Of late we have had multiple clients approach us seeking advice on a home building contract that has been provided by their builder. One common comment we hear at such times goes along the lines of:
“It’s their standard contract, it should be pretty straight forward.”
Unfortunately, these contracts are anything but straight forward. The contracts used by most builders are based on standard templates provided by various industry bodies, which usually do not sufficiently protect the interests of the home owner.
Regrettably we don’t have the space or time to go into all the possible pitfalls, so will outline a few of the major concerns:
(a) Amendments to the Contract: Just because the contract is based on a standard template does not mean it can’t be amended. Builder’s often include amendments which allow them greater leeway on price and time and so too should home owners require amendments to protect their interests.
(b) Variations to the Price: One common area of disputes between builders and home owners relates to variations, specifically those resulting in an increased price. While there may be a single price listed at the front of the contract, almost every building contract has provisions for this amount to increase (and rarely for it to decrease). For example there will almost always be a provision allowing for an increased price if there are any “unforeseen” site conditions. Given that the builder is the expert then it is in the best position, and should have the experience, to foresee any potential difficulties. The builder should be responsible for identifying these and allowing for them in the quoted price. We recommend a simple amendment requiring that the builder has inspected the site prior to commencement of work and cannot request a variation of price for any site condition which should have been apparent on such an inspection.
(c) Payment: Most contracts will require “progress payments”, being payments to be made at intervals during the works. This may sound fair, however the amounts allocated are often arbitrary, and may not reflect the actual value of work done, resulting in major issues if the work is never completed. Additionally you may be paying for defective work which will not become apparent until the house is complete. We recommend requiring a warranty by the builder that the progress payments accurately reflect the work done to that point, and that the home owner be allowed to retain a percentage of any payments (ideally 5-10%) against any possible defects.
(d) Building Defects: Once the building is complete there is usually a “defects liability period” during which the home owner may notify the builder of any defects and which the builder must then repair. Our experience is that these clauses usually do not go far enough to protect the home owner. They are usually too short (13 weeks, where 26 weeks would be preferable) and may limit the number of times you can provide a list of defects to the builder to 1. The latter limitation may result in you having to make the difficult choice between waiting until the end of the liability period to provide your list, and therefor living in a potentially dangerous home, or providing the list early and forgoing your right to have any later defects rectified.
The matters discussed above are far from exhaustive. If you are considering accepting a builder’s quotation it is of vital importance that you have their contract reviewed to ensure that you, and your future home, are properly protected. If you are thinking of entering a building contract, or have any questions, please contact our Property team.