Home Building Disputes

As a residential builder, obtaining payment from home owners can sometimes be a source of concern. Of, course, prompt payments can be assisted by issuing Progress Claims when you are entitled to do so and having good communication withe home owners and processes in place to ensure Progress Claims are paid on time. Needless to say, prompt payments usually assist in maintaining cash flow for your business and ensures that the building works can progress smoothly. But what happens if the home owners dispute a Progress Claim?

There may be a number of reasons why home owners may dispute a Progress Claim. For example, the home owners may disagree that you have completed the works properly, or may say that they do not agree to the amounts being charged. Naturally, you should try to resolve any disputes about Progress Claims amicably by discussion with the home owners, particularly if you are looking to preserve the ongoing working relationship in order to finish the building works and avoid expensive litigation.

We are often consulted by residential builders about what to do when home owners are failing or refusing to pay a Progress Claim. Early legal advice is vitally important to ensure that you know your rights and how to best resolve the dispute. We can help you with this. We recommend speaking to us first to obtain preliminary advice about your rights and obligations when there is a Progress Claim dispute, and before engaging in any communications with the home owners that may only inflame the situation or inadvertently cause you to breach or repudiate a contract.

Generally, the first step is to look at the terms of your building contract with the home owners to see what it says about when and how you can issue Progress Claims and the consequences if they are not paid. For example, your building contract may provide that you are entitled to issue a Notice of Breach or begin dispute resolution procedures if the homeowners fail to pay a valid Progress Claim.

Often, taking one of these steps will result in the home owners thinking more carefully about the Progress Claim and whether there is actually any real reason to withhold payment.

Your building contract may also give you a contractual right to suspend work. We can also help you with this and provide you with preliminary advices as to whether it is appropriate to give a Notice of Suspension. Importantly, this may allow you to avoid keeping on working and extending further credit to the home owners where there may be issues regarding payment.

However, if you are contemplating suspending the works, it is important that you only do so when there is a clear right at suspension. This is because if your suspension of works is not valid, you may find yourself in breach of the building contract, which may lead to you becoming liable for damages even though you were not initially in breach. We can help you with this and we suggest that you speak to us before issuing a Notice of Suspension.

Hopefully taking some of the above steps will be all that it takes to resolve your payment issues. However, if the home owner’s breach continues and you are not being paid, you may need to look at terminating the building contract. Again, this will depend upon the terms of the building contract and we strongly recommend that you speak to us first so that we can assist you with this and advise you about this and other options that may be available to you.

Legal arguments about the validity of a purported termination of a residential building contract are common simply because all too often the parties fail to refer back to the contract when problems arise.

If you have a situation where the home owners are disputing your Progress Claim and would like some advice and assistance to resolve your dispute as quickly as possible, please contact one of our experienced Building & Construction Law experts for a confidential no obligation chat.

If you are a builder carrying out residential building work, there may be situations when you would like to suspend the building works. Commonly this occurs when a home owner fails or refuses to pay a Progress Claim. This can cause problems for a builder who, naturally, may be reluctant to continue carrying out the building works where there may be cash flow issues or uncertainly as to whether the builder will be paid.

If the building contract is not suspended properly, however, the suspending party may itself be in breach of the contract and become liable for damages even though they were not initially the party in breach. In some cases, the invalid suspension may constitute repudiation of the contract and entitle the home owner to terminate the contract. If this happens the builder may face a claim for the additional costs of a third party completing the works.

It is, therefore, important that you exercise great care to ensure that the suspension is valid and will not itself create more problems.

In most cases, a suspension will only be valid if it is carried out in accordance with the terms of the relevant building contract between the parties. Often, a building contract will provide the builder with a right of suspension where the home owner is in substantial breach of the contract and the appropriate notices have been given. We can help you with this by reviewing your building contract and providing you with advice about when and how to suspend the works.

Generally, a builder cannot suspend the building works unless there is a contractual right to do so. If your business uses “standard form” building contracts, we can help with reviewing your contracts and drafting suitable Special Conditions to ensure that they deal with suspension rights appropriately and provide you with adequate protections.

In addition to contractual rights, in some circumstances, for example, where the owner is a development company or the home is to an investment property which is not owner-occupied, the builder may have additional rights to suspend the works under the Building and Construction Industry Security of Payment Act.

Importantly, a right to suspend the works will only arise under the security of payment laws if a valid Payment Claim has been served. We can also assist with this and give you advice about the validity of any Payment Claims that you have served and your ability to suspend work validly under the security of payment laws.

