By Alvin Lim & Anna-Nikol Vladimirova
The Great Australian Dream of home ownership is usually realised in one of two ways. The first is to purchase a ready-made home, while the other route requires you to build one from scratch. Among many other benefits, choosing to build a home enables the owner to maximise the property’s functionality for their specific needs and may be more affordable. Nevertheless, our firm has recently encountered a surge in building disputes, transforming the pursuit of a dream home into a distressing ordeal.
In many of these cases, the central issues are a lack of knowledge and understanding of the building contract. A building contract is an agreement between the owner and the builder which outlines the rights and responsibilities of each party. Most building and developing companies use standard form building contracts for this purpose. Each contract can be amended (through special conditions) to alter the rights and obligations of the parties. It is the failure to understand these special conditions that may lead to delays, breach of contract and financial loss for the owner.
The following acronym BUILD lists some aspects of the standard building contracts which you should be aware of.
It is important to know the duration for which the building period is expected to last. A standard building contract would typically provide for 180 days of building. A special condition may modify the event that triggers the commencement of the building period. For instance, the contract may state that the building period commences once the pouring of the concrete slab is complete, as opposed to the standard position which is that the building period commences after the builder obtains a building permit.
It is important to be aware of these specifications as it will provide you with an accurate timeline for completion of your project.
Understand your responsibilities
Many owners wrongfully assume that their involvement in the building project is only limited to financing each stage of the build. This is incorrect as the contract may require the owner to complete certain tasks which are necessary to progress to the next stage. For example, the contract may place the responsibility of obtaining a planning permit on the owner. Failure to do so within the specified deadline may result in delays or notice of breach of contract.
The contract may also impose deadlines for submitting a response to a notice given by the builder. In such cases, failure to respond may be taken as acceptance of the notice. For example, if the owner does not respond to a notice of extension of the building period, then the right to object to the extension may automatically be waived. As an owner, you must ensure that they are aware of the responsibilities you undertake by signing the contract.
Information about your rights
If a breach of contract occurs, it is necessary to react according to the process outlined in the contract. Some owners may attempt to take matters into their own hands by leveraging the final payment against the builder. This is a risky approach and may cause the issue to escalate unnecessarily. Obtaining legal advice would better position you to accurately assess your rights and provide for the appropriate means to gain compensation.
Engaging a lawyer to review your contract would ensure that you are protected against any harsh or unfavourable clauses. This review would protect your legal and financial interests so that you can enter the contract with confidence. Given the inherent risks and uncertainties associated with construction projects, it becomes crucial to meticulously assess and address all legal risks. Being attuned to potential risks will empower you to make well-informed decisions.
Dealing with Defects
Once the builder completes the project, the contract typically allows the owner to inspect the property and provide the builder with a list of defects or unfinished work. The builder would then be required to rectify the defects. However, this phase may be difficult to navigate if the owner is not satisfied with the rectification. Some owners may try to negotiate with the builder to reduce the final price. This may result in the owner incurring penalty interest if they do not adhere to the strict deadlines and procedures imposed by contract. As such, withholding final payment may be counterproductive and costly in the long run. If you find yourself in this situation, contact us to discuss an appropriate avenue that would lead to a prompt resolution.
The complexities of the building process make it vital that you are a proactive and prudent party to the Building Contact. Engaging legal assistance in the beginning stages of your building journey will ensure that you can sleep at night knowing that you will not have to wake up from the Australian Dream.
Disclaimer: This publication contains comments of a general and introductory nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional legal advice. You should always speak to us and obtain legal advice before taking any action relating to matters raised in this publication.