If you’re thinking about building a new home or carrying out renovations, then chances are you will be asked to sign a contract. All residential building projects valued at $30,000 or more (including GST) now require a written contract. If your building project exceeds this value and your builder does not offer you a contract then you should request one.
While a building contract must include certain information for the benefit of both parties, the contract will often favour the builder. It is really important that you read your building contract and talk to your lawyer before you sign it if you have any concerns or if there are any clauses that you do not understand.
There will always be risks involved in building work, but under the contract these should be allocated to the party best placed to manage them.
In this article we look at 5 key issues that you should be aware of when reading through your building contract.
Often the contract price will be specified as a lump sum. It is important to understand that this does not mean the price is fixed, and you may end up paying more (or less) than this amount if there are adjustments under the contract.
Common price adjustments permitted under a building contract include:
In some cases you may be able to negotiate a cap or overall limit on the amount the contract price can be adjusted.
Most contracts will require payments to be made as the building project progresses (staged payments). It is important to know what amount is payable and when, and ensure you have your funds ready and available. Late payments will almost certainly incur penalty interest and could result in the builder suspending the work.
Importantly, each staged payment should be reasonable and the amount should more or less reflect the value of work completed. Paying too much in advance can be risky and is not recommended.
In addition, the contract should not require you to make any staged payment unless and until all work comprising the particular stage is actually complete.
Time for completion
Your contract might specify a completion date, but that doesn’t necessarily mean the work will be finished by that date. All contracts will contain various ways in which the time for completion can be extended, including inclement weather, shortage of materials and unforeseen ground conditions. Make sure you check your contract and ensure any grounds for extension are reasonable and are matters beyond your builder’s control. It would be unusual for a residential building contract to include a monetary penalty for late completion, therefore it is sensible to allow some contingency in the time allowed for completion of the work.
Defects and Damage
When you move into your new home, we recommend that you inspect everything closely to identify whether or not there are any defects or damage.
Most contracts provide a ‘defects notification period’, during which time any defects notified to the builder must be fixed.
The defects notification period offered by a builder will generally vary from 1 month to a year. Ideally this period would be 12 months, so that the house has the opportunity to experience all four seasons, however for a residential build 3 months is quite a common period.
It is important to be aware that the Building Act 2004 provides residential home owners with a number of significant protections, so even if defects are identified outside of the defects notification period you will often have recourse to your builder under the Act.
Plans and Specifications
It is really important that you check through the plans and specifications carefully to ensure they reflect what has been agreed with the builder. If there are any errors, let your builder know immediately.
This article identifies some key points to consider when reviewing your building contract. If there is anything that causes you concern in your building contract or if you would like further legal advice please contact our construction team.
Disclaimer: this article is general in nature and not intended to be used as specific legal advice.