Author: Olivia Terziovski

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Builder or Tradie struggling to get paid? Don’t want to go to court? Security of Payments offers a solution!

Due to the high levels of insolvency in construction, security of payment legislation was introduced to ensure cash flow throughout the project. In Victoria this is the Building and Construction Industry Security of Payment Act 2002 (SOP Act). Based on the philosophy of “pay now, argue later” this act aims to provide quick, inexpensive and easy means of obtaining payment due. Therefore it is important to understand how this act may apply to you, how it operates and how to make the most of it for your business.

Can I make a security of payment claim?

The SOP Act was specifically designed to ensure payment for sub-contractors therefore banning “pay-when-paid” and “pay-if-paid” clauses which denied subcontractors the right to payment until and if the head contractor was paid. The act therefore covers contractors, sub-contractors, consultants and suppliers who perform work under contracts for the supply of goods and services including:

  • Residential and non-residential building
  • Civil-engineering
  • Demolition
  • Electrical
  • Hire of plant and equipment
  • Landscaping
  • Maintenance
  • Mechanical work
  • Plumbing
  • Design, architectural and surveying services

Important exclusions to the act include contracts between builder and home owner and contracts for mining, oil and gas exploration.

What can I claim?

The Victorian Act is quite narrow in its scope exactly because the process aims to be quick and efficient. Hence only money owing under a progress payment or milestone payment is claimable. Therefore money relating to the following cannot be claimed:

  • Costs relating to latent conditions
  • Costs from changes in regulatory requirements
  • Damages arising from breach of contract
  • Costs for delay caused by the owner

Notably due to the frequency and potential size of claims arising from variations, these payments can be claimed. The nature of variations claimable is divided into two categories;

  1. Agreed variation

Parties agree that the work constitutes a variation and its value. All appropriate contract types can claim this category.

  1. Disputed variations

Parties disagree that the work constitutes a variation or the value of the variation. Only contracts less than $5 million or over $5 million but without a dispute resolution clause can claim this type of variation.

How to make a payment claim?

In order to be entitled to a payment by law, a payment claim must be served on the person liable to make the payment (the respondent). The payment claim must include:

  • The relevant construction work or related goods and services
  • Indicate the amount claimed to be due
  • State that it is made under the Victorian Act by writing:
    • This payment claim is made under the Building and Construction Industry Security of Payment Act 2002

The payment claim can be served on the relevant party by delivering it to them, lodging it during office hours or sending it by post. This claim must be made within the dates specified in the contract or 20 business days if the contract does not specify such dates. Importantly, the right to claim lapses within 3 months of the period specified in the contract.

What to expect once claim made?

The respondent must respond to your claim by providing a payment schedule within 10 business days of receiving your claim. The payment schedule identifies the relevant payment claim, the amount intended to be paid and the reasons for refusing part or all of the amount claimed. Failure to provide this payment schedule results in automatic approval of your claim. Where payment schedule is approved either directly or by default, payment will be due according to the contract date or within 10 business days from date of claim.

What if my claim is refused?

If your claim is refused in whole or in part you may apply to the authorised nominating authority (ANA) for an adjudicator to determine the amount, if any, owing. The ANA is a statutorily authorised body who nominates an adjudicator to determine this amount. The Application may be to an ANA of your choice and must be made within 10 business days from:

  • Date payment due under payment schedule where all amount claimed is approved
  • Receiving payment schedule if amount approved is less than amount claimed
  • Date payment is due under your claim where no payment schedule is provided and the progress payment is not paid.

There are strict guidelines for the conduct of adjudicators and their payment is split equally by the parties. The adjudication process is inquisitorial rather than adversarial. This means the adjudicator may only;

  • request further submission from either party to clarify their claims
  • Set deadlines for further submissions
  • Call an informal conference where legal representation is usually not allowed
  • Carry out an inspection of any matter relevant to the claim.

Their decision is based on the Act, the contract between the parties, the payment claim and payment schedule. The decision is provided within 10-15 days and is binding but does not affect the parties’ rights and obligations under the contract. This means you are still able to exercise any rights under the contract to other dispute resolution mechanisms such as mediation or litigation.

How to enforcing Adjudicator’s decision?

If the adjudicator affirms your payment claim you have the right to suspend work or the supply of goods and to exercise a lien over unfixed plant and materials. A lien is a security over that un-fixed property which prevents the respondent from fixing, removing, selling or otherwise dealing with the property. This restriction on the use of the un-fixed property will remain until the claimant receives the progress payment.

It is also possible to enforce payment by court order by filing an adjudicator’s certificate and an affidavit. The affidavit is evidence to the fact that the respondent has not paid. This latter option may be more suitable if the claimed amount is quite large as failure to pay pursuant to a court order would allow for proceedings to wind up the respondent’s company.

Is this process suitable for me?

Like all dispute resolution procedures, SOP claims come at a cost if challenged. The rough cost depends on the adjudicator selected. Generally adjudicators charge by the hour with daily cost ranging between $1,500 and $10,000 a day.  While this may sound expensive, the swift nature of adjudication reduces cost and makes it much more affordable that litigation or arbitration.

Lastly, security of payments claim is a legal process that if not understood and implemented properly can impact the working relationship between the parties. This might occur in payment claims that go outside the limits of the act (such as costs arising from latent conditions) or responses to a rejected claim that are not authorised by the Act. For this reason, it is best to consult the Victorian Building Authority who govern the application of the Act or seek legal advice, if you have any uncertainties about a security of payment claim.

For more information on this, call Boutique Lawyers for a FREE telephone or in office consultation on 1300 556 140 or alternatively visit our website at www.boutiquelawyer.com.au for more helpful tips to guide you through your build.

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6 ways to get your home built on time and on budget

There is no doubt that the great Australian dream of building your own home is a value which still exists in contemporary society.
Your own home, custom made to fit your lifestyle, equipped with everything you have ever dreamed of.

Although the final product is the dream, the process can be not so dreamy. The general building process can be very stressful, especially when you, the home owner, are forced to compromise your perfect, custom built dream home for mistakes which were completely avoidable.

