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AVOID DISPUTES – DOMESTIC BUILDING CONTRACTS

Volume 2

2. AVOID DISPUTES – DOMESTIC BUILDING CONTRACTS

In order to avoid a dispute with your builder about price variations relating to modifications that may be required to obtain your Building Permit, it’s a good idea to obtain your Building Permit before you enter into your Major Domestic Building Contract. There is one catch though; in order to obtain a Building Permit you will need to identify the builder on your application. The only way to avoid a dispute later is to ensure that you have obtained several quotes from various builders so that you are satisfied with the price of construction.

Sometimes owners engage an expert or consultant to assist them with selecting a builder and reviewing tenders, however this usually doesn’t happen. If you were to engage an expert or consultant to help you select your builder this may deter a future dispute. Most owners don’t have a clue about building or the process. A registered construction professional, etc. would be able to help  you with this process to make sure that all particulars, selections and documentation is done correctly to ensure that your house gets built the way you want it when you want it.

When you receive tenders from builders, you should make sure that the builder gives you the Contract Price, the amount required for Deposit, his complete identification and contact details and registration number, the property address, a description of the construction works, a draft Building Contract, the proposed commencement date and completion date and any exclusions or special conditions that should be noted. A Domestic Building Contract should also have references to liquidated damages, payment terms, interest, builder’s margin, provisional allowances, amongst other things.

2.1 IF YOU ARE AN OWNER BUILDER YOU ARE STILL AN OWNER AND PROTECTED BY THE DOMESTIC BUILDING CONTRACTS ACT 1995

If you wish to build your home on your own and without a builder, you can apply to the Building Practitioners Board for an owner-builder certificate of consent. If you are constructing a home or renovating and are not involved in the business of building and are the person registered on the title of the land that you intend to build upon ( not a company) you may apply and are eligible for an owner-builder’s certificate of consent.

An Owner Builder is an owner who overlooks and manages building work by engaging and contracting with individual tradespersons for the construction of their home. An Owner Builder is still an owner and therefore if you engage a tradesperson to complete works to your home, then the contract is a Domestic Building Contract and any tradesperson that is required to have insurance must have insurance and be registered prior to entering into a Domestic Building Contract with you. If you choose to sell your home before it reaches 6.5 years from the date of receiving your occupancy permit, you must obtain the required insurance certificates for the works completed as well as a report from a consultant whom must also be insured prior to selling your home.

2.2 STANDARD DOMESTIC BUILDING CONTRACTS

In Victoria, most builders use the standard Domestic Building Contracts from the Housing Industry Association, Master Builders Association of Victoria or Australian Building Industry Contracts.

These contracts are drafted reasonably and are negotiable. In order to avoid disputes later, it is best practice to have all details and specifications particularised clearly (amongst other things) and get legal advice before you sign.

2.3 COST PLUS CONTRACTS

The Domestic Building Contracts Act 1995 only allows Cost Plus Contracts to be entered into when the costs of the completed work is above $500,0000 or where the works are for renovations, extensions etc. to existing buildings and where the builder cannot estimate the work involved until further investigated.

A cost plus contract is where you agree to pay the builder for the cost of construction plus an agreed margin for the builder with the builder. We have discussed this further in our article which can be found at http://boutiquelawyer.com.au/read-signing-major-domestic-building-contract/.

Basically, a cost-plus contract is an agreement where the owner is to pay for the builder’s costs (whatever they turn out to be, provided that the expenditure is properly documented), plus an agreed margin for the builder’s overheads and profit.

2.4 FIXED PRICE CONTRACTS

Most of the standard contracts mentioned above are fixed price contracts. Limited to some exceptions, all Domestic Building Contracts must be fixed price for the construction of your home for labour, materials, margins etc.  All exclusions must be noted for works not included in the Contract price.

Fixed Price Contracts may be varied by way of variations (adjustments etc.) which would modify the contract price. We have discussed this further in our following article http://boutiquelawyer.com.au/make-changes-domestic-building-contract/.

2.5 SUB-CONTRACTS

Builders any are not required to carry out all the works to build your home (renovation, etc.). The Domestic Building Contract you have with the builder is called a “head contract” and contracts between the builder and any tradespersons that the builder may engage are called sub-contracts (which are not contracts that are protected under the Domestic Building Contract Act).

