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;
iii. Incomplete Works;
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