Your dream home can be compromised if you are unaware of your rights as an owner. There are some important things to keep in mind as a home owner striving to move into their dream home without delay:

1. Pre Contractual negotiations with your builder:
Communication is essential in all parts of the build, including pre contractual negotiations. Some key points to keep in mind include;

Before engaging a builder:
– Look up the builder online for any reviews and obtain some recommendations from friends and family whom have already built;
-Ensure the builder you are wanting to engage is registered and has the required experience and knowledge to undertake your project within the time required; come to an agreement regarding who is to obtain certain permits, soil reports, planning permits and any other legal paperwork which may be required.
– Ensure that the plans you have are for working purposes and that all the details in the plans are detailed and that you are aware what will be included and excluded from the contract price with the builder.

Negotiation stage:
– Discuss possible disputes that may arise and ways in which they can be avoided; be on the same page as your builder and establish confidence and trust in one another.
– Take notes of key dates, completion, any anticipated delays and costs
– Have your builder acknowledge everything that was discussed and draft a rough pre contractual agreement and have it signed by yourself and the builder after checking its content with a building and construction lawyer to ensure that all that is contained therein complies with the relevant laws and that you are not signing away any of your rights.
– As the homeowner, the builder must provide you with a request for an extension of time to the completion date to avoid you charging liquidated damages for the delay in completion.

Keep in mind that some delays may actually be reasonable if caused by bad weather or important holidays like Christmas and others you may choose not to agree to.

Make sure you have noted liquidated damages that actually cover your rental per week and that are on the higher end to motivate the builder to finish your build on time

2. Recording, approving and signing off on any variations- but avoiding variations where possible:
It can be very difficult, even near impossible to pre determine the cost of every single item which will be used to create your dream home. Alternatively, you may change your mind and want different materials. Perhaps you want lighter coloured tiles, or the installation of a fire place. Despite that the contract has been drafted and signed, it is not too late to make changes, however variations will almost always cause a delay as there may be need for the amendment of plans or a wait for the ordering and delivery of the materials.

Variations to the contract are possible. Both home owner and builder can propose variations, but they MUST be approved by the owner and builder in writing and MOST IMPORTANTLY signed by both parties as evidence that the variation and costs associated with the variation have been approved. The variation then becomes a part of the main contract. We would advise that you avoid any variations where possible and make all your selections prior to obtaining your Building Contract since variations can considerably increase your contract price and this may not have been what you had budgeted for.

Whilst making variations to the contract is not out of the question and can definitely be done, they are likely to cause delays for a plethora of reasons. Try to make all selections at the required time to avoid any unnecessary delay, so that you can get into your new home faster.

3. Potential Defects and how to avoid them:

Defects are not uncommon and their repair can be very time consuming. Defects can be structural, such as a cracked slab or collapsing wall. Not all defects are visible, with some in areas not ever accessed by you, such as the roof. Defects can also be non-structural, such as the painting of the house.

A great way to avoid defective items in the first place is to engage a building consultant to carefully review each stage of the build. A building expert will assess the builder’s work and point out any items which require rectification so that they can be done ASAP.

4. Commencement and completion dates as per your contract:

Your building contract will outline specific dates for the commencement and completion of each stage, all up until the final stage of the build. This is not an estimate but a strict guideline which the builder must adhere to.

In a Master Builders Residential Building Contract the builder is usually required to commence works within ten days of the owner providing:

  • All information, evidence and consents required to be given by the owner
  • Satisfactory evidence of their capacity to pay the contract price
  • All necessary building and/or planning approvals required
  • Notice to the contractor from the lending body that works may commence (if a financial institution is providing loan money)

A signed copy of the Engineer Specification and confirmation, if required under the contract.

It is important to provide these documents on time so as not to cause any delays.

5. Potential extension of time claims:

Some delays cannot be avoided, however those who can should be avoided at all costs. Events which may be reason for an extension of time claim include:
– Variations (to allow time for amendment of plans, delivery of materials etc.. where necessary)

  • Adverse weather events or “acts of god”
  • Council works, such as road works which may prevent vehicles from entering your property
  • Failure to provide necessary information
  • Sub-contractors causing delay and not allowing the builder to do their job
  • Possession issues
  • Changes in statutory requirements

If you are unsure of whether or not your builder’s request for an extension of time is legitimate, consulting an experienced legal practitioner is your safest bet.

6. Liquidated Damages Clause:

Liquidated damages are a form of compensation for late performance of a particular good or service. In the event of unjustified delays, the liquidated damages clauses in your contract will entitle you to a cash payment from your builder, compensating for the lost time.

Liquidated damages are a fixed sum that accrues to the “injured party” as a means of compensation following a breach of a contract. Most commonly they occur as a result of late performance, such as the builder causing unreasonable delays. Liquidated damages can also be used for other breaches.

When dealing with liquidated damages clauses, it is important you consider whether the damages are a genuine, pre-agreed estimate (liquidated damages)?

– Genuine: the amount is reflective of the loss that would be suffered as a result of the breach.

  • Estimate: this estimate is to be calculated at the time of contracting – thus, if no damage actually occurs following a breach, liquidated damages are still payable.

 If you are unsure about any of the information outlined in this text, it is highly advised that you contact an experienced legal practitioner for advice specific to your situation.

For more information on this, call Boutique Lawyers for a FREE telephone or in office consultation on 1300 556 140 or alternatively visit our website at www.boutiquelawyer.com.au for more helpful tips to guide you through your build.

 

7 things you need to know before you become an owner-builder

As an owner builder, you will take on the legal responsibilities and compliance requirements that are associated with a registered building practitioner. Therefore, before you become an owner-builder, it is important that you are aware of the standard, quality of work and obligations attributed to your role.

1. Who is an Owner Builder?

Now as an owner-builder, you have to own or co-own the land with the intention to live in that beautiful new space. Which means that any works carried out on your property should really only be for your personal enjoyment in your own home not for investment purposes.

As it’s simply for your leisure, you will have more involvement in the construction, alterations or repairs conducted and be in complete control of the renovations in your home to have it exactly the way you want it to be, within the legal requirements of course!

Before you register as an owner builder, you should prepare documents which proves that you are the home-owner such as Certificate of Title/Register Search Statement. You may obtain one online at www.land.vic.gov.au.

2. Certificate of Consent

But wait! Before you start construction, there are a number of permits you need to obtain. You’ll need to apply for a certificate of consent from the Building Practitioners’ Board if your proposed building works valuation exceeds $16,000. This valuation of your building works should include all labour, materials and GST.