If you enter into a contract with a home owner to undertake residential building work and the contract price exceeds $5,000.00, then the Home Building Act provides that any variation must be in writing and signed by both parties prior to the variation works commencing.

If a variation is not in writing and signed by both parties, then a builder cannot enforce payment for that variation under the contract and will be left to make a “quantum meruit” claim under the law of restitution.

A quantum meruit claim is a claim for payment of reasonable remuneration for work undertaken that cannot be recovered under an enforceable contract. This means that the builder would, at best, be entitled to the reasonable market costs of the work undertaken, regardless of what the builder asserts was its actual or agreed costs for the works. Such claims come with risks and typically require expert evidence in relation to the reasonable cost of the works. In addition, a home owner may not be liable to pay the reasonable costs of a variation is, for some reason, it would not be just to order them to do so. The award of compensation in motivation is discretionary and can involve complex litigation.

In some circumstances it might also be possible for builders to successfully obtain payment for unwritten or unsigned variations by utilising Security of Payment laws.

To avoid disputes and risks of not getting paid for works undertaken, we strongly recommend that all variations to the scope of works under a residential building contract be put in writing and signed by both parties prior to any varied works being commenced.

If you need assistance recovering payment for variations or would like help to prepare a standard form of Contract Variation in future, call and speak to one of our experienced Building Experts & Construction Lawyers today.

Section 7(2)(b) of the Building and Construction Industry Security of Payment Act (‘SOP Act‘) states that the Act will not apply to a construction contract for the carrying out of residential building work “on such part of any premises as the party for whom the work is carried out resides in or proposes to reside in”.

Generally, therefore, the SOP Act will only apply to residential building work performed:

• under a subcontract, or
• pursuant to an agreement with a property investor or developer.

While it is clear that the Section excludes construction contracts for the carrying out of residential building work on premises in which the contracting party is or proposes to reside, a more difficult question may arise where a construction contract involves, for example, the construction of multiple dwellings including one in which a party proposes to reside.

The fact that Parliament opted to limit the exclusion to a construction contract for carrying out work “on such part of” the premises in which the party proposed to reside suggests that the Section should be interpreted so that a construction contract to carry out work on the whole of the premises, in circumstances where the party does not propose to reside in the whole of the premises, will not be excluded by Section 7(2)(b).

It is also important to note that, where a Payment Claim is issued in connection with a construction contract for residential building work, it must, unlike a Payment Claim issued pursuant to non-residential contracts entered into since 21 April 2014, clearly state that it is made under the Building and Construction Industry Security of Payment Act 1999.

If works to your home remain incomplete after the period that the contract stipulates works ought to be complete, then it is likely that the builder is in breach of the contract.

In extreme cases, this might give rise to a right of the homeowner to terminate the contract, but in most cases, it will only entitle a homeowner to make a claim for damages.

If your builder has ceased working on site for an extended period of time without formally suspending the work, there may be an entitlement to terminate the contract. Most contracts require a home owner to give the builder a notice particularising the breach and then to providing the builder with a further period of time to then remedy the breach before the contract can be terminated, and a third party then engaged to complete the works.

The first step is usually, therefore, to serve a Notice of Breach under the contract and provide the builder with the required period of time under the contract to rectify said breach. Where a builder has ceased work without proper explanation or notice, that breach will be the builder’s suspension of works other than in accordance with the contract, and the builder must therefore resume work within the period allowed by the contract to rectify the breach.

If after notice is given the builder refuses to return and continue the work, the contract can then be terminated and a third party then engaged to complete the works.

The termination of a contract can be a very complicated issue and many cases have been fought on whether contracts have been properly terminated. If you do not properly terminate a contract, you could end up being sued by the builder for repudiating the contract. We, therefore, strongly recommend, if your builder is delaying completing a build, to contact a Solicitor as soon as possible so that, if termination of the contract is necessary, it is done properly.

If you pay the third party more than you would have had to pay the builder to complete the incomplete works, you can bring a claim, either in the NSW Civil & Administrative Tribunal (“NCAT“) or the Court, against the builder to recover those reasonable additional costs. You can also claim damages for any costs incurred due to the delay in completion of the works, including storage fees, rental expenses etc, and subject to any limitation clauses in the contract.

If a home owner submits an Application to NCAT before going through the steps of providing the required notice and terminating the contract, this can cause more issues than assistance.

We strongly recommend contacting an experienced Home Building Lawyer if you have problems with completion of your build.

Disputes as to the timeliness, quality, value and compliance of works in residential building contracts are all too frequent. Commonly, relatively simple disputes get out of hand quickly as emotions run high and parties seek to “hit the other where it hurts”. Home owners refuse to pay and builders refuse to build.

