Category : Domestic Building Contracts

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

Volume 1 – The Beginning of the dream…

WHATS THE FIRST STEP?

Most people don’t have a clue about building or don’t know what their rights and obligations are  when they enter into a Domestic Building Contract.

So we can assist you with understanding your rights, obligations ,  procedures, laws and options available to you when building we need to make sure your understand what needs to happen from the beginning of your project.

1. THE DESIGN CONTRACT PRIOR TO CONSTRUCTION OF YOUR BUILDING

We are all aware that the first phase of your project involves designing your home. It is therefore very important that you ensure that the design provides you with the building you have hoped for at completion. Drawings, plans, specifications, technical requirements all need to be prepared for the purposes of obtaining your building permit and assisting your builder with the construction of your home so that tat completion you have your dream home ( or renovation) as you hoped for.

In most cases it is the owners obligation to ensure that the correct working plans, drawings, specifications, etc are provided to the builder. If you have not provided the builder with a complete set of drawings, plans etc, to be used for the purposes of building, the builder may claim against you should you make a claim for defective works.

WHAT IS A DESIGN BRIEF?

The design or pre-construction phrase of your home usually comprises of the following steps:

  1. Instructing or briefing the professional on how you want your home to look like when it is completed.
  2. The professional would design the plans for your home in a sketch format for you to approve.
  3. Then the professional will prepare drawings, specifications etc for you.
  4. An application is made for a planning permit (if required).
  5. Complete drawings are completed such as computations, tests, reports, drawings, specifications, schedules, etc)

The Law requires that all plans and specifications contain sufficient information in order for a building permit to be obtained.

THE  WAY ITS USUALLY DONE

You the owner would engage an architect/designer/drafts person or engineer to draft and complete the design of your home. Before engaging a professional to provide these services you must ensure that the professional is registered.  Some builders offer these services or may provide the design of your home however, you must bear in mind that all professionals providing such services must be qualified and registered.

If you engage a professional for the design of your home you will have to enter into a Design Contract (which is a Domestic Building Contract) unless the professional providing you with this service is a registered architect, a registered engineer in building engineering or a drafts person registered in building design. Firms providing these services where only one or more directors are registered would be considered as a registered party.

You must enter into a Domestic Building Contract for the pre-construction phrase of your home if you are engaging the services of any other professional builder. If the cost of the service is more than $5000 then you will need to enter into a major domestic building contract with the other party.

It’s usually the case that Design Contracts reach completion upon the granting of a building permit which is issued by a building surveyor. What the Building Permit then allows you to do is to proceed with the construction of your home in accordance with the terms of that Building Permit. This is where you would usually enter into a Major Domestic Building Contract with your Builder for the construction of your home (“the Construction Phrase”). Some contracts however, provide for the design and construction of our home and in this case you need not enter into any further contract.

You are not obliged to enter into a construction contract with the same builder with whom you had a pre-construction contract with. You may elect any other builder to construct your home and use the plans and drawings you obtained from the first builder( unless it is otherwise stated in your pre-construction contract).

TYPES OF CONTRACTS

Design and Construct

Rather than entering into 2 separate contracts for the design and then the construction of your home, some owners enter into a Design and Construct Contract. In these types of contracts you would enter into the one contract for the entire project from the design of your home to completion of your home. These are Major Domestic Building Contracts and they must comply with the Domestic Building Contracts Act 1995.

Spec Design Homes

Spec Design Homes is a term used where a builder has prepared the design of a dwelling (or a  different number of designs) that is offered to prospective owners to select from. The Builder would then construct the home in accordance with your selections. If you selected a design from the builder and didn’t modify anything then you don’t need enter into a design contract with the builder.  You would then enter into a Major Domestic Building Contract with your builder for the construction of your home only. It usually the case that owners would usually make modifications to the design s(we all have different tastes when it comes to what we like) and in which case a design contract would be entered into (provided that there is a charge for these modifications).