This permit is not necessary if you are already a domestic builder.

3. Building surveyor and building permit

You must also obtain a building permit in order to start works on your property. It is wise that you first make plans to consult a building surveyor.

The Surveyor can help you determine a correct description of your works and their costs when applying for a Certificate of Consent. A certificate of consent is NOT a guarantee that you will be issued a building permit. The surveyor will check relevant plans and specifications that the building work complies with the requirements of the Building Act and the Building Regulations.

You may appoint a building surveyor by engaging an agent to nominate one on your behalf, apply for your own private building surveyor or simply engage the one from your local council. Only one Building Surveyor may be appointed over a building project. If you decided to use a private independent surveyor, he/she will take over from the municipal building surveyor once a building permit is successfully issued.

In some cases, the appointment of a private building surveyor may be terminated with consent from the VBA.

After a building permit is issued, building works may finally begin!

4. Sub-contracting your building works

Being an owner-builder does not necessarily mean that you have to carry out all building works yourself. In most cases, unless you are a skilled tradesperson or carrying out very minor works, you will not have the skills and expertise to carry out the actual construction of your dwelling. You may engage a building practitioner to take over building on your property and he/she will be responsible for that part of the building works under the contract.

For building works over $5,000 you should ensure that the person(s) you engage are a Registered Building Practitioner AND that they provide you with a domestic building contract. The written contract is necessary to set out the scope of the builder’s work so that both parties know what to expect and minimises future disputes.

For building works over $16,000 the Registered Building Practitioner you engage must enter into a contract with you AND take out domestic building insurance.

Be aware that an unregistered building practitioner will not be able to take out a domestic building insurance and you will not be able to obtain insurance cover. It is important that you obtain the right details of your proposed building practitioner so you may conduct a search on the VBA website.

Notwithstanding contracted works, as an owner-builder, you are still liable for your legal responsibilities under the Building Regulations. Make sure you are aware of these and able to oversee building works.

5. Domestic-building insurance

If you have seen the terms Domestic building insurance, builder’s warranty insurance and home warranty insurance, don’t worry! They are all one and the same merely with different names.

The insurance is a coverage over the builder’s work on your property benefitting you. Currently, VMIA is the only insurer available in Victoria and covers work up to $300,000 for structural defects up to six years and non-structural defects up to two years.

If you have sub-contracted a builder, ensure that the builder provides you with a certificate of insurance as proof that domestic building insurance has been issued for your named property.

Be aware that an insurance claim may be made only where the builder has died, is insolvent or has disappeared.

The insurance extends to a subsequent purchaser of your property if you sell on your house within six and a half years of the completion of building work

6. Occupancy Permit

The last thing you need before you lay your sheets for a first night’s rest at your newly constructed dwelling is a final assurance that it passes health and safety requirements.

In most cases, a building permit will contain a condition that an occupancy permit has to be issued before a building may be occupied. These are issued by the building surveyor when your building is considered suitable for use and occupation. It is an offence to move into your home prior to this consent.

Not to rush every little detail – An occupancy permit may be issued notwithstanding incomplete minor works such as paint jobs or incomplete fittings. However, rest assured that this does not by any means release the builder’s liability in completing the works in accordance with its relevant standards. The builder is still responsible for works under their contract.

7. Advantages of being an owner-builder

With all these numerous hoops and loops to jump through, you may wonder why anyone would take on the responsibility of becoming an owner-builder.

The fact remains that home-owner building has become increasingly popular because of the amount of say that one has over the design and aesthetic of one’s own dwelling. Being in charge of your own building works also gives you control over budgeting and makes your project cost efficient according to your preferred materials and standards. Combining the two, allows for your own time management according to the rate at which you find your home inspiration.

You can finally have in reality that dream home you’ve always wanted and nobody have a better idea of how it is meant to turn out than yourself!

For further information contact Boutique Lawyers on 1300 556 140 for a free 30 minute consult or via our website at www.boutiquelawyer.com.au.

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5 things you need to know before you buy a house off the plan

Buying off the plan involves entering into a contract to purchase a property before construction is complete or has even begun. It can seem like an attractive measure by locking in a price and saving money on stamp duty. However in many cases, purchasers are left disappointed as the finished property does not resemble the one they purchased as it may be smaller, with different finishes and have defects. The end result is that the price you paid may not reflect the finished product, especially as often 10-15% of it is calculated for marketing expenses in order to get the project off the plan. Hence, it is wise to understand these 5 things before purchasing off the plan.

1. Rights to withdraw from contract

Cooling Off Period

It goes without saying that entering into a contract of sale to purchase a property is legally binding. Nonetheless purchasers in private sales have a three day grace period in Victoria to withdraw from the contract and receive a return of all money paid except $100 or 0.2% of the purchase price whichever is the greatest. However, this may be a small relief for off the plan purchasers as any risks to your investment are unlikely to eventuate in such a short period.

Sunset Clauses

Sunset clauses, a date by which if the property is not finished, both the developer and the purchaser can withdraw from the contract and receive a return of the deposit, however, sunset clauses can too often benefit only the developer if it is of such a prolonged period as to deny the purchaser from withdrawing in the event of lengthy delays. Furthermore, recent reports shown sunset clauses may be used by a developer to deliberately withdraw from the contract and then re-sell the property at a higher price causing the purchaser to have to purchase the property at a higher rate should they want to buy again.

It is wise to do your research and understand that the average sunset clause is 18 months but this may change depending on the stage of the development at the time that you entered into the contract. Further it may be practical to incorporate into the clause an option to proceed with the purchase for the original price agreed if the delays are small and the market is still good.

2. Inclusions and warranties

Without a completed dwelling it is hard to know exactly what is included in the sale price such as fixtures and warranties. To understand what warranties are included, you should request further plans where appropriate, always ensure that the project has development and construction certificate approval and that the builder and developer have taken out all relevant levels of insurance.

Unfortunately, when purchasing an apartment in a building more than three stories, home warranty insurance is not included. As yet, there is no perfect solution so be sure to add in additional provisions into your contract prior to executing it so that it includes the right to withdraw should the building contain any major defects or otherwise. Even though this right is available to you via common law, it is always easier to deal with these issues if they have been accounted for in your Contract of Sale.