If you’re a builder or a home owner involved in a residential building dispute, you need to act quickly to ensure that your rights are best protected.

Prevention is better than cure

Typically, home owners are provided with ‘standard form contracts’ by a builder on a ‘take it or leave it’ basis and then sign them with little or no regard for their contents.

Similarly, builders often use contracts provided by industry associations without regard for their own individual circumstances or risks that may be unique to the project that they’re about to undertake.

Builders and home owners alike should beware; one size does not fit all.

At Roberts Crosbie Mortensen Lawyers, we are very familiar with the common standard form contracts used by builders and in building projects, we recommend the addition of special conditions tailored to suit your individual circumstances and project. An early consultation with us prior to signing a contract will also provide an opportunity to ask any questions that you may have and to help you understand what it is you’re agreeing to.

When a dispute with your builder arises

Most building contracts contain specific steps that need to be followed when a dispute arises. Failing to follow these steps carefully can damage your position if the dispute is not resolved and moves to Court or Tribunal proceedings. It is important to get legal services and advice at the earliest opportunity to mediate and ensure that you meet all of your contractual obligations that arise because of the dispute. Usually this will be as soon as it appears likely that a dispute will arise.

Disputes about quality of work or incomplete work

Whilst the steps in resolving disputes may vary from contract to contract, the first step is usually to give a written notice to the builder identifying the works that you consider to be defective. The notice should state that you require the works to be rectified, and allow a reasonable time for the builder to do so. Failing to give the builder an opportunity to rectify their work can be fatal to any future claim for rectification that you may have.

Typically, the contract will make provision for the issuing of such a notice, therefore, in each case it is essential to consider the terms of the contract to ensure that the notice is issued consistently with them.

When you cannot agree

It’s not uncommon for builders and their clients to disagree about whether works are actually defective. When an impasse such as this is reached, it’s time to bring in an independent expert Building Consultant to offer advice and prepare a Defects Report. Be warned, not all Building Consultants are the same. Many Consultants are overzealous, and can give clients a badly distorted picture of their true position as they strive to find as many “defects” as possible. Other consultants are inexperienced and do not properly interpret codes and standards sufficiently to protect their client’s interests.

It’s always best to consult first with a Solicitor experienced in building disputes, that can guide you through the process and refer to you a competent Building Consultant that is right for your needs.

Refusal to rectify

If the builder will still not repair defects identified by an expert report, they may be in breach of the contract or a statutory warranty implied under the Home Building Act. The matter should then be referred to Fair Trading and if it still cannot be resolved, proceedings should then be commenced in the NSW Civil & Administrative Tribunal or Court of competent jurisdiction. Outcomes from the Tribunal include Orders for the builder to rectify works or the award of compensation of an amount that will enable the home owner to have the defects rectified by others.

Parties to a dispute in the Tribunal can be self represented in some types of matters. However, your chances of success will always be best if you seek the help of a Solicitor experienced in building disputes to assist in the preparation of your case and to represent you at directions and hearings.

For a home owner, engaging a builder to carry our residential building work, whether it is for a new home, renovations and extensions or a smaller project, can be a very stressful time. One of the common issues that can arise and cause conflict with you builder occurs when the building works have not been completed properly and are defective. Unfortunately, a home owner may sometimes find that some parts of the building works have either not be built to the plans and drawings or there are problems with what has been built.

In the first instance, you should always look at your building contract to find out your rights and obligations in relation to defective work. For example, a building contract will usually require you to provide a list of defects within a short period of practical completion having been reached. There are also other statutory warranties that apply to residential works. We can help you with this and provide you with advice in relation to your rights.

If you are concerned about your building works and have spoken with your builder and attempted to resolve any issues amicably without success, one option is to contact the Department of Fair Trading and make use of their free, voluntary mediation service. Both the builder and home owner need to agree to attempt a resolution in order to use this service.

As part of the process, the Department of Fair Trading may ask one of its building inspectors to undertake an inspection of the specific items complained about. If the building inspector considers there are problems with the works, the Department of Fair Trading will issue a Rectification Order which sets out a list of work to be rectified or completed by a particular date. It is a condition of the builder’s Contractor Licence that a builder comply with a Rectification Orders issued by the Department of Fair Trading.

Generally, attempting mediation through the Department of Fair Trading is a prerequisite to bringing residential proceedings in the NSW Civil & Administrative Tribunal. However, it is not required if you choose to commence proceedings in the Local or District Courts in respect of your building dispute.

