For the majority of people, contracts are not a fun thing to deal with in life. For most of us, they’re just small print.
Therein, however, is the danger. Many people entering into a contract find themselves in a difficult situation when a problem arises, such as one party not fulfilling their end of the deal or where there is some other dispute. If the issue is not dealt with in the contract, or not expressed to be in your favour, then you may be in a weak position with no recourse.
This situation can be particularly common in domestic building contracts. In their enthusiasm to have their renovation started, or their new house built, people often skim the details of the contract with the builder and are left in a vulnerable position if a dispute or disagreement emerges.
This article will look at the essentials of domestic (rather than commercial) building contracts in NSW and Queensland, where Felicio Law Firm has a proud track record advising clients over many years on what they need to know before putting pen to paper on this type of contract.
Essential things to know about building contracts
Unlike the old days, relevant statutory organisations such as Fair Trading NSW now provide ‘model’ plain English contracts which make it easier for consumers to access guidance on what a building contract should and should not include.
In any building contract, some key things to take note of include:
- That the contract is written in clear English; states the names and addresses of the parties to the contract; includes the builder’s current registration and/or licence number.
- The contract sets out all the terms relating to the building, including detailed descriptions of the work to be carried out, plans, specifications and any other relevant documents.
- That special requirements and finishes used in the building are set out and specified. Ideally, fixtures and fittings are also detailed in the contract, including their costs, as ‘prime cost’ items. If their nature and price are not yet known, they should be included as ‘provisional sum’ items.
- States the total price for the works, including the amount of the deposit and any schedule of progress payments (including ensuring progress payments relate to work completed and not time on the job).
- That the date on which the contract becomes effective is stated, as well as a clause about the cooling-off period. It should also include state a start and a finish date for the work, with allowances for delays.
- A section defining words and key phrases used in the document.
- Details on any implied warranties, including their duration.
NSW building contracts
In NSW contracts relating to residential building are governed by the Home Building Act 1989, whether you’re building a new home, or altering or renovating an existing one.
Any such project valued at more than $5000 requires a contract. Even for building projects valued under that amount, you should consider a contract or written agreement.
Building projects valued between $5000-$20,000 can be covered by a ‘small jobs’ contract. These contracts contain most of the points covered above, including the details of both parties; the contractor’s licence number; detailed descriptions of the work, including plans and specifications; and a contract price, if known.
This type of contract in NSW should also have clauses relating to:
- ‘Quality of construction’, which states that the proposed work will comply with the Building Code of Australia, as required under the Environmental Planning and Assessment Act 1979.
- Other relevant codes, standards and specifications that the project must comply with.
- The conditions of any relevant development consent or complying development certificate.
- Limitation of the contractor’s liability for failure to comply with work compliance clauses because: a design or specification prepared by or on behalf of the home owner (but not the contractor); or a design or specification required by the home owner if the contractor has advised the home owner in writing it goes against the ‘work compliance clause’.
A more detailed written contract is required for work costing more than $20,000. It should include all the details included in a small jobs contract, as listed above, as well as:
- Relevant statutory warranties required by the Home Building Act 1989 (such as that the work be done with ‘due care and skill’).
- The contract price, including warning provisions where the price is subject to change or is not known.
- A prominent clause about the cooling-off period of five clear business days for both parties once the contract has been received, for contracts valued over $20,000.
- A checklist of essential matters to tick off, such as the contractor having a current licence, details of when variations can be made to the contract, the costs of insurance or another indemnity scheme, termination clauses, etc.
- A progress payment schedule, covering fixed payments, interval payments or a combination of both.
- A termination clause.
- A note that the contractor must give you an insurance certificate under the Home Building Compensation (HBC) Scheme.
- A clause that any variation to the contract or its plans and specifications must be in writing and signed by both parties.
- A clause that the work will comply with the Building Code of Australia, and all other relevant codes, standards and specifications that the work is required to comply with under any law.
- A clause limiting the liability of the contractor for failure to comply in certain circumstances.
A builder or tradesperson must give the owner a copy of the contract within five business days after it has been signed.
Queensland building contracts
In Queensland domestic building contracts are covered by the Queensland Building and Construction Commission Act 1991 (‘the QBCC Act’), which sets out contract requirements for the erection or construction of a detached dwelling (i.e. a single, free-standing home or duplex) or the renovation, alteration, extension, improvement or repair of a home, as well as for other domestic building work such as a driveway, fence or swimming pool.
QBCC provides standard form contracts, as do Queensland industry associations, or the parties can create their own, though if this latter course is taken, legal advice from experienced contract lawyers such as Felicio Law Firm should be sought.
Introduction of Schedule 1 B in the QBCC Act introduced two levels for domestic building contracts in Queensland – Level 1 contracts for jobs priced between $3301 and $19,999, and Level 2 contracts for those costed over $20,000.
Requirements in a Level 1 contract are similar to those for NSW contracts listed above. The contract must be in writing, dated and signed by or on behalf of the contractor and the owner; contain the names of the contracting parties including the name and licence number of the building contractor; a description of the contracted work; the contract price; the date for practical completion or how the date is to be determined; a copy of any plans and specifications; notice to the owner about cooling-off period rights; and clear identification of the site where the building work is to take place.
A fully signed copy of the whole contract must be given to the owner within five business days after the contractor enters the contract. Variations or changes to the contract after it is signed must be detailed in writing in a compliant variation document and approved in writing by the owner before the variation work commences.
Implied warranties in this contract include that materials must be new and suitable for purpose; work is carried out in accordance with all relevant laws, legal requirements and the plans and specifications; work is carried out with reasonable care, skill and diligence; and that a home will be suitable for occupation when the contracted work is finished. Breach of these warranties can result in legal action which must be commenced within the warranty period (i.e. within six years for a breach resulting in a structural defect, or one year in any other case).
A Level 2 contract for work valued above $20,000 includes all the same points for Level 1 contracts plus:
- Provision of the QBCC Consumer Building Guide to the owner before the owner signs the building contract.
- The start date (as well as a date for practical completion), or how it is to be determined, must be stated.
- Relevant statutory/implied warranties must be stated in the contract.
- The contract price (if fixed) and a price change warning (detailing provisions which could cause the contract price to increase or decrease) must be prominently featured on the first page of the contract schedule.
- Where the contract price is not fixed, the method for calculating the price including any allowances (e.g. for Prime Cost Items or Provisional Sums) must be stated in the contract schedule.
- Within 10 business days of work commencing on site, the contractor must provide a Commencement Notice to the owner stating the date work commenced on site and the date for practical completion.
The need for legal advice
While there is plenty of official guidance on domestic building contracts these days, it is always wise to ask for guidance from a law firm with many years’ experience advising clients on obtaining a contract that clearly establishes all of the responsibilities of both parties and also protects their rights.