Furthermore, it is common for sale contracts to permit the developer to change the plans so long as the changes are of equal quality. It is important to discuss in detail exactly the tolerance percentage allowable for changes especially changes such as unit size. Developers typically want a 5% tolerance for variation but this may mean the loss of a laundry or linen cupboard so it is important to agree only to variances you could accept losing.

3. Check viability of property developer/builder

Research into the project and its constituents: builders, architects and the developer is the best way to protect yourself from disappointment. Firstly, check the developer’s website and learn of other projects completed by them. Investigate these properties and learn of any reviews on them to understand how well the developer builds and can produce satisfied clients. Call a lawyer who deals with Building Disputes and ask them about the reputation of the builder.

Secondly, it is vital that you check the builder engaged and insure that they are licensed and haven’t had any proceedings brought against them for defective or delayed work.

Thirdly, it may be wise to investigate prior work done by the architect to understand whether their design techniques are suitable for what you are looking for in the property.

4. Financing the purchase

Financing an off the plan purchase may be difficult due to lenders being reluctant to invest their money in a non-existing product as the property may be sold for more than it is worth. For this reason it is important to understand the purchase price. In order to ensure that the price is reasonable it is wise to research into the price of similar properties in the area and to look at the assets of the property in comparison to others in the area; view, noise, car space, accessibility, location and much more. Most importantly, remember that while assets depreciate in value over time, land increases in value so it is important to try to obtain an adequate land to asset ratio in order to ensure some financial security if you must re-sell. Doing this research may also help convince lenders that the property is a safe investment.

5. Make condition/inspection of property a condition for settlement

If you have done all your research and are satisfied that you are sufficiently protected and have a good interest in the property then the last step is ensuring that the final product makes all the hard work researching worth the trouble. This can be done by ensuring that in the contract for sale a condition to settlement is an inspection of the property be undertaken. It is advisable that you have an expert inspect the property and produce a report prior to settling so that you understand and have proof of the value of the property.

For any further information call Boutique Lawyers on 1300 556 140 for your free 30 minute consult with our experience property, building and planning lawyers or contact us via our website at www.boutiquelawyer.com.au.

5 things you need to know about protection works – Your rights and responsibilities.

Many of us have heard about or come across “protection work notices”, but what are they, and how can they halt your build or development?

It is very important to understand the concept and potential impact of protection work notices, even if you were lucky enough not having to deal with one in your previous build or development.

Protection work notices have the potential to significantly delay your build and increase your costs. You could end up incurring greater cost which you didn’t budget for, which for developers, could mean it digs into your profit, or in some cases, being sued.

It is crucial to consider all protection work notices, and the costs involved, before you even draft up your plans.

Here are 5 of the key points you need to know about protection work notices:

1. Protection Works – what are they?

The distinction between protection work and building work is very fine, and can often be confused. They are two separate concepts, however are not mutually exclusive. Protection work forms part of the building work.

Specifically, protections works are a bundle of works, which must be carried out in order to protect adjoining properties from damage.

Types of works may include:

  • Retaining walls where works have been carried out
  • Underpinning of an adjoining property’s footings and barriers to prevent items, building materials and anything else from falling upon the adjoining property
  • Lateral and vertical support
  • Protection against variation in earth pressures
  • Ground anchors
  • Overhead protection for the adjoining property
  • Any works designed to maintain stability or protect it from damage as a result of the building works

2. Circumstances in which protection works are required:

If protection works are applicable to your development, it is essential to be across your obligations to comply with protection works notices and any potential liabilities which may arise.

As the developer, you have an obligation pursuant to the Building Act 1993 (Vic), to protect adjoining property from potential damage which is likely to arise as a direct result of your building works. Think of it as a principle of reciprocity and respect for others property, you are free to build whatever you want as long as you are respectful and careful not to damage others’ property. Non-compliance with protection works can have disastrous consequences, like parts of the adjoining properties collapsing, which could lead to serious injury or even death.

Your building surveyor should assess whether protection works are necessary after you have applied for a building permit.

3. Avoiding protections works:

If you are adamant and want to avoid performing protection works, it would be best to purchase land that does not require any site cuts which would later on require retaining walls, particularly along the boundaries of the land.

It is advisable to hire a building surveyor who can advise you on things alike. The best time to do this would be after you have drafted plans so that you and your surveyor may consider how the planned development would affect any neighbouring property and the owners and if there are ways you can minimise or obfuscate complying with protection works.

There are other ways in which you can avoid having to comply with a protection works notice, particularly if you avoid intruding into, over or under the adjoining owner’s airspace. If this is the case then you must have the works certified as compliant with the Building Act 1993 (Vic) by your engineer and by an independent engineer and then your relevant building surveyor must be satisfied that the works will not damage or adversely affect the adjoining property.

4. Disputes & Insurance

Disputes may arise when adjoining property owners disagree with protection works orders. Disputes may also arise where damage has occurred to their property but the relevant building surveyor issued no protection works notices. The surveyor’s decision to issue or not to issue a protection works notice can be challenged and the dispute can be referred to the Building Appeals Board (BAB) in attempt to find a resolution to the problem.

A decision made at BAB can be appealed at the Supreme Court, but this will no doubt be very costly and result in major delays and expenses. If you are a smaller developer, these costs are incomprehensible compared to the total cost of your project and the anticipated profit.

Insurance
If you intend to undertake Protection Works, you must ensure, upon the consent or approval of the same, that you comply with the Act and you obtain Protection Works Insurance. You cannot legally proceed with your project until you have received your Protection Works Insurance. Protection Works Insurance must provide for the following cover;
a. Damage to the adjoining property; and
b. Agreed to by all parties; and
c. All works for a period of 12 months after its completion; and
d. If there is a dispute, the Building Appeals Board will determine the matter; and
e. Ensure all instances regarding potential loss and damages is listed in the policy.

Protection Works Insurance is highly specialised and this must be organised as soon as possible so as to not delay your project. The Protection Works Insurance must provide for cover of all liabilities during and 12 months after the work has been completed for the Adjoining Owner and it should note values of the Adjoining Properties such as any damage that may result directly or indirectly for the Protection Works. . You must take out this insurance, this is not the responsibility of your Builder.

