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Read this before signing a major Domestic Building Contract!

You will need to sign a Domestic Building Contract with a builder or tradesperson when you are undertaking domestic building works for  the value of more than $5,000.00 and where:

  1. You are an owner engaging the service of a builder for the works in excess of $5000.00;
  2. you are an Owner Builder engaging the services of a tradesperson and/or subcontractor for the works in excess of $5,000.00.
  3. you are erecting or constructing
    • a home including any landscaping, paving, fixtures associated with the home
    • retaining walls,
    • garages,
    • driveways,
    • fences,
    • workshops,
    • swimming pools,
    • the provision of lighting, heating, ventilation, air-conditioning, water supply, sewerage or drainage  to the home or property on which the home is or is to be,
    • renovations, alterations extensions, improvements and repair of a home,
    • demolition and removal of a home,
    • any work associated with the construction of or erection of a building on land that is zoned for residential purposes,
    • preparations of plans and specifications for carrying out of works.
    • your contract for works is more than $5000.00 even if you are given separate quotes from the same builder for different stages of the works.

How do I avoid disputes and what should be included in my Domestic Building Contract?

Building disputes are becoming more and more common.

It is always recommended that you obtain legal advice prior to signing a Domestic Building Contract. One consultation may save you thousands of dollars, stress and pressure on relationships and home life. A benefit of obtaining legal advice from the right lawyer is to ensure that you and your builder both have a clear understanding of what you have agreed upon and that the same is reflected in your Domestic Building Contract. Before you sign your Domestic Building Contract you should make sure that:

  • you obtain legal advice (even if you have already signed and you have 5 days to terminate your Domestic Building Contract);
  • check that the Builder is a registered builder or in the case of a company that at least one of the company’s directors is a registered building practitioner;
  • you have the correct “working plans” for your project and you understand and agree to what is stipulated in those plans;
  • you have all the specifications and have a clear understanding of what the specifications are ( it is best to have all of you selections described in detail prior to signing your contract);
  • ensure that all responsibilities have been assigned to either you or your builder (as agreed), including who shall be responsible for the supply of goods and who shall be responsible for obtaining the relevant permits, soil reports etc;
  • you agree to the Contract Price including GST and understand your liabilities outlined in the Domestic Building Contract, such as payment terms,
  • you can easily read and understand what is written in the Domestic Building Contract;
  • all terms and conditions are included and it is the complete Domestic Building Contract;
  • there are full and complete details described for the work to be carried out;
  • all the names of the parties and details are correct;
  • the Builder’s registration number is noted and is correct;
  • it clearly states the Domestic Building Contract Price (check the GST component);
  • it states the amount of deposit payable and that it accords with the limitations placed on it by the Domestic Building Contracts Act 1993;
  • it states the amount of progress payments payable and that it complies with the Domestic Building Contracts Act 1993;
  • it states the date upon which the Domestic Building Contract was signed by you;
  • it states when the work must commence and how the date is to be determined;
  • it states that you have a 5 day cooling off period;
  • it clearing describes all definitions used in the Domestic Building Contract;
  • it sets out warranties
  • it has a checklist;
  • it sets out the details of the required insurance (if the works are for more than $12,000.00).
  • it states the number of days allowed for delays.
  • you and the builder understand what  ‘reasonable access’ to the building site is.
  • Always sign off on variations made to the Domestic Building Contract ( you don’t have to pay for additional items that should have been foreseen by the Builder when entering into the Domestic Building Contract).

5 days Cooling Off Period

If you have signed your Domestic Building Contract, you only have five business days after receiving a signed copy to withdraw from the Domestic Building Contract without receiving a penalty, unless you obtained sought legal advice on the contract prior to signing.

What the Builder must do prior to commencing Domestic Building Works.

The Builder must ensure that the site is suitable for the proposed work and that he has obtained the required foundation data information (such as a soil report) that satisfies him enough to proceed with the work. He must also ensure that:

  • he has obtained all building and planning permits (unless otherwise stated in the Domestic Building Contract);
  • he is satisfied with the plans, drawings and specifications (including any specific special requirements) described in the Domestic Building Contract;

To reduce your chances of having a Building Dispute with your Builder it is a good idea to avoid Prime Cost Items and Provisional Sum Items

Prime cost items and Provisional Sum Items are the source of many Domestic Building disputes and are often misunderstood. Occassionally some less reputable builders would underquote on price of a Domestic Builder Contract and thereafter seek unrealistic costs from the Owner.

Prime Cost Items are  fixtures or fittings (including the costs of supply any material needed for the work) under a Domestic Building Contract where the builder cannot determine the cost of at the time of signing the Domestic Building Contract. This would include your selections of fixtures and fittings that are itemised in your Domestic Building Contract but not described or costed. Usually this happens when you don’t stipulate the make, model or exact selection of items prior to signing your Domestic Building Contract and therefore the builder can only give you an estimate on each of those items. A builder must provide proof that evidences the costs of any prime cost item in the Domestic Building Contract.

Provisional sum items are an estimate of the cost of carrying out a particular work (including the cost of supplying any materials needed for the work) under a Domestic Building Contract for which a builder, after making reasonable inquiries, cannot give a definite amount at the time that the Domestic Building Contract is entered into.  Usually excavation work would be noted as a provisional sum item and building costs could increase if additional excavation work is required as a result of rocks,   if not provided for in the soil report to your builder.  It is a good idea to avoid agreeing to any provisional Sum Items as it can increase the price agreed in your Domestic Building Contract.

Cost-Plus Domestic Building Contracts should be avoided !

Costs- Plus Domestic Building Contracts under which the amount the builder is to receive is not stipulated or determined at the time that Domestic Building Contract is signed. Cost-plus Contracts are usually used for renovation works in excess of $500,000.00 and where an owner agrees to pay the builder the actual costs of construction plus a fee or percentage to cover the Builder’s costs for supervision, skill and profits. The builder in this case is at an advantage since he is known to produce a profit at the end of the project.

Cost-Plus Domestic Building Contracts are considered to be unfair for owners because some less reputable builders may be encouraged to allow costs to increase in order to earn a greater profit. Cost-Plus Domestic Building Contracts should generally be avoided in all circumstances.

What if my domestic building works are under $5000?

To avoid a building dispute it is best to have a written contract that clearly sets out what work is to be carried out, the costs involved and the specifications (as well as any agreed variations in writing).