5 things you didnt know about Domestic Building Contracts
By Boutique Melbourne Lawyers|June 03, 2014
If you are a, owner, owner builder or developer who engages a builder or subcontractor to build your home or complete your renovation, you need to know these 5 things before you're locked in to a contract
Did you know that an Owner- Builder assumes all liabilities and legal risks as that of a registered building practitioner? Owner-Builders must make sure that they maintain a safe workplace, are insured and conduct works in accordance with the Building Act 1993 and Building Regulations. However, an Owner-Builder is still an Owner and is required to enter into Major Domestic Building Contracts for any domestic building works over the sum of $5,000. The Contractor must then comply with the provisions of the Building Act 1993 and Building Regulations.
In most cases a Builder or Contractor will provide you with their contract ( Builders and Contractors usually use the standard HIA Building Contract or a MBAV Building Contract). Unless you have a building lawyer provide you with advice regarding your contract you wont know about the 5 crucial terms of the contract.
1: If you vary your Domestic Building Contract after signing the Domestic Building Contract, you will be charged the cost of the variation, builders margin and GST that will be added to the next progress payment payable. If the variation allows for a credit, you will receive the cost of the credit plus GST that will be deducted from your final payment payable.
To save yourself a lot of money make sure you remove any items from your Domestic Building Contract that you do not wish to proceed with before you sign the contract. This will save you up to 35% of the builder margin. By removing the item before you sign you will save the cost of the item plus the builders margin and you won’t have to argue about obtaining a credit later on.
2: NO CHARGING CLAUSES
A Builder or Contractor cannot add in a provision in the Domestic Building Contract which provides the Builder or Contract with an interest in your land that allows them to place a caveat or charge over the title of your land. The Builder or Contractor cannot have any security over your land or the site where the works are being undertaken to pay off any of your debts outstanding to them. Having said that, the Builder or Contractor may ask for a charge independent of the contract that may arguably permit the builder to lodge a caveat over your land. You should never sign any document that seeks to have you charge your interest in any land without first having taken legal advice.
3: COST ESCALATION CLAUSES
THE BUILDER OR SUB CONTRACTOR MAY RELY ON OTHER PROVISIONS IN THE CONTRACT TO INCREASE THE PRICE OF THE CONTRACT EVEN IF THE CONTRACT IS DESCRIBED AS A FIXED PRICE CONTRACT
If you have entered into a lump sum Domestic Building Contract with your Builder or Contractor, it does not mean that the contract price for the works cannot increase. The builder or contractor may still rely on any number of the following standard types of clauses to increase the price of the contract.Increase in Taxes, Provisional Sumd,Prime Cost Items, Variations, Interest on Overdue Payments, Boundary Survey.
Provisional Sums in your contract are for works for which the builder or contractor is unwilling or unable to fix a price, such as rock breaking equipment during excavation. In such circumstances a provisional allowance is included in the contract price if the allowance does not cover the cost of the works and you as the owner or owner builder must pay more.The provisional sum is the Contractor’s s estimate, which the law requires to be a reasonable estimate. However sometimes the Domestic Building Contract will provide for an allowance that is insufficient which means that you would have to pay the additional cost of the work together with the builder’s margin, usually 20 per cent or more of the actual cost to the builder of doing the work.
Provisional sums should be avoided. Some provisional sums are necessary but you should be wary where the builder seeks to include a lot of provisional sums or prime cost items (below).
Whilst most builders are reputable and do their best to provide reasonable estimates, sometimes some less scrupulous builders/Contractors may underestimate the provisional sums.
4: SPECIAL CONDITIONS
Special conditions are those terms that are added to the standard terms and conditions contained in the HIA and MBAV standard form contracts. Usually they are written into the contract bu hand. You should always seek advice before signing a contract with special conditions so that you understand the legal effect of any special condition and whether you should agree or not agree to its inclusion in the contract.
5: LIQUIDATED DAMAGES & DELAYS
Each stage should have a completion date noted in the Domestic Building Contract. It is often the case that the Builder does not provide you with acompletion date for each stage. Usually the number of days for construction is stated however no fixed date is noted. The Builder or Contractor must send you a notice requesting an extension of time claim in accordance with the Domestic Building Contract to make sure that they have placed a cap on liquidated damages. What the case usually is, is building work is delayed which could cost you a lot of money and loss if you are renting (as well as holding costs such as interest etc). You should ensure that the amount noted for liquidated damages and the amount you are paying for interest on the cost of building and/or accommodation prior to execution of your Domestic Building Contract to make sure you are covered for any delays.
