Major Domestic Building Contracts: what you should know before signing one

This article is directed at owners looking to build residential property in Victoria.

We have recently provided advice to clients about how they, as homeowners, might terminate their home building contracts and/or recover money from a builder who is either:

1. taking too long to complete the build; or
2. carrying out defective work; or
3. charging amounts above the contract price.

To avoid the above, one should be aware of the rules and regulations governing a Major Domestic Building Contract and domestic building work in general, before committing to an agreement with a builder.

The Domestic Building Contracts Act 1995

Domestic building work is regulated by the Domestic Building Contracts Act 1995 (Act). The Act applies to the following work:

1. The construction of a home or any part of a home including, but not limited to, any associated work such as landscaping, driveways, fencing, carports, swimming pools etc.
2. The renovation, alteration or any improvement of a home.
3. The demolition or removal of a home or any part of a home.
4. Preparation of plans or specifications for a home.

If you are engaging a builder or contractor to carry out any of the above work and the work is valued at over $10,000.00 (including materials and labour), and the work involves more than one specific type of work (e.g. not just painting), you and the builder are required to enter into a major domestic building contract. Only a registered builder can enter into a Major Domestic Building Contract.

Before signing a Major Domestic Building Contract, you should check the following:

1. Your builder is registered with the Victorian Building Authority (VBA).
2. Your builder has provided you with a copy of the Domestic Building Consumer Guide by the Consumer Affairs Victoria (CAV).
3. Your builder has provided you with a copy of the builder’s current domestic building insurance (for work over $16,000.00) with the address of the building project. This protects you if the builder dies, becomes insolvent or disappears.
4. The work to be carried out is clearly and comprehensively described in the contract.
5. There are no unfair terms contained in the contract and any special conditions are properly reviewed and understood.
6. Ensure that all building fees, lodgment fees, inspection fees and government levy charges are included in the contract price. Be aware of the charges not included in the contract price, which must be specified as excluded in the contract.
7. Where possible, avoid prime costs items and provisional sums as they can increase the contract price.
8. You understand the procedure for changes to the contract.
9. Your contract states the start and finish date, which accounts for the days allowed for foreseeable delays.

It is a good idea to enter into a written contract with your builder regardless of the amount you intend to spend on your home build or renovations. A model domestic building contract can be found on the website of the CAV.

Implied Warranties

Under the Act implied warranties form part of every domestic building contract.  The builder warrants that:

1. The work will be carried out in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract.
2. All materials used by the builder will be fit for purpose.
3. All work will be carried out in accordance with law.
4. The work will be carried out with reasonable care and skill.
5. The work will be completed by the date specified in the contract.
6. If the work is to be completed to a stage suitable for occupation, then the home will be suitable for occupation at the time of completion.
7. If a particular purpose for the work is stated in the contract, then the work and material used by the builder is fit for that purpose.

If you believe your builder has not complied with the above, you should raise the issue with the builder and allow them an opportunity to rectify the issue. You must make attempts to resolve the issue before taking further action. If your builder refuses your request or is non-responsive, you can then take the dispute to the Domestic Building Dispute Resolution Victoria.

You cannot sign away your right to take advantage of a warranty under the Act.

Changes to the contract price

You should also look out for how changes can be made to the total contract price and take note of excluded costs in the contract.

The contract price specified in a Major Building Domestic Contract will be fixed, subject to legal changes. Legal changes include agreed variations, the actual costs of prime cost items and provisional sums. Excluded costs must be specified in the contract.

Your contract must specify prime cost items and provisional sum items and include a cost estimate for each item and selection. Prime costs items are selections of fixtures and fittings which are not specifically identified in the contract (e.g. kitchen appliances). Provisional sums items are works or potential works which an exact figure cannot be given for at the time of signing the contract (e.g. excavation works).

By law, you and your builder must agree in writing to make a variation to the contract and if it necessary, include a new contract price and completion date. You should not pay for the cost of a variation if your builder should have reasonably foreseen the cost at the time of signing the contract.

If you are asked to enter into a cost-plus contract (i.e. not a fixed contract and the builder charges by the hour), you should seek legal advice.

Deposit and Progress Payments

The law also sets out amounts for maximum deposits and standard percentages for payments at each completed stage of your build. Progress payments set out in your contract should not be front loaded i.e. large portions of the contract price payable in the first few stages, as this heavily favours the builder. If you do this, you risk the builder taking the money and not finishing the job. The domestic building insurance may also not cover advanced payments.

How we can help you

We can assist you with advice about a domestic building contract prior to entering into the contract or with a building dispute with respect to building works already commenced.

If you require any advice or assistance in relation to domestic building contract, please do not hesitate to contact us.

Written by Grace Beale, Solicitor

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