Display Homes

If you buy a display home, you buy the basic design of a home that would be constructed to completion. Owners of display homes are protected by the law as well, and the  builder is required (amongst other things) to build a home identical to the display home viewed by you except for items as agreed  by you as noted in your  Domestic Building Contract.

The Building Permit

In most cases its up to the builder to obtain the building permit. Sometimes you can elect to do this yourself however, in most cases the designer or builder would obtain a Building Permit. You must ensure that your Domestic Building Contract states whom is responsible for obtaining the Building Permit to avoid disputes.

If any changes are required to be made to the drawings or specifications, the designer is responsible for those modifications as required by the building surveyor.

Once you get your Building Permit you can start the construction of your home and you can only enter into a construction contract once the Building Permit is obtained or where documents  required to obtain a Building Permit are nearly completed or already submitted to Council for approval.

NEXT VOLUME 2 : ENTERING INTO A MAJOR DOMESTIC BUILDING CONTRACT FOR THE CONSTRUCTION OF YOUR HOME.

How do I make changes to my Domestic Building Contract?

You may only make changes to your Domestic Building Contract by way of written and signed variations that has been agreed upon between you and the builder including variations to the plans and specifications. Prime cost items or provisional sum items may change your Contract Price.

All Variations must be made in writing

Variations that have not been made in writing are usually the biggest cause of disputes between owners, builders and owner-builders and tradespersons. It’s always best to have all changes to the Domestic Building Contract made in writing to deter disputes or misunderstandings later with your Builder.

Variations to a Domestic Building Contract are changes made to the Domestic Building Contract that you and the Builder agree upon or changes to which a building surveyor (architect, building consultant etc) may order after the Domestic Building Contact has been signed and where works have commenced.

If any changes are ordered by building surveyor, building expert, etc you only have 5 days to disagree with those changes in writing.

The Domestic Building Contracts Act 1995, states that all variations must be made in writing, usually by way of variation notice, it must include all details of changes to be made to the Domestic Building Contract, the cost of the changes and new Contract Price and completion date prior to the works commencing.

You won’t need a Variation Notice if the builder believes that the variations would not cause any delay, requirement for permits or costs of more than 2% of the original Contract Price.

If you haven’t signed off on a variation, the Builder or tradesperson cannot demand that you pay for the variation (nor does this mean that the builder isn’t entitled to the payment for the variation) however the builder may make an application against you in the Victorian Civil and Administrative Tribunal and have the Tribunal determine the payment of variations.

When can I terminate or withdraw from my Domestic Building Contract?

During the Cooling Off Period

You have 5 days to withdraw from your Domestic Building Contract after you have signed it provided that you have not received legal advice before you signed it. If you exercise your right to withdraw your Domestic Building Contract during the cooling-off period, you will not be liable to pay the builder or any third party for any loss, costs or damages unless stated so in the Domestic Building Contract. If you had previously withdrawn from a Major Domestic Building Contract with the same Builder on the same terms for the same property, you wont be entitled to withdraw for your Domestic Building Contract.

If you exercise you right to withdraw from the Domestic Building Contract you must notify the builder in writing of your intention to withdraw within 5 business days of signing the Domestic Building Contract by personally delivering the notice to the builder, serving it by registered post or as noted in your Domestic Building Contract.

Contract Price or Completion

The Domestic Building Contracts Act 1995 also allows you to terminate your Domestic Building Contract if the Contract Price rises above 15% or more of the total Contract Price, if completion has not been reached within one and one half of the time that it was to be completed or if the increased time or costs is not reasonable

Defective Works not rectified

There are other instances where you may terminate your Domestic Building Contract, such as when the Builder has been provided ample time to rectify defective works prior to completion and fails to do so, however each case will need to be checked on its merits and its best that you obtain legal advice prior to terminating your Domestic Building Contract to avoid any claims from being made against you by the Builder.

 

 

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).