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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

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.