Any person wishing to enter into a residential building contract under the Home Building Act 1989 (“the Act”) must be aware of the specific legal obligations that are mandatory before a contract is deemed valid under the Act.
For residential building contracts worth over $5,000, the Act requires owners to be provided with certain guides and checklists (“the Documents”) from their builder or contractor. These Documents are designed to outline an owner’s rights and obligations during the residential building process.
More specifically, the Documents required to be provided to owners under the Act are as follows:
- For contracts worth over $5,000 – the Consumer Building Guide;
- For contracts worth over $20,000 – the Consumer Building Guide, the NSW Government Contract Checklist and the NSW Security of Payment Guide.
Consumer Building Guide
For residential building works with which the contract price is expected to exceed $5,000, the Consumer Building Guide (“CBS”) is required to be given by builders or contractors to the owners before entering into the residential building contract.
The CBS is regularly updated to reflect any changes to laws or policies applicable to residential building works. Items provided within the CBS includes information on:
- Builder Licencing requirements;
- The Home Building Compensation Scheme;
- Contracts and Payments (including fixed price, lump sum or cost plus contracts);
- Common traps and tricks;
- What happens when things go wrong (including applicable Statutory Warranties); and
- Dispute Resolution processes.
As a home owner, reading through this guide is crucial in understanding basic concepts regarding residential building works.
NSW Government Contract Checklist
Like the CBS, the NSW Government Contract Checklist (“CC”) must be provided by Contractors to principals/owners before entering into Residential Building Contracts with which the contract price is expected to exceed $20,000.
The CC is a much more in-depth checklist as compared to the CBS and requires owners to answer a series of “yes or no” questions in relation to their proposed residential building works.
If an owner answers “no” to any of the questions, they should not rush in to sign the contract and make sure they understand every term referenced in the CC.
The CC asks questions of owners which includes:
- Does the builder’s licence cover for the type of works included in the contract?
- Does the contract clearly state a contract price, or if not, contain a warning that the contract price is unknown?
- Are you aware of the cooling-off provisions relating to the contract?
- Do you understand the procedure to make a variation to the Contract?
- Do you understand that you are not required to pay the contractor a deposit or any progress payments until the contractor has given you a certificate of insurance under Part 6 or Part 6B of the Home Building Act 1989 (except where the work is of a kind that does not require insurance)?
- Does the contract include a statement about the circumstances in which the contract may be terminated?
After reading through the checklist, an owner is required to acknowledge and sign that they understand all terms within the CBS and the CC, and have answered “Yes” to all the terms within the CC.
This acknowledgement will form part of the contract that a builder may be able to rely upon in the case a dispute is to arise.
Security of Payment Guide
Residential building contracts with a contract price over $20,000 are required to include a Security of Payment Guide.
This guide provides key information about a builders or contractors rights and responsibilities under the Building and Construction Industry Security of Payment Act 1999 and the Building and Construction Industry Security of Payment Regulation 2020.
The guide informs contractors of their right to receive ‘progress payments’ for construction works done under a residential building contract.
Specifically, the guide includes key information such:
- What contracts the Security of Payment Laws apply to;
- What contracts the Security of Payment Laws do not apply to;
- What is a progress payment and how their amounts are determined;
- Due dates for payment; and
- What happens in the event payment is not made on time.
Both parties to a residential building contract need to be aware of their rights and obligations under the Security of Payment Laws in order to avoid unnecessary adjudication appearances or litigation.
Penalties for not including these Documents into your Contract
The Act provides specific penalties for individuals or corporations who do not comply with the requirements to include these Documents within Residential Building Contracts.
Section 7A of the Act provides that a person must not contract to do work unless the requirements of the Act are complied with, which includes attaching the Documents to the relevant contract. An $8,800 fine applies for Corporations or $4,400 for an individual.
Furthermore, Section 10 of the Act outlines that if a contract is not in writing or does not have a sufficient description of the works, the builder cannot enforce the contract and will not be entitled to any damages. However, Builders need to beware that the contract can still be enforced by the homeowner for any breach of obligations committed by the builder.
The information contained within the Documents are a great way to ensure you are prepared for the differing processes that are involved with residential building works.
If you do not understand any legal rights and requirements outlined within the Documents, it is crucial you seek advice before signing a residential building contract.
Our team at Keystone Lawyers are experts in building and construction law and can advise you on key rights contained within the Documents and how these will affect your specific residential building contract.