Look before you Leap: The Importance of Domestic Building Contracts Part 1
Building a house is an exciting yet stressful time for all involved.
The process can be a logistical nightmare requiring coordination of council permits, architects plans, engineering reports and construction of the building itself. And holding the whole operation together stands a number of domestic building contracts, executed to (hopefully) protect the rights of all parties and provide for resolutions if something goes wrong.
Domestic building in Victoria is highly regulated. The principal legislation governing the area is the Domestic Building Contracts Act 1995 (Vic.) which regulates contracts, dispute resolution and insurance requirements for builders. Contracting parties also need to be aware of the Building Act 1993 (Vic.), the Building and Construction Industry Security of Payment Act 2002 (Vic.), the National Construction Code and all the subordinate legislation sitting within the regime. Together, the legislative regime regulating domestic construction spans thousands of pages.
However despite these layers of protection for consumers, it seems to be a common error that consumers will simply sign a domestic building contract without a proper review, thinking that if it is a standard contract then they are adequately protected.
It is clear that domestic construction is a highly complex area of law. Building a house is often one of the most expensive investments a person will undertake in their lifetime. Given the complexity of building contracts and the size of investment, it is crucial to have these contracts reviewed by an experienced lawyer before signing. An experienced lawyer will be able to point out the key risks and provide advice during negotiations.
Failing to undertake due diligence can have enormously costly consequences. Some of the most common problems we see include:
- Insufficient liquidated damages, leaving the parties out of pocket in the event of a breach by the builder or undue delays;
- Unfair costs for stages of construction, leaving builders with large sums of money upfront and less money to complete a project;
- Excessively high interest rates on unpaid invoices set out in the contract;
- Insufficient money held back during the defects liability period, leaving the builder with little incentive to properly complete the works;
- Not enough investigation into the builder’s solvency and financial position at the start of the project, risking cash flow issues on site from day one;
- Not enough documentation or description of fittings resulting in hidden charges; and
- Builders’ variations for works which may seem obvious but actually fall outside the scope of plans, resulting in extra costs.
A properly drafted construction contract is one of the best investments you can make.
If you are looking to build and need advice, please do not hesitate to contact a member of our Construction Law team.