Since you have no direct liability or relationship with a subcontractor, you should not communicate directly with any subcontractors since your rights and obligations lie with the builder directly. Sometimes a builder may suspend work, end or terminate the contract for breach of contract should you interfere or cause complications as a result of communicating with subcontractors.

3. LEGISLATION: THE DOMESTIC BUILDING CONTRACTS ACT 1995

3.1 WHEN DOES THE DOMESTIC BUILDING CONTRACT ACT APPLY?

The Domestic Building Contracts Act applies and protects you in cases “where you arrange or manage the carrying out of Domestic Building work other than a contract between a builder and a subcontractor”.

Domestic Building Work is any work associated with your home (have a look at or complete comprehensive list of works to which the Domestic Building Contracts Act applies to at http://boutiquelawyer.com.au/read-signing-major-domestic-building-contract/) including but not limited to landscaping, paving, swimming pools, and the list goes on.

3.2 WHEN DOESN’T THE DOMESTIC BUILDING CONTRACTS ACT 1995 APPLY?

Some individual trades do not fall within the scope of the Domestic Building Contracts Act and therefore a Domestic Building Contract will not be required. Some trades such as electricians, insulation installation of floor coverings, plasterers, plumbing, painting, glaziers, tillers, installation of antennas, erection of fencing do not fall under the Domestic Building Contracts Act etc.

3.3 FOUNDATIONS DATA

Foundations data is any information concerning the building site where the builder needs to ensure that he has been extra careful when constructing such as construction of footings, surveys, test results, plans, specifications,   drainage plans, engineers drawings, etc..

The Domestic Building Contracts Act does not apply in the case  foundations data however does fall it within the Domestic Building Contracts Act should analysis, etc. of the foundations data be required.

You must ensure that you have provided the required  data to the  builder and if the builder requires further data he must ensure he obtains it himself prior to construction.

3.4 WHAT’S THE DIFFERENCE BETWEEN DOMESTIC BUILDING CONTRACTS & MAJOR DOMESTIC BUILDING CONTRACTS?

Any contract entered into for domestic building work as outlined by the Domestic Building Contracts Act 1995 is considered to be a Domestic Building Contract. Any Domestic Building works carried out above the price of $5000 is defined as a Major Domestic Building Contract (even if the initial price was below $5000 any increase in price above $5000 will then make it a Major Domestic Building Contract).

3.6 INSURANCES

A Domestic Builder must be registered in order to be eligible to obtain insurance and therefore in order to be eligible to enter into a Domestic Building Contract with you. When a Builder enters into a Domestic Building Contract with you, the Builder must also obtain a job specific insurance policy under their eligibility cover. If the Builder doesn’t have the right insurance or insurance at all, it is against to law that he demand or accept any payment of monies from you pursuant to a domestic building contract.

Insurance is not required for works that are under $12,000 (including any variations etc.) and multi storey and multi unit developments (seek legal advice if you are not sure what these definitions exclude).

4. WHAT TERMS MUST A DOMESTIC BUILDING CONTRACT CONTAIN?

We have written about this in more detail at http://boutiquelawyer.com.au/read-signing-major-domestic-building-contract/, however the Domestic Building Contract Act requires a Domestic Building Contract to be in writing and contain, full terms, all works to be described, all specifications, full details of all parties, the builder’s registration details and insurance policy details, date of commencement of works and completion and working days, checklist, delays period, liquidated damages etc. The Domestic Building Contract Act states that the Contract will not be enforceable unless all parties have executed it.

4.1 REQUIREMENT OF THE BUILDER TO BE REGISTERED

All Building Practitioners who carry out domestic building work must be registered with the Building Practitioners’ Board unless exempted from being so. Building Surveyors must not issue a building permit unless he/she is satisfied that each builder holds the required insurance (therefore is registered).

Usually the Builder would hold an unlimited registration which means that he would not be restricted to the type of works performed where as a limited registration may limit the works performed to say carpentry works.

An unregistered builder is not allowed to contract directly with you unless that are exempt from doing so.

It is always a good idea to confirm the registration of a Builder prior to contracting with the builder to ensure that the builder holds an unlimited registration and verify the details provided to you by the builder. You can do this by visiting the following website www.buildingcommission.com.au/‎.

Volume 3 coming soon: warranties and stages