Should I have my building contract reviewed?
This post follows on from our previous post ‘Aren’t building contracts just ‘standard’ documents that all builders use?‘ which debunks the misconception that all building contracts are the same, just ‘standard’ documents that builders use, therefore there is no point having them reviewed by a building contract expert.
We’ve highlighted three critical sections of the ‘standard’ building contract that are commonly changed (i.e. watered down) by builders, often without the homeowner realising; these sections require careful review:
- Special Conditions
- Definitions of Stages
- Stage Claims & Payment Percentages
Let’s now delve deeper into Stage Claims and Payment Percentages…
For a typical build it is important to ensure the percentages of each stage claim are aligned with the standard progress payment percentages. The standard percentages are outlined in Method 1, set out in the Domestic Building contracts Act are as follows:
- Deposit 5%
- Base 10%
- Frame 15%
- Lockup 35%
- Fixing 25%
- Complete 10%
When changing the standard percentages, builders may contractually request more money earlier in the build where the percentage requested does not correlate to the amount of work completed, this is known as a Method 2 payment schedule and should be read and understood carefully. By agreeing to this Method, the homeowner will find themselves paying more than they legally should which has interest implications and could cause insurance issues if a claim was to arise with their Domestic Building Insurance.
It is common for claims to be requested early, so it’s important once a claim is received from the builder, the homeowner completes their due diligence to ensure the stage has reached completion. What is equally important is to ensure any lawful payment requests are no delayed. If the stage claim has been issued too early by the builder, then clauses in the contract can be utilised. For example, clauses such as;
“Builder must not demand or recover or retain more than the percentage of the Contract Price stated for the completion of each Stage of the Works.”
Examples of stage definitions and payment schedules from a contract we recently reviewed:
Stage definitions and progress payments from a recent contract we reviewed:
Frame Stage
CONTRACT DEFINITION: “The stage when the house frame is substantially complete. Does not include windows, pergolas, carport, patio, garden or any external structure frames. Or a percentage of the next stage has commenced. 20% of contract value progress payment.”
This definition is ambiguous and would require homeowner to pay a progress claim earlier than normal. The standard definition outlines in a Method 1 payment definition and the Domestic Building Contracts Act = “the stage when a home’s frame is completed and approved by a building surveyor”
The standard progress payment set out in the Domestic Building Contracts Act is 15%, the builder has added and additional 5% which for an average home could be $15k-$30 more at the early stages of construction.
Lock-up Stage
CONTRACT DEFINITION: “The stage when the house external wall cladding, eaves, lining and roof covering is substantially installed and external windows and doors are fixed, even if those doors or windows are only temporary. Does not include timber windows, timber sliding doors, or bi-fold doors. Or a percentage of the next stage has commenced.”
The majority of this definition is quite standard for the way they build these days. However, words like “substantially” and the sentence such as “or a percentage of the next stage has commenced” adds ambiguity and could require you to pay a progress claim earlier than normal = unknown when completion has been achieved.
The standard definition outlines in a Method 1 payment definition and the Domestic Building Contracts Act = “the stage when a home’s external wall cladding and roof covering is fixed, the flooring is laid, and external doors and external windows are fixed (even if those doors or windows are only temporary);”
Completion Stage
CONTRACT DEFINITION: “The stage when all other items listed in the contract, including statutory requirements, are complete, with the exception of minor defects or minor omissions, and appliances, for which installation will be completed by mutual agreement of the parties to the contract.”
This definition as it has been significantly altered compared to that of the standard definition set out in the Domestic Building Contracts Act = “the Building Works are complete in accordance with the Contract Documents.”
There are many logical reasons to have your building contract reviewed before signing it. If you’re looking to enter into a building contract in the future, we hope this post has helped highlight some important factors considered in a contract review by an expert building consultant before you sign on the dotted line.
Contact our friendly team about your build, our experienced team of building contract specialists would be pleased to assist with your building contract in Geelong.
