Home Building & Construction Changes to Security of Payments Regulations a game changer for NSW Residential Builders’ ability to Resolve Disputes and recover Progress Payments Promptly

Changes to Security of Payments Regulations a game changer for NSW Residential Builders’ ability to Resolve Disputes and recover Progress Payments Promptly

Many residential building disputes relate to substantial sums and involve multiple complex issues relating to defects and informal contract variations.

When an owner occupier of new or renovated residential premises disputes a progress claim from a residential builder the current preferred forum for resolution of the dispute is the NSW Civil & Administrative Tribunal. However, proceedings in the Tribunal can be protracted and expensive meaning that residential builders will typically experience a significant impact on their cash flow as a result of the dispute in addition to facing ongoing legal costs and Barrister’s fees. In many cases, the experience of being involved in drawn out proceedings in the Tribunal is enough to deter builders from continuing to operate a residential building business.

Residential builders are entitled to apply for independent adjudication of a disputed Payment Claim and obtain an enforceable Determination usually within 21 days of lodging the Adjudication Application.

In addition, and perhaps even more significantly, a builder will accrue a statutory right to payment of an amount claimed in a Payment Claim and will be able to enforce that right through the Courts where a homeowner does not provide a Payment Schedule disputing the amount within the allowed time of service of the Payment Claim.

What Does this Mean in Practice for Residential Builders?

In practice, residential builders’ cash flow will be improved by their ability to enforce a statutory right to payment or apply for Adjudication of a disputed Payment Claim. Because of these rights, legal costs and financial hardship flowing from withheld payments will also be significantly reduced.

Another important benefit of these significant rights is that residential builders‘ bargaining power in relation to the negotiation of settlements and/or scopes of rectification work will be greatly improved where a genuine dispute exists.

Whilst a homeowner will still be entitled to bring a building claim in the NSW Civil & Administrative Tribunal, such a claim will not defeat or delay the builder’s entitlements under the security of payment laws and homeowners will be required to pay amounts payable by virtue of a statutory right to payment or Adjudication Determination prior to determination of any Tribunal proceedings.

What should Residential Builders do?

Like all matters under the Building and Construction Industry Security of Payment Act 1999 (NSW), all rights to payment flow from the service of a valid Payment Claim. Residential builders should, therefore, now be:

Seeking legal advice from experienced Building & Construction Lawyers in relation to the subtleties of utilising security of payment laws effectively including in relation to:
- the dates from and methods by which a Payment Claim can be served,
- the identification of Payment Schedules, and
- the strict time limits that apply in relation to Adjudication Applications.
Reviewing their contracting procedures, standard form contracts and Special Conditions to ensure they satisfy the minimum contracting requirements under the Home Building Act and include relevant provisions that will enhance their ability to utilise security of payment laws should the need arise.
Adopt complying forms to ensure service of valid Payment Claims with accompanying Supporting Statements.
Review and improve practices and procedures for administering contracts and formalising Contract Variations that meet the minimum requirements of the Home Building Act.

What does the Regulation mean for home owners?

The security of payment laws have always applied to work for developers or investors who did not reside in or propose to reside in the completed residential premises. However, those developers or investors will generally be familiar with building practices and security of payment laws and have existing access to construction lawyers.

However, mums and dads and first-time homebuilders will now need to be aware of the significant statutory debt that they will be liable to pay if they do not respond to a Payment Claim with a Payment Schedule disputing the amount claimed within the allowed time.

Homeowners should also be conscious of the need to respond swiftly to Adjudication Applications (typically within 5 business days) to avoid Applications being determined based purely on a residential builder’s submissions.

Conclusion

If you operate a residential building business, speak to one of our Building & Construction Lawyers today about preparing your business to be able to utilise security of payment laws.

For an overview of the security of payment laws as they currently exist, click here to download our popular Security of Payment Guide (fifth edition).

As a result of these changes we will be updating and releasing the fifth edition of our Security of Payment Guide in the coming weeks. To ensure you receive our Guide when it is updated, simply download our current version via the link above.

Security of Payment Guide

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The information in this article is not legal advice and is intended to provide commentary and general information only. It should not be relied upon or used as a definitive or complete statement of the relevant law. You should obtain formal legal advice specific to your particular circumstance. Liability limited by a scheme approved under Professional Standards Legislation.