The NSW Civil & Administrative Tribunal has similar powers to issue a Rectification Order. Such an Order is binding on both parties. However, unless both parties are agreeable to the Rectification Order being made, the Tribunal may prefer to make a monetary order for the payment of damages.

There are strict time frames that apply to home owners in making a claim for defective and/or incomplete works. It is, therefore, important that you speak to an experienced Building & Construction Lawyer to obtain a proper assessment of your rights as soon as an issue arises.

If you require advice or would like to know more, please contact one of our experienced Building & Construction Lawyers for a confidential, Free Case Evaluation.

Almost always, a builder must be a given a reasonable opportunity to complete their own work or to rectify any defects within their works, before any further steps can be taken by an owner to have the work done by others.

Most standard form building contracts used within the building industry contain specific steps which must be followed by both owners and builders if an owner is unhappy with a builder’s work.

Failing to follow these steps can put owners in breach of the contract and unable to claim the costs of repairs, or even worse, liable to pay the builder financial compensation for the breach.

Section 18B of the Home Building Act 1989 (NSW) implies certain warranties into every residential building contract. Amongst those, are warranties that a builder will perform work with due care and skill and in accordance with the plans and specifications set out in the contract, and also that the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time.

Section 18BA Home Building Act 1989 (NSW) then provides, in turn, certain obligations on the builder’s client. One such important obligation is, that in the case of a builder breaching warranties as to workmanship or timeliness, that the client may not unreasonably refuse the builder access needed to rectify that breach.

The question of what is unreasonable will depend on all of the circumstances of the particular case, and where an owner hires another builder, and the dispute comes before a Court or Tribunal, it will be for the owner to prove that the builder was given every reasonable opportunity to complete the works and rectify any defects, and that they were unwilling to do so.
There are however, some circumstances in which you may get another builder to complete or rectify work. One such circumstance is where the builder is given the opportunity to rectify defects or complete works in accordance with the contract, but the builder continues to refuse to repair or complete. Another such circumstance is where the relationship between the owner and builder is in such a deteriorated state that it is unworkable or, that because of a builder’s past performance on site, there is a complete lack of confidence by an owner in the builder’s ability.

Owners should be extremely cautious before deciding to get one builder to finish another’s incomplete or defective work, as even if you are successful in your claim against the original builder, the damages awarded may well be inadequate to cover the cost of the subsequent builder.

If you’re considering getting a new builder to complete work or rectify defects of an earlier builder, it is better to be safe and to first seek the advice of an experienced construction specialist lawyer to assess the merits of your individual situation.

It is not uncommon for a builder to make representations to a home owner in the course of negotiations for a Residential Building Contract where the subject matter of the representation is something that isn’t expressly covered in the final contract.

However, where the home owner relies on a representation made, such that they otherwise would not have entered into the contract or would have done something differently, then problems can arise if the representation turns out to be false or misleading and the builder is not willing to stand by it.

Common examples of these types of representations include:

• Representations in relation to times for obtaining building approvals or the carrying out building works,
• Estimates in relation to the cost of works or variations, particularly where the contract is a Cost Plus Contract or Do-and-Charge Contract, and
• Representations in relation to the skill or experience of the builder.

Home owners can find themselves facing significant costs as a result of delays, inaccurate estimates or discrepancies in the nature or manner of the work performed in these situations.

Where this occurs, home owners may have a right to compensation or other remedies under The Australian Consumer Law. Section 18 of The Australian Consumer Law provides that a person (or company) shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. It makes no difference whether the misleading or deceptive conduct was intentional or not.

A representation in relation to a future matter, for example an estimate of costs, will be taken to be misleading if the person making the representation did not have reasonable grounds for making it.

If a home owner suffers loss or damage as a result of misleading or deceptive conduct (whether intentional or not) on the part of a builder they will have a prima facie claim for damages under Section 18 of The Australian Consumer Law.

However, damages (or any other remedy) will only be available if the misleading or deceptive conduct is the cause of the home owner suffering loss or damage. The question of causation here turns on the evaluation of whether or not the home owner acted in reliance upon any misleading or deceptive representation (or conduct) made by the builder and, if so, whether it was reasonable for the home owner to rely upon the particular representation.

In the context of residential building disputes, reliance will typically be in the form of the home owner proceeding to enter into a building contract with the builder.

Even if the residential building contract includes provisions to the effect that the terms of the contract constitute the entire or whole agreement between the parties or that the home owners have not relied upon any representation made by the builder when entering into the contract, a home owner may still have a claim against the builder for misleading and deceptive conduct if their reliance was reasonable nevertheless.