5. Serving protection works notice on the surveyor and adjoining owner:

If it is decided the protection works must be carried out, you are required to serve your protection works notice on the relevant building surveyor and the adjoining owner. By doing this, you are seeking consent and advising them of the works that you propose to undertake.

The adjoining owner then has 14 days to respond to your notice and must respond within this timeframe. If they do not respond, yo can assume that they have consented to the protection works (not to be confused with the building works). You may then proceed with your works and the adjoining owner forfeits their right to dispute the notice.

If the adjoining owner does respond within the 14 day period, disputing the works, then it will be referred to the relevant building surveyor who must then consider the works and make a determination.

You must not start any works without the consent of the adjoining owner, or you risk paying hefty penalties and potential legal action.

It is required that the adjoining owner obtain a dilapidation report prior to the commencement of the protection works as well as a surveyor/inspection of their home. This will be at your cost.

Once consent is received to proceed with the protection works, you gain the right to enter the adjoining owners land to conduct your works. The adjoining owners, by consenting to the works, extinguish their right to prohibit you from entering their land, but for this purpose only. You are not licensed to enter their land for any other purpose.

If you would like more information about Protection Works feel free to contact Boutique Lawyers on 1300 556 140 or via our website www.boutiquelawyer.com.au for your free 30 minute consult.

7 things builders could do to avoid a Domestic Building Dispute

This article applies to Domestic Building Contracts in Victoria.

Put all variations in writing

1. If a Builder wants to get paid for a variation to the Domestic Building Contract they should always make sure that the
variation is put in writing to the Owner and is signed off by the Owner.

a. The only way to protect yourself from a dispute or in a dispute is by documenting everything in writing.

As a general guide:

i. The Owner must give notice of any of the variations and if that variation does not require an amendment to any permit, or if that variation doesn’t delay the works or increase the contract price more than 2% then the Builder must perform that variation.

ii. If the variation increases the contract price, then the Builder must provide a written notice of any variation to the Domestic Building Contract and the Builder must set out the details regarding the amendment to the Contract Price and the effect that the variation has on the timetable for completion of the works. If the Builder refuses to perform the variation then the Builder must advise the Owner why the variation cannot be performed.

iii. All variations must be approved by the Owner.

b. If the Variation is not in writing then the Builder cannot claim for that variation

c. Only is exceptional circumstances or where it can be proven that it would not be unfair for the Owner to pay the Builder for the variation, then the Owner need not pay for that variation.

d. If the Owner doesn’t want to pay for the Variation, what then?

i.  Always get the variations approved for by the Owner in writing prior to commencing with the variation works. Owners would usually argue that the variation was included in the Domestic Building Contract and that it was in fact not a variation, that the builder did the works without their knowledge therefore they are not required to pay for the works as a result of the Builder’s mistake, or that the variation was required as a result of the Builder’s defective works.

ii. If the variations are noted in writing and approved in writing by the Owner and the Builder, then the Builder can increase the costs and time allowed in the Domestic Building Contract without a dispute. Disputes usually occur when variations are not documented.

2. Don’t ask the Owner for payment in advance, it’s illegal.

a. The Builder can only demand payment for a certain percentage of the Contract Price and in accordance with the schedule set out in the Domestic Building Contracts Act 1995 (Vic) (“the Act”) or otherwise in accordance with the progress of the building works. It is illegal to demand payment otherwise.

i. In some Domestic Building Contracts, the Owner and Builder can agree to use a different method and amend the percentages applicable to each stage of the works, in other words the Owner and Builder can contract out of the requirements of the Act if they elect, however the Owner must acknowledge that they are signing away their right regarding the use of the usual method. The Builder can only make a claim for payment once that stage is complete and in the sum stipulated in the Domestic Building Contract (save for variations that are additional).

ii. There are definitions that describe when a Base Stage, Frame Stage, Lock-Up Stage, Fixing Stage and Completion are in fact reached and completed.

3. Provide the owner with Extension of Time Requests – Protection from Liquidated Damages claims

a. One of the most complained about issues concerning domestic building works is delay to completion. The Owner will be able to claim liquidated damages (if allowed for in the Domestic Building Contract) and in most cases the Owner can withhold the sum in the amount of the liquidated damage claim from the final payment ( or the next stage payment). Builders can reduce the Owners right to claim for delays if:

i. The delay was caused for reasons out of the control of the Builder such as weather, suspension of works, lack of supply, anything not done on time by the Owner, etc and;

ii. The Owner caused the delay as a result of a variation, not providing specifications on time etc

b. The Builder should always provide the Owner with written notice to claim Time Extensions stating the cause of the delay and the time for delay.

c. If the Owner doesn’t respond to the Builders request for an Extension of Time then the extension is assumed to be provided by the Owner, otherwise the Owner may dispute the request in writing by providing reasons. Even if the Owner rejects the request for an extension of time, the Builder may still be provided with a reasonable extension.

Damages for Delay may still be claimed at the next progress payment stage claim by the Owner.


4. Don’t serve a Notice of Suspension of Works without legal advice

a. A Builder should never serve a Notice of Suspension of Works unless they have obtained legal advice from a Building Lawyer first. If a Notice of Suspension of Works is served incorrectly, damages may be claimed by the Owner against the Builder. There are only a few reasons why a Builder should serve a Notice of Suspension of Works, such as:

i.  The Owner has failed to pay for a progress payment (and the Owner doesn’t have a claim for incomplete works or defective works);

ii.  The Owner has breached or repudiated the Domestic Building Contract, either by failing to pay for a stage, failing to show capacity to pay the Contract Price, failure to evidence ownership of the land, directing subcontractors, interfering with works, taking possession prior to completion, etc;

b. The Builder should always serve a Notice of Suspension by registered post and should always confirm that the Owner has received the Notice. The Builder can also claim an Extension of Time for the period relevant to the Suspension of Works.

5. Do not serve a Notice of Termination without legal advice

a. A Builder may only terminate a Domestic Building Contract where the Owner is in substantial breach of the Domestic Building Contract. The Builder should always consult a lawyer experienced in Domestic Building Contracts before they serve such Notice or Notice of Intention to Terminate the Contract as required prior to the service of such Notice Termination of Contract.

b. The Builder cannot terminate the Domestic Building Contract if the Builder is already in breach of the Domestic Building Contract. Firstly a Notice of Intention to Terminate the Contract must be served on the Owner providing the Owner usually 10 to 14 days to rectify the default (or such reasonable time) and thereafter if the Owner fails to comply with the Notice of Intention to Terminate the Contract, the Builder can elect to Terminate the Contract by serving a Notice of Termination of Contract on the Owner.

c. If a Notice is served incorrectly, you may be sued for damages. It is important that you seek legal advice prior to contemplating service of such notices.

