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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

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.

Things to Check before entering into a Domestic Building Contract

Before you sign a domestic building contract, there are a number of things that you should check.

1. When should I enter a domestic building contract?

In Victoria, the law requires you to enter into a domestic building contract when you carry out one or more of the following domestic building works and the total cost is $5,000 or more:

  • Building;
  • Repairs;
  • Improvements;
  • Maintenance;
  • Demolition; and/or
  • Removal.

However, as a precaution, it is best to enter a domestic building contract when carrying out any domestic building work – regardless of size or cost.

2. Why do I need a domestic building contract?

Trusting your builder without having the correctly drafted contract in place will leave you unprotected and is in fact a gamble with your money. Having a domestic building contract ensures that you and your builder are crystal clear about what works are to be carried out and, therefore, reduces the likelihood of confusion and disagreement later down the track. It will save you having to sue and also protect you should there be a disagreement.

3. Is my builder registered and do they have insurance?

Only builders that are registered with the Victorian Builders Association can carry out domestic building works and enter into domestic building contracts and of course these builders are the only builders that would be provided with insurance. To confirm that your builder is registered, you can conduct a practitioner search on the Victorian Builders Association website. The results of this search should match the details contained in your domestic building contract and your Building Permit.

Also, if the cost of your domestic building works is $12,000 or more, your builder will need to obtain home warranty insurance and provide you with a copy of this policy. Your domestic building contract will also need to include details about this.

4. What should be included in my domestic building contract?

At the risk of stating the obvious, your domestic building contract must be written in plain English. It must include a full description of the works to be carried out and be accompanied by plans and specifications of sufficient detail so that a building permit may be granted.

Your domestic building contract should also include details about the following:

  • Date of contract;
  • Names and addresses of the parties to the contract;
  • Home warranty insurance;
  • Commencement and completion date;
  • Cooling-off period;
  • Right to access;
  • Implied warranties;
  • Damages;
  • Termination; and
  • Definitions.

Finally, an approved checklist should also be included in your domestic building contract.

5. What shouldn’t be included in my domestic building contract?

You should make sure that your contract does not contain any illegal or unfair terms such as:

  • Compulsory arbitration;
  • Builder’s caveat or interest in land;
  • Limitation or exclusion of implied warranties;
  • Cost escalation of rise and fall (unless the cost of domestic building works is $500,000 or
  • more); and/or
  • Payment by a cost-plus method if your building contract is $500,000 or less.

It is also worth mentioning that your builder must give you sufficient time to review your domestic building contract.

Some builders may tell you that your domestic building contract is the ‘standard contract used by everyone’. While this may be true, do not lower your guard. Make sure you read through your contract very carefully and if you have any queries or concerns seek independent legal advice as soon as possible.

Also, you should never sign a domestic building contract and then forward to your builder to do the same. This is because your builder may add or remove items from the contract without your knowledge.

6. Are there any additional fees and/or charges? 

In addition to the contract price, there may be a number of fees and/or charges that are applicable to your domestic building contract.

These may include, but are not limited to the following:

  • Building fee: This varies from builder to builder and may or may not be included in the cost of inspections carried out by the building surveyor;
  • Permit fee;
  • Council lodgement fee;
  • Asset protection fee: This paid directly to the local council and is refundable at the end of the project providing no damage has been done to council property;
  • Inspection fee: This is also paid directly to the local council and is used for the cost of their inspection of council assets and is non-refundable;
  • Government levies: These levies are calculated on the total cost of your works and are usually advised by your building surveyor. It is important to note that owner-builders are not exempt from paying these levies.

7. Are there any other documents that I may need to sign?

Yes. It is not uncommon for a builder to ask you to sign any one of the following before signing a domestic building contract:

  • Preliminary agreement;
  • Quote;
  • Order;
  • Estimate; and/or
  •  Authority to proceed.

You should be aware that work carried out as a result of you signing one or more of these documents may or may not constitute domestic building work. If you are unsure about the distinction or any other aspect of your domestic building contract, you should consult a legal practitioner as soon as possible CALL BOUTIQUE MELBOURNE LAWYERS 1300 556 140.

As a developer, what should you do before signing a domestic building contract?

As a developer, there are a number of things that you should do before signing a domestic building contract.