The loss or the damage that a home owner may suffer as a result of misleading or deceptive conduct will depend on the particular circumstances. For example:

• An owner who relied upon a representation in relation to an estimated cost of works when entering into a contract may be entitled to recover the difference between the amount paid to the builder and the amount that the home owner could have negotiated with another builder for the work to be performed under a lump sum price contract.
• A home owner who relied on a representation in relation to the period of time for completion of the works, and thereby failed to include any express term relating to the period in which the work was to be completed, may be entitled to recover damages associated with additional rent or holding costs in connection with the delays.
• A home owner who relied upon a representation relating to the nature or manner of work that was to be performed (or work that was to be the subject of a variation) may be entitled to recover costs of having the work redone or rectified so that it corresponds to the manner represented by the builder (for example if the contract or variation did not sufficiently describe the work or corresponding specifications).

If you feel that you may have a claim against a builder for misleading and deceptive conduct you have a general duty to mitigate your loss.

Speak to one of our Building & Construction Lawyers today to discuss your claim, the loss or damage potentially recoverable and what you should be doing to mitigate loss.

Generally, a builder or home owner may commence proceedings in relation to a residential building dispute in

• a Court of competent jurisdiction (subject to relevant limitation periods), or
• in the NSW Civil & Administrative Tribunal (“NCAT”) provided that:
  • The amount claimed does not exceed $500,000.00 (Section 48K(1)), and
  • Proceedings are commenced within three (3) years of the related supply of building goods or services (Section 48K(3)).

Notwithstanding, it is apparent from the Home Building Act that NCAT is to be chiefly responsible for resolving building claims in NSW. Significantly, Section 48L(2) of the Home Building Act provides that if a Defendant in any Court proceedings in respect of a building claim makes an application for the proceedings to be transferred to NCAT, the proceedings must be transferred and will thereafter continue before NCAT as if they had been commenced there.

Whilst case management by Judges and Magistrates may be preferable to case management by NCAT Members, unless the parties agree for the proceedings to be determined by a Court (and not a Tribunal) or no Defence to a claim is anticipated, then it is usually the case that proceedings for claims under $500,000.00 should be commenced in NCAT or will ultimately end up being determined by NCAT.

There remains, however, some strategic benefits of commencing proceedings before a Court even if the claim will be disputed. For example, Court proceedings will permit the early issue of Subpoenas and the accessing of documents from third parties under Subpoena.

Parties who commence their own proceedings will typically miss this opportunity and, in any case, will invariably set themselves up for delays and additional costs associated with the subsequent need to properly plead and particularise their Points of Claim in order for the proceedings to efficiently proceed.

Ultimately, before commencing any proceedings before a Court or NCAT in relation to a building claim it is strongly recommended that you speak to a Building & Construction Lawyer.

If you are involved in a residential building dispute, use the link above to request a Free Case Evaluation by one of our Building & Construction Lawyers.

Insurance under the Home Building Compensation Fund is required to be obtained by a builder entering into a residential building contract of greater than $20,000 (including GST) with a home owner prior to commencing any work under that contract.

Insurance policies under the Home Building Compensation Fund provide a set period of cover for loss caused by defective or incomplete works.

Cover for loss arising from defective work is provided for:

• Six (6) years from the date of completion of the works for loss arising from a major defect in residential building work, and
• Two (2) years for any other loss.

A home owner can only claim on a policy of insurance under the Home Building Compensation Fund in the event of the death or insolvency of the builder or where the home owner can establish that the builder has disappeared. There are a number of grounds that a home owner must establish to prove the disappearance of a builder.

If the builder is still trading and able to be located, a home owner cannot claim under the policy of insurance. It must bring a claim directly against the builder.

To make a claim under a policy of insurance under the Home Building Compensation Fund a home owner must notify the insurer. Once a claim is lodged, and accepted, the insurer not only takes the place of the builder in the claim, they can also rely upon the insurance policy taken out between the builder and the insurer.

Homeowners should notify the insurer of their claim within six months of when they first become, or ought to have reasonably become aware, of the fact or circumstance giving rise to the claim; or if the claim is for losses caused by non-completion of work, within 12 months after the date in which work ceased or if no work was done, the date on which the contract specified that work should have commenced. Whilst sometimes claims may be bought after that time, the insurer may reduce their liability, and in most cases, the amount of that reduction will be purely at the discretion of the insurer.

We suggest you seek legal advice before lodging any insurance claim under the Home Building Compensation Fund to ensure that all evidence and relevant details are provided to the insurer to maximise any payout of your claim.