums of money. In fact, entering a building contract may be one of the most significant financial transactions you undertake.
Despite the excitement of getting a new project off the ground, it is important to have your building contract properly reviewed, so you understand exactly what you are signing.
Building contracts are complex, containing various technical and legal terms as well as incidental documents such as plans, specifications and schedules. The contract should be complete, balanced and contain adequate protection for the homeowner. The legal rights and responsibilities of the parties should be clearly stipulated, and provisions included to deal with unexpected events with processes to resolve disputes.
Ensuring these matters are properly dealt with before entering the contract will help give peace of mind and minimise loss should things go wrong. Following are some reasons why we recommend a domestic building contract be reviewed.
It’s just a standard contract, right?
Many builders use ‘standard’ building contracts prepared by industry bodies such as the Housing Industry Association or Master Builders Australia. These contracts are generally drafted to create a balance between builder and consumer and should contain essential terms and conditions pursuant to the relevant legislation within each jurisdiction.
However, a contract containing an HIA or MBA logo may give a homeowner a false sense of security. Ultimately, the contract is prepared by the builder who may have amended the terms to the detriment of the consumer. The contract may be incomplete or contrary to the various rights imposed by the relevant building legislation in each jurisdiction or under Australian Consumer Law.
Protecting your rights and interests
Builders should be appropriately licenced, registered and insured to carry out major domestic building work and a building contract must contain provisions consistent with the relevant legislation.
A lawyer can carry out appropriate checks to ensure your builder is properly authorised to undertake the work scheduled and that any relevant insurance is in place to protect you should the builder become insolvent, die or disappear.
Having a contract reviewed will enlighten a homeowner to their statutory and consumer rights and ensure provisions do not breach these rights. For example, some contracts may attempt to require a homeowner to make progress payments outside the schedules legally permitted.
The parties should be accurately described and, if the builder is a corporate entity, searches undertaken to ensure that the person with whom you are dealing is properly authorised to act on the company’s behalf.
Understanding the allocation of responsibilities and risk
As with all contracts, a domestic building contract should set out each parties’ respective rights, responsibilities, and obligations. The contract should reflect exactly what has been negotiated and agreed between the builder and homeowner.
A lawyer will help to explain who is responsible for what and ensure important provisions are not overlooked. For example, the contract should contain indemnification by the builder for a homeowner against any claims arising from the work being performed as well as conditions that require the builder to maintain insurance against risks such as public liability and workers compensation.
Not everything goes according to plan
There is almost always an element of uncertainty when undertaking a building project. Unforeseen events such as inclement weather, material / labour supply shortages and builder solvency problems can cause significant delays and impact adversely on the project. A building contract should deal with all such contingencies, protect a homeowner’s rights and set out reasonable processes in the event of the unexpected.
These potential issues can be overlooked, particularly when discussing whether the benchtops should be marble or granite or the study walls grey mist or dusty dawn. An experienced lawyer will pre-empt such matters and ensure provisions are included to deal with these contingencies.
The better the understanding of each parties’ rights and obligations should the unforeseen arise, the better equipped you will be to protect your position, minimise delay and mitigate loss.
Uncovering hidden costs
A building contract should, as far as possible, include accurate costings for the entire project and be transparent regarding potential variations in pricing. Fixtures and fittings (prime cost items) should be set out in a schedule, specified by make and model (or equivalent) in a manner that avoids unexpected additional cost.
Homeowners may be unaware that, in some circumstances, the display home they visited and fell in love with may be the ‘deluxe’ design and not the standard model. Therefore, care needs to be taken to ensure that the plans and specifications are in accordance with expectations.
The contract should include clear provisions regarding variations which should be in writing and signed off by the parties. A homeowner should not be financially penalised for requesting a variation.
Construction disputes can be emotionally and financially draining. Understanding your building contract is essential to help avoid pitfalls, disappointment, and loss. While most contracts are prepared in good faith, many may fall short of meeting the requirements under building and consumer legislation and may not strike a fair balance between the homeowner and builder.
This article is intended to provide general information only. Obtaining legal advice relevant to your individual circumstances before signing your building contract will help protect your interests during and after your project.