6. Make sure the works are complete before making a claim for completion

a. Completion of the Building Works is satisfied when the works are completed in accordance with the Plans and Specifications as referred to in the Domestic Building Contract.

b. In accordance with the Act, the Builder must provide the Owner with Notice of Completion and a claim for payment once the Builder is satisfied that the Works have been completed. Usually an on-site meeting will occur with the Owner and where an inspection is undertaken by the Owner and defects or incomplete items are noted by the Owner. The Builder then must attend to those items to reach Completion. A final claim payment can then be requested by the Builder.

c. The Builder must provide the Owner with an Occupancy Permit (Certificate of Final Inspection usually in the case of renovations) in order to be able to claim Final Stage payment.

7. Don’t allow the Owner to take possession until completion

a. Once the final payment is received, the Builder must provide possession of the land to the Owner together with any documentation, such as warranties, certificates of compliances etc. If the Owner takes possession prior to providing payment of the Final Stage to the Builder, then the Builder may;

i.  Assume that the Owner has repudiated the Domestic Building Contract; or

ii.  Provide the Owner with a Notice of Intention to Terminate the Contract; or

iii. Deem the Owners actions as a variation to the Contract to vary the scope of works in the Domestic Building Contract to remove works that have not been completed as of the date that the Owner took possession.

Common disputes against Builders in Domestic Building Contracts within Victoria:

b. Most disputes arise for the following reasons;

i.  Claim for liquidated damages;

ii.  Defects;

iii. Incomplete Works;

iv.  Variations

c. If the Builder kept a good record of all that has occurred and has had everything signed off in writing with a paper trail then a dispute can usually be settled, however if all fails then the Owner may elect to take the Builder to the Victorian Civil and Administrative Tribunal (“VCAT”) where VCAT would usually set the matter down for Mediation ( or Compulsory Conference). The Builder will have a great argument and better negotiation power or otherwise a better chance to settle the matter if all has been documented.

Other tips to avoid disputes:

a. The Builder and Owner should organize weekly or fortnightly inspections; and

b. There should be open lines of communication and the terms of the contract, scope of works and any variations should be discussed and signed off on prior to commencing with those works; and

c. Try to avoid Prime Cost Items and Provisional Sum Items unless they cannot be avoided, then the Builder should exercise reasonable care when calculating such figures; and

d. A start date should be noted in the Domestic Building Contract;

In order to protect yourself and avoid disputes, whether you are an Owner or a Builder or
Owner-Builder or Developer, you should always see legal advice prior to signing a Domestic Building Contract.

Boutique Melbourne Lawyers are happy to provide you with a free 30 minute consult, call  1300 556 140 or visit our website for more information at www.boutiquelawyer.com.au

Support the small guys, please nominate us for Boutique Law Firm of  the Year!

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Australian Boutique Firm of the Year.

Why should Boutique Lawyers win this category?

Boutique Lawyers is a firm that believes in the power of people and like people, every case is different. As such we have developed a methodology that allows us to combine the readiness of being proactive with the flair of being efficiently reactive. Boutique Lawyers specialty is currently centered around our focus on Construction Law and we pride ourselves on the ability to understand, strategise and deliver on results.

Boutique Lawyers caters to myriad people involved in the construction industry and as such we are able to provide the advice and direction required regardless of whether you are a homeowner, a builder, owners corporation, owner builder or a property developer. Our clients come in all shapes and sizes and because of this diversity we have made it our mission to not just be your day-to-day law firm. We have aspirations of growth and take what we do seriously but also understand that innovation is a necessity in what we do.

Boutique Lawyers is able to handle building disputes, litigation regarding contractual disputes, property and conveyancing, insurance claims and debt recovery but ultimately our ideology revolves around being ruthlessly efficient and resolve issues before they manifest.

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Support the small guys, please nominate us for Boutique Law Firm of  the Year!

Screen Shot 2016-02-17 at 12.22.38 am

Australian Boutique Firm of the Year.

Why should Boutique Lawyers win this category?

Boutique Lawyers is a firm that believes in the power of people and like people, every case is different. As such we have developed a methodology that allows us to combine the readiness of being proactive with the flair of being efficiently reactive. Boutique Lawyers specialty is currently centered around our focus on Construction Law and we pride ourselves on the ability to understand, strategise and deliver on results.

Boutique Lawyers caters to myriad people involved in the construction industry and as such we are able to provide the advice and direction required regardless of whether you are a homeowner, a builder, owners corporation, owner builder or a property developer. Our clients come in all shapes and sizes and because of this diversity we have made it our mission to not just be your day-to-day law firm. We have aspirations of growth and take what we do seriously but also understand that innovation is a necessity in what we do.

Boutique Lawyers is able to handle building disputes, litigation regarding contractual disputes, property and conveyancing, insurance claims and debt recovery but ultimately our ideology revolves around being ruthlessly efficient and resolve issues before they manifest.

http://www.auslawawards.com.au/index.php/nominate-now

Continue Reading

Avoiding Disputes – The Essential Guide for Builders in Victoria

(Domestic Building Contracts within the jurisdiction of Victoria)

Undergoing a major project like domestic building works in the form of building a house, renovating, repairing etc… can be highly stressful for both Builder and client, causing disputes to arise. There are simple steps to take which may significantly minimise the chances of you encountering conflict when undergoing domestic building works. They are as follows;

1. Recording any variations:
Putting variations in writing is crucial and essential. If they are not written down, they do not compromise terms of the contract, which can mean the builder does not get paid for them. Ensure that you put them in writing, confirm them with the owner and get them signed by the owner, to indicate that the variations are now a term of the contract, approved by both contracting parties. Recording any changes is always a good practice, and one of the only ways to ensure your security in case of dispute.