It is most important that you note your liquidated damages since should the matter proceed via the Victorian Civil and Administrative Tribunal, VCAT does not make any orders in excess of the liquidated damages amount noted on your Domestic Building Contract.
Did you know that an Owner- Builder assumes all liabilities and legal risks as that of a registered building practitioner? Owner-Builders must make sure that they maintain a safe workplace, are insured and conduct works in accordance with the Building Act 1993 and Building Regulations. However, an Owner-Builder is still an Owner and is required to enter into Major Domestic Building Contracts for any domestic building works over the sum of $5,000. The Contractor must then comply with the provisions of the Building Act 1993 and Building Regulations.
In most cases a Builder or Contractor will provide you with their contract ( Builders and Contractors usually use the standard HIA Building Contract or a MBAV Building Contract). Unless you have a building lawyer provide you with advice regarding your contract you wont know about the 5 crucial terms of the contract.
1: If you vary your Domestic Building Contract after signing the Domestic Building Contract, you will be charged the cost of the variation, builders margin and GST that will be added to the next progress payment payable. If the variation allows for a credit, you will receive the cost of the credit plus GST that will be deducted from your final payment payable.
To save yourself a lot of money make sure you remove any items from your Domestic Building Contract that you do not wish to proceed with before you sign the contract. This will save you up to 35% of the builder margin. By removing the item before you sign you will save the cost of the item plus the builders margin and you won’t have to argue about obtaining a credit later on.
2: NO CHARGING CLAUSES
A Builder or Contractor cannot add in a provision in the Domestic Building Contract which provides the Builder or Contract with an interest in your land that allows them to place a caveat or charge over the title of your land. The Builder or Contractor cannot have any security over your land or the site where the works are being undertaken to pay off any of your debts outstanding to them. Having said that, the Builder or Contractor may ask for a charge independent of the contract that may arguably permit the builder to lodge a caveat over your land. You should never sign any document that seeks to have you charge your interest in any land without first having taken legal advice.
3: COST ESCALATION CLAUSES
THE BUILDER OR SUB CONTRACTOR MAY RELY ON OTHER PROVISIONS IN THE CONTRACT TO INCREASE THE PRICE OF THE CONTRACT EVEN IF THE CONTRACT IS DESCRIBED AS A FIXED PRICE CONTRACT
If you have entered into a lump sum Domestic Building Contract with your Builder or Contractor, it does not mean that the contract price for the works cannot increase. The builder or contractor may still rely on any number of the following standard types of clauses to increase the price of the contract.Increase in Taxes, Provisional Sumd,Prime Cost Items, Variations, Interest on Overdue Payments, Boundary Survey.
Provisional Sums in your contract are for works for which the builder or contractor is unwilling or unable to fix a price, such as rock breaking equipment during excavation. In such circumstances a provisional allowance is included in the contract price if the allowance does not cover the cost of the works and you as the owner or owner builder must pay more.The provisional sum is the Contractor’s s estimate, which the law requires to be a reasonable estimate. However sometimes the Domestic Building Contract will provide for an allowance that is insufficient which means that you would have to pay the additional cost of the work together with the builder’s margin, usually 20 per cent or more of the actual cost to the builder of doing the work.
Provisional sums should be avoided. Some provisional sums are necessary but you should be wary where the builder seeks to include a lot of provisional sums or prime cost items (below).
Whilst most builders are reputable and do their best to provide reasonable estimates, sometimes some less scrupulous builders/Contractors may underestimate the provisional sums.
4: SPECIAL CONDITIONS
Special conditions are those terms that are added to the standard terms and conditions contained in the HIA and MBAV standard form contracts. Usually they are written into the contract bu hand. You should always seek advice before signing a contract with special conditions so that you understand the legal effect of any special condition and whether you should agree or not agree to its inclusion in the contract.
5: LIQUIDATED DAMAGES & DELAYS
Each stage should have a completion date noted in the Domestic Building Contract. It is often the case that the Builder does not provide you with acompletion date for each stage. Usually the number of days for construction is stated however no fixed date is noted. The Builder or Contractor must send you a notice requesting an extension of time claim in accordance with the Domestic Building Contract to make sure that they have placed a cap on liquidated damages. What the case usually is, is building work is delayed which could cost you a lot of money and loss if you are renting (as well as holding costs such as interest etc). You should ensure that the amount noted for liquidated damages and the amount you are paying for interest on the cost of building and/or accommodation prior to execution of your Domestic Building Contract to make sure you are covered for any delays.
It is most important that you note your liquidated damages since should the matter proceed via the Victorian Civil and Administrative Tribunal, VCAT does not make any orders in excess of the liquidated damages amount noted on your Domestic Building Contract.