Know your builder

As a developer, you take a number of risks when you employ a builder so it is very important that you do some background work.

Questions that you may want to ask your builder may include:

  1. How long they have been in the industry?
  2. How many properties they have built?
  3. Whether you can inspect them?
  4. Whether you can speak to past clients?

Also, you want to make sure that you discuss your expectations with your builder and have them detailed in the contract. This is very important as it leaves less room for disagreement and disappointment.

Finally, make sure your builder is registered with the Building Practitioners Board. Sure, you may know someone who can do it cheaper for you, but does he or she have a practicing certificate? If not, know that it is an offence to knowingly employ an unregistered builder.

Make sure you are insured.

Builders are not immune to insolvency, disappearance or death. Fortunately, you can take steps to protect yourself from this by making sure that your builder has taken out home warranty insurance. It is important that this occurs before work is commenced because you want to allow sufficient time to familiarize yourself with your policy.

It is worth noting that the law does not require an insurer to honor every claim. For example, an insurer is not legally obliged to honor a developer’s claim for completion costs. As such, you should make a note of any clauses that limit your ability to make a claim and seek legal advice as soon as possible.

Read your contract

Building on what has been said above, it is vital that you read your contract.

In particular, you should make note of the completion date. Additionally, you should make sure that you can visit the site during construction and make variations.

Finally, you should know when you are permitted to cancel the contract. For example, can you cancel the contract if the development is not approved by the council? Or, what about if it just isn’t viable? In such cases, you want to make sure that you can elect to cancel the contract with very little to no penalty.

For more information and a free consultation call Boutique Lawyers on 1300 556 140.

WARNING TO ALL HOME OWNERS: Stages and Building

The Domestic Building Contracts Act restricts the Builder as to when and how much he can claim from you by way of progress claims during the construction of your home or renovation.

The usual method used is as follows:

  1. Base Stage 10%
  2. Framing Stage 15%
  3. Lock-up Stage 35%
  4. Fixing Stage 25%
  5. Completion (balance/adjusted)

The most common issue we have come across with homeowners are issues regarding payments to builders prior to the completion of a stage. The Builder cannot claim payment of a stage from you until the stage is complete; a stage is not complete if there are defective works. If this is the case the domestic building insurer may not honor your claim for any payments made prior to deeming the stage complete. You should always have an Independent Building Consultant check works upon the Builder making a claim for completion of that stage.

You may agree to use a different method on how stages are set with your builder if the works the Builder is conducting is out of the ordinary (provided that you sign a consent notice prior), usually when the works involve alterations or large bulk works that can be cut down into smaller parts. It is best, in order to avoid disputes and save you time and money, to seek legal advice prior to the execution of your Contract so that you can make sure you are protected. Call Boutique Lawyers to discuss any aspect of your Contract on 1300 556 140.

DEPOSITS, COOLING OFF PERIODS & CAVEATS

Volume 4

Builders may only request a limited amount of deposit prior to commencing the constructions of your home.  A builder cannot request more than 5% of the Domestic Building Contract price where the contract price is over $20,000 and more than 10% of the contract price where the contract price is less than $20,000. The builder is also not permitted to accept deposit monies from you prior to providing you with a copy of the relevant insurance.

4.1 Cooling Off Period

You can withdraw from your Domestic  Building Contract usually 5 days after you have received a copy of the executed contract. If you wish to withdraw from the Domestic Contract you must serve a written notice to the Builder in accordance with the terms of the Domestic Building Contract. It is important that you provide the builder with the correct notice within the time constraint. We would advise that you seek legal advice from a solicitor who specialises in Building Law prior to the expiry of the cooling off period to ensure that you have complied with the law when exercising your right to withdraw from your Domestic Building Contract.

Once you have exercised your right correctly to withdraw from the Domestic Building Contract, the Builder must refund your deposit less $100 ((and/or out of pocket expenses that has been incurred and agreed upon by you).

You are not entitled to a cooling off period if you have obtained legal advice prior to executing your Domestic Building Contract. Where the builder has failed to provide you notice of the mandatory cooling off period you are then provided with a 7 day cooling off period from the date you noticed that your Domestic Building Contract did not have contain the notice.