Some rules to keep in mind include:

  • In the case of any variations, the owner must inform the builder. If the variation in question is reasonable within its context, does not require alteration of permits, does not delay works and does raise the cost of the contract more than 2%, then the builder is obligated to carry out the variation in question.
  • In the case of the variation increasing the cost of the contract more than 2%, it is required the builder record this variation, and add it to the Domestic Building Contract, explaining all details in relation to the variation and the its impact on the cost of the contract and the scheduled date of completion as per the express terms of the contract.
  • If the builder refuses to conduct a variation due to the cost being too high or for any other reason, they MUST advise the owner and explain why this cannot be reasonably done. This is a good practice as the builder and owner can negotiate an alternative arrangement and avoid future dispute.
  • Any variation to the contract must first be approved by the owner.

 

Builders should keep in mind that not recording variations (written proof) means that they cannot then claim for that specific variation. The owner need not pay for the variation in certain circumstances (perhaps if the variation was a result of the builder’s negligence). This is only in exceptional circumstances, and the owner is required to prove this.

In some circumstances, the owner may be reluctant to pay for the variation, resulting in arguments and disputing. To avoid this, it is essential that variations get approved by the owner in writing. If approved, it is unlikely they will be hesitant to pay. This must be done prior to commencement of any works, so that if the owner does not approve, the work won’t be carried out. Documenting ALL variations is of the utmost importance when avoiding disputes. If properly documented and approved by the Owner, the Builder is then enabled to increase the costs reasonably and the timeframe stated in the contract. This can be done properly and honestly.

Owners are likely to debate:

  • That the said variation was a term of contract, not a variation.
  • The work was carried out without their knowledge, hence they are not liable, as it was the builder’s mistake.
  • The variation was only necessary because of defects caused by the Builder’s negligence.

 

2. Advanced Payments are illegal.

It is important to remember that asking the owner for payments in advance is an illegal practice and can land you, the Builder, in serious trouble.

Apart from a deposit, advanced payments are not permitted by law. Builders are only permitted to ask for payment of a certain percentage of the overall contract price.

The schedule within the Domestic Building Contracts Act 1995 (VIC) should be consulted when deciphering what the appropriate percentage is.

Payment can also be in accordance with the progress of the building works.

Based on the Contract in question, it is possible for both owner and builder to agree to use different methods to decide what percentage is applicable to each stage of work as they go. This means it is possible for both parties to contract out of the requirements of the abovementioned act. It must be acknowledged by the owner that this is what is occurring, and they are signing away their right as per the usual method.

Builders are only permitted to claim for payment once the particular stage is complete. They may only claim for the sum stipulated in the Domestic Building Contract, save for variations that may incur additional costs.

There may be confusion about when a stage is actually complete. Some stages include:
– base stage
– lock-up stage
– fixing stage
– completion

3. What happens when you need more time: 

Delay to completion is one of the most significant issue causing disputes amongst owners and builders. When more time is required, you must provide the owner with Extension of Time Requests, in written form, so this can later be used as proof/ security for the Builder. This will protect you from liquidated damages which the owner will be able to claim if they do not receive adequate notification (only if allowed as per Domestic Building Contract). The possibility of the owner withholding that sum from the final payment, or next stage of payment, is very likely.

Builders are granted the power to reduce the owners right to claim for delays if:
– The reason for delay was not within the builder’s control, e.g. weather, suspension of works, lack of materials/ supply, delays stemming from the owner.
– the delay was caused by the owner not doing something on time, such as, result of variation, not providing specifications on time etc…

In the case of the owner not responding to a request for an extension of time, it will be assumed the owner has been provided with it, and is aware. The owner may respond to the request, and dispute it in writing. They must provide reasons as to why they want to reject the request.

If the owner rejects the extension of time request, and a dispute arises, the builder may still be granted a reasonable extension of time for completion of the domestic building works.

Alternatively, damages for delay may be claimed at the next progress payment stage by the owner, if the delays caused were unreasonable.

4. Seeking legal advice before serving notices (Notice of Suspension of Works and Notice of Termination):

NOTICE OF SUSPENSION OF WORKS:
Builders must tread carefully when it comes to serving a notice of suspension of works. Seeking legal advice before doing so is of the utmost importance, as a notice served incorrectly could result in grave consequences, such as damages being claimed by the owner.

This notice should only be served in particular circumstances. Some reasons that are considered adequate for the use of this notice include:
– Owner does not pay progress payment
– Owner does not have claim for incomplete/ defective works yet does not make a progress payment
– Owner breaches/ repudiates the contract by not paying, failing to indicate the ability to pay, no evidence of ownership of land, interfering with the works being completed, bringing in sub contractors, taking possession before completion of the works.

If required, this notice should be served correctly. It is also possible for a builder to claim an extension of time for the period of time that the works will be suspended.

The correct way to serve a Notice of Suspension of Works:
– Via registered post
– Have confirmation that the owner has received the notice

NOTICE OF TERMINATION:
A notice of termination is only intended to be served in extreme circumstances. A builder may only terminate a contract where a substantial breach of contract has occurred. It is highly recommended that a builder consult a legal professional before the decision to terminate a Domestic Building Contract, as this process can be very stressful and tedious, and result in harsh consequences if not done correctly.

If a builder intends to terminate a Domestic building contract because of the owner’s breach, it must be ensured that the builder didn’t also breach the contract. It is important to follow the correct process of serving this notice to avoid the owner suing for damages. It is recommended highly that legal advice be sought. The correct process of serving this notice involves:
– serving a notice of Intention to terminate on the owner, and providing them with a brief period of time (usually 10-14 days) to amend their breach.
– if the owners does not comply with the notice, the builder may effectively terminate the contract by providing a Notice of Termination of Contract to the owner, in writing.

5. Ensuring absolute completion of works, before claiming for completion stage:

When the building work carried out matches the plans and specifications referred to in the Domestic Building Contract, the building works are then likely to be satisfied and completed. In accordance with the aforementioned act, it is essential the builder provide the owner with a Notice of Completion of works, claiming for final payment, but only once everything has been completed and the builder and owner are satisfied with the works completed.

It is common practice for a meeting to occur between the contracting parties, often on site, where the owner will inspect the works completed by the builder. If any works are incomplete, or defects are found, it is the builder’s duty to address each and every one of these, or else the works are not completed, and it is illegal for the builder to claim the final payment. Builders should note that they must provide owners with an occupancy permit/ certificate of final inspection before they are allowed to claim final stage payment. Only when EVERYTHING is completed can a builder request a final claim payment.

