Building contracts – what happens when it doesn’t all go as planned?
Before you enter a building contract you need to be prepared for things to not go as planned. We unfortunately see far too many residents stuck in the middle of building disputes for things that could have been avoided. Unexpected costs, extreme delays and shoddy work are just some of the disputes we have seen with builders. Our tips are:
Get legal advice before signing. We can help you to ensure you understand exactly what you are agreeing to: whether fees are included in the contract, what are your rights if there is a delay, what the implied warranties are, termination procedure, and so on.
The contract may need to be amended to properly protect your interests, additional special clauses relating to delays and damages may be advisable.
Choose the right builder for your project:
Check that your builder has Domestic Building Insurance (sometimes called warranty insurance), is registered with the Victorian Building Authority (VBA), and comes with positive recommendations! While this goes without saying, we are seeing far too many builders who aren’t registered with the VBA. If they aren’t a registered builder, they won’t be able to provide you with the required Domestic Building Insurance. While this means that your own interests aren’t protected in the event that the builder disappears or becomes insolvent, it also means that you won’t be able to comply with the Sale of Land Act requirements if you want to sell the property that has been built or renovated.
Note also that a ‘registered builder’ is a person who holds a licence granted by the VBA. In most cases this will be a Domestic Builder – Limited or Domestic Builder – Unlimited licence. It’s not enough to be a member of an association or to have a trade qualification or company – they need to hold a licence to legally do building work over $10,000.
Once the agreement has been made and work has begun:
- Keep a record of conversations you have had with your builder and follow them up in writing.
- Keep copies of all written documents relating to the work.
- Take photographs of the work as you go and particularly of anything defective/subject of the dispute to protect yourself.
If there are changes in contract price – you are being charged for additional work:
- Discuss exactly what is causing the price increase with your builder and whether this could have been anticipated, and request a written breakdown of costs.
- Legally – changing the contract price must be due to either: variations to the plans and specifications; orders by the Building Surveyor; prime cost items; or provisional sum items.
- Make sure that any changes made regarding the above are in writing and signed by both yourself and your builder.
If there is a delay, or a problem with the quality of the building work:
Your builder must make reasonable allowance for delays and this must be specified in your contract. Reasonable delays that arise from circumstances beyond the builders control, or could not be foreseen by the builder are okay.
However delays due to foundation issues or any other that the builder should or could have identified should not cause any extra cost to you or add time to the construction period
You may contact Consumer Affairs Victoria, and receive free advice on conciliation, however (unfortunately) participation by the other party is voluntary, and outcomes are unenforceable.
Seek advice about what can be contractually enforced, whether you can claim damages, and the best way to move forwards with your project.
Check if the Domestic Building Dispute Resolution Victoria service is available to you – https://www.dbdrv.vic.gov.au/
Resolving disputes with your builder, and the DBDRV:
DBDRV is a mandatory dispute resolution process for domestic building disputes. If you have a dispute with your builder which you can’t resolve yourself, you will have to go DBDRV before being able to make a claim at VCAT.
Before doing this, it’s always advisable to discuss the issue with your builder about the problem and see if you can resolve the problem together.
If you are not able to resolve the issue, send your builder a formal letter or email clearly outlining the problem and requesting a written response within a reasonable time period.
These letters will become evidence of your reasonable attempt to resolve the problem yourself in case your builder does not respond or you cannot agree with your builder, and you want to apply for dispute resolution through DBDRV.
The DBDRV is free (amazing, right?!) and has the power to issue dispute resolution orders when parties cannot agree. For example, your builder may be ordered to fix something at their own cost, or give you a discount on the project due to building delays. Note however that you may experience significant delays in having your claim heard and there is no guarantee that any order will be made.
Am I eligible to apply to the DBDRV?
- Building owners, builders, sub-contractors and architects are all able to apply to the DBDRV, as long as the building contract includes an owner. (Ie, a dispute over a contract between a builder and sub-contractor would not be accepted)
- Disputes that can be dealt with include defective or incomplete building work, delays, issues with payment, or issues about the domestic building contract.
- The problem must be part of extensive domestic building work – you may not be eligible of you have engaged someone for only one trade (such as painting).
- You must show you have made reasonable attempts to resolve the issue yourself before applying.
- You are unable to apply if your issue relates to building work that is more than 10 years old.
What can I do if I have been through the DBDRV process, or my matter is assessed as unsuitable for DBDRV conciliation, and my dispute remains unsolved?
You may be eligible for free legal assistance from the Domestic Building Legal Service, if you are considered to be in special need of assistance due to the financial stress arising from the building dispute or other circumstances.
The DBLS can help you prepare for a VCAT hearing and give advice on your chance of success.
What to do if there are problems with the work, and then your builder is declared insolvent, dies, or disappears:
You will be eligible for building warranty insurance, but getting insurance payout is difficult. You may need to spend thousands of dollars in legal costs and/or expert reports verifying the poor state of building work.
If granted, this insurance will cover costs up to $300,000 to fix structural defects for six years, and non-structural defects for two years.
Make sure you claim within time.
VCAT and claiming Building Warranty Insurance:
VCAT is the appropriate body to formally hear disputes about defective and incomplete domestic building work, claims for money owed, and to claim insurance.
Warranty Insurance can be claimed if the builder has failed to comply with a VCAT or Court Order.
Bear in mind, it is expensive to pursue builders through VCAT or Court, and there are often lengthy delays that in effect further postpone your building work.
Victorian Building Authority:
This authority regulates the licensing of builders, inspectors, building surveyors, and offers dispute resolution for specific kinds of building dispute. In most cases, building disputes should be referred to DBDRV.
If you want to make a general complaint regarding the professional standards of a particular builder contact the VBA – they have the power to register/deregister and discipline builders.
If things have gone wrong, and you are uncertain as to what to do, speak to us about:
- The best avenue towards a timely resolution of the dispute,
- What you can do if there is a breach of the contract or professional negligence claim,
- Whether you can terminate the contract (and the consequences of this), and
- Whether you need a building expert to provide a technical report.
And remember – there can be long wait times associated with DBDRV, so if you need to make a claim, don’t procrastinate!
This is general advice only. Liability limited by a scheme approved under Professional Standards Legislation.
Published May 23, 2018
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