4.2 Caveats

The Builder has no right to place any condition in your Domestic Building Contract which allows him to place a caveat on your land to secure his interest. If such condition is placed in your Domestic Building Contract it is void. The Builder cannot secure his interests in such manner but he may seek evidence from you of your capacity to pay the Contract Price, written guarantees from third parties of your obligations pursuant to the Domestic Building Contract.

Call us at Boutique Lawyers now to get into the house you paid for when you intended! 1300 556 140

WARRANTIES & DEFECTS

Volume 3

What warranties are provided by the Builder under the Domestic Building Act?

Defects

In a nutshell, defects in workmanship or materials as supplied by the builder are covered by warranty. The Builder needs to ensure that the material he obtains for the construction of your home performs and is installed in a proper workmanlike manner. The Builder must ensure that all works performed and materials supplied by subcontractors are done so in accordance with the standards and tolerances applied to most commonly used practices. Check out the Guide that the Building Commission has published on some common issues “Guide Standards and Tolerances” (the Victorian Civil and Administrative Tribunal follow the Guide for assistance on defects).

You should bear in mind that not all observed imperfections are defects and that any works outside the scope of the Builders engagement is not covered by warranty (unless these are variations). Fair wear and tear and failure to maintain is also not covered by warranty.

Are there ways to void warranty?

If at any time you have works performed after the completion of building, you will not be covered for any defects on works performed by the third-party ( and it could void the builder’s warranty for the particular area as to where the works were performed unless the builder knows about it and consents to it)

Planting a tree too close to your home may also void the warranty. Should the cause of any structural defect/damage to your home be a result of any landscaping or activity as instigated by you, it could void your warranty.

Warranties and Subsequent Ownership

Beware when purchasing a home. It is assumed that where defects are observed or where the new owner has been placed on notice of those defects, the owner has purchased the land for the price that has taken those defects into account. Therefore waiving your right to claim for defects later. Therefore it is always advised to have a full and complete inspection of your home prior to purchasing.

What if the Builder refuses to rectify the defects?

If you have advised your builder of the defects and he refuses to rectify those defects, or if the builder has attempted to rectify those defects but has failed to do so in a proper workmanlike manner (or has failed to pay you for the cost of rectifying those defects), then usually your only other option is to issue an application at the Victorian Civil and Administrative Tribunal. You have 10 years to sue the builder commencing 10 years from the date that the occupancy permit was issued (or from the date of the final inspection), your warranty then expires.

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

ALL YOU NEED TO KNOW ABOUT DOMESTIC BUILDING CONTRACTS & BUILDING YOUR DREAM HOME

Volume 2 – What are my rights and what do I need to look out for during construction?

Engage an Expert Building Consultant

It is always a good idea to have an expert building consultant inspect all construction work of the Builder to ensure that all works have been carried out as intended and pursuant to the plans and specifications in a proper workmanlike manner.

Good Communication

You should always communicate with your Builder about any concerns you may have to ensure that you have an understanding of what the process is that you agree on any matters of concern in order to avoid disputes later.

Visiting the Construction Site

You have a right to visit the building site during construction of your home provided that you do not interfere with the construction. If you interfere with the site or construction, the builder may be able to seek any costs from you relating for delays or damages with providing you with 5 days notice of his intention to do so. It’s best to organise a weekly or fortnightly meeting at the site with your builder to view construction and discuss any concerns you may have.

It is good practice to speak with your Builder prior to attending  the site to make sure that  there are no occupational health and safety issues to consider.

Do as you are obligated pursuant to the Contract

If you haven’t made all your selections at the time of signing your Domestic Building Contract, or provided the builder or tradesmen with any goods they need for construction, the builder will be entitled to suspend works and seek damages from you for delaying construction. It’s a good idea to have things organised in advance.

Don’t pay the Builder or Tradesmen prior to the completion of the stage

Your builder is not entitled to progress payments in advance or prior to the completion of a stage. If you pay in advance, domestic building insurance  won’t cover you for any claims made for payments made in advance. A building surveyor usually has to inspect each stage and pass before the stage can be passed as competed. You should ask your Building Surveyor for copies of any reports.

Make sure all Variations are in Writing

All variations should be agreed upon and signed prior to any works commencing in accordance with those variations so as to avoid any disputes later about costs or the scope of those variations.