6. The Owner cannot take possession until after completion:

When all building works have concluded, and the builder has received the final payment, he must then provide possession of the land to the owner. This must be accompanied by any available documentation including warranties, certificates of compliances, and more.

In the case of the owner taking possession of the land prior to the completion of the final stage and prior to final payment, the builder is entitled to a number of things. These include;
– The builder may assume the owner has repudiated the Contract
– In the case of wanting to terminate the contract, the builder, in this situation is permitted to provide a Notice of Intention to Terminate
– Consider the actions of the owner as a variation to the contract, varying the scope of works listed within the contract, and hence remove works that have not been finished as of the date of the owner taking possession.

7. Common disputes arising amongst builders and owners:

The most common reasons for disputes arising is due to confusion and ambiguity in terms of claims for liquidated damages, defects, incomplete works and variations.

Keeping records of everything, and ensuring they are signed by the owner is the best way builders can protect themselves, and may perhaps be enough to resolve the dispute. If the disputing persists, many options are available, including taking the Builder or owner to Victorian Civil and Administrative Tribunal (VCAT).

VCAT usually will set the matter down for a mediation/ compulsory conference. Here both parties will attempt to negotiate to settle the matter. Evidence of any transactions, variations and more, will greatly assist in the mediation process.

Avoiding disputes is simple, when you follow the below tips;
1. Communicate as much as possible with the builder/ owner- organising a weekly or fortnightly meeting to ensure you are both on the same page can be very useful.
2. In the meetings, discuss the scope of works as per the contract, and any variations. When you both agree to the variations, sign off on it PRIOR to commencing the works in question.
3. Ensure that you note start and end dates within the Domestic Building Contract
4. Where possible, avoid prime cost items and provisional sum items. If unavoidable, the builder must ensure that these costs are calculated with reasonable care.

There is no doubt that the best way to protect yourself from dispute, whether you are a builder or owner, is seeking legal advice prior to signing a Domestic Building contract. Call Boutique Lawyers on 1300 556 140, or visit our website www.boutiquelawyer.com.au.

Cost Plus Domestic Building Contracts

Facts you should be aware of before entering into this agreement

(within jurisdiction of Victoria)

Usually, people may opt for a cost plus contract if the sum owed to the builder, as per the terms of the contract, is undeterminable when the agreement is made. This type of contract enables new home owners to have flexibility when building a new property, with promissory overall payment to the builder. Often, it has hard to assume a certain sum owed to the builder, even if prime costs and provisional sums are ignored. This is because, you, the home owner, wants the perfect property, and cannot at once decide all materials that will be used in the house.

However, these contracts can be very dangerous. In a perfect world, a cost plus contract seems ideal with the amount of flexibility, and leeway to elect and dispose of different materials for the house. In reality, there is a great amount of uncertainty associated with the cost plus contract, because of uncertainty of works to be carried out, materials etc… Disputes almost always arise, as there are no fixed terms in the contract and both parties are only concerned with their own best interests. It is advised that both owners and builders avoid entering into these contracts where possible.

As previously mentioned, at the time of formation, there are no fixed costs stated within the contract, which is why ambiguity and certainty can be serious issues. Usually, it is the owner paying for the materials which will constitute the house, plus, the cost of the actual labour being carried out by the builder. On top of this, the owner is also required to pay an additional fee to the builder, as per the terms of the contract. It may be 10% or more. This is so that the exchange of goods and services is profitable for the builder.

It is highly recommended that legal advice be sought before entering into any contract, but in particular a cost-plus contract, due to its uncertain and ambiguous nature.

It is worth while taking note of the below points before entering into a cost plus contract, to ensure your own security and avoid disputes;

  • Legality; are you legally able to enter into this type of contract?
    Before making the decision to enter into this contract, you must ensure that you have the legal right to, or otherwise, the contract may become void for purposes of illegality. In accordance with the Domestic Building Contracts Act 1995 (VIC) restrictions apply where an owner and a builder may only enter into a Cost-plus Domestic Building Contract under certain circumstances. Non compliance with the act will not only void your contract but potentially void your Home Warranty Insurance or be penalised in other ways.
  • Reasonable Estimates:
    You cannot go into the contract blind, you must make estimates which are considered reasonable as to how much you may think certain jobs and materials will cost. Reasonable estimates must be provided prior to entering the contract, otherwise there is even more scope for dispute. In fact, a builder MUST provide reasonable estimates of the domestic building works, and the estimate must be $500,000 or more, without this, he/she is not permitted to enter into a Cost-plus domestic building contract with an owner.
  • You must be certain that a greater proportion of the building works cannot be reasonably quoted.
    If it is impossible or extremely difficult for the builder to obtain quotes for a substantial part of the work to be completed, this is when there is a likelihood of a cost plus agreement being entered into. This applies to domestic building works such as renovation, restoration, refurbishment etc.. These jobs, in direct contrast to building a new home, can pose difficulty if there are things the builder is not aware of when entering the contract, and discovers later on in the process.
  • Organisation and records:
    keeping accurate records of quotes, receipts, sums paid, invoices and more, throughout the construction period is bound to minimise the likelihood of dispute occurring. When there is such uncertainty, organisation and proof is key. Any provision of money and any transactions MUST be recorded. This is of vital importance. Both owner and builder should accept this as a common practice. Any transactions completed by the builder should be provided to the owner and vice versa. Communication is also key, and the owner and builder should constantly correspond about what has been done, what has been bought and any other transactions made. The owner has full entitlement to view any invoices, receipts, documents and a record of all payments made. If they think something is unreasonable, or is at an excessive cost, perhaps a material that has been purchased, they may query or dispute this.

There is no doubt that the building process is stressful for every party involved, particularly if you are uncertain as to your entitlements and unaware of dangers. Domestic Building contracts are binding when signed, so it would be prudent to seek legal advice before signing one, in particular a Cost- plus contract. Legal professionals will be able to adequately advise you on what to look out for and what to do pre commencement to the contract. For exceptional advice on such topics, call Boutique Lawyers on 1300 556 140 or alternatively visit our website; www.boutiquelawyer.com.au, and submit your enquiry.