If you are a first home buyer in Queensland taking advantage of the government’s building scheme, or you’re building or renovating your dream home, you may be required by law to enter into a contract with your builder. This is governed by the Queensland Building and Construction Commission Act 1991 (the “QBCC Act”) which legislates the contract requirements for domestic building works.
The QBCC Act sets out the minimum requirements to be included in a domestic building contract, with different requirements depending how much the contract price is. The two levels of contracts which contain different key requirements are:
· Level 1 Contracts priced at $3,301 - $19,999; and
· Level 2 Contracts priced at $20,000 or more.
Whilst domestic building works for $3,300 and under does not legally require a written contract, it is still important and recommended to have some terms and conditions in place to avoid any potential disputes.
Key contract clauses to be aware of and which you should include in all contracts include:
Cost
Arguably the most important clause in your contract is how much it is going to cost you for the builder to build or renovate your home. You may negotiate with your builder a fixed-price, where the sum is determined prior to construction commencing, or a cost-plus price, where there is an uncapped budget and you pay all costs, plus a margin for the overheads. It is highly recommended you receive legal advice before signing any contract, especially a cost-plus contract as it carries a higher legal risk, and we have found often ends in disputes.
Variations
One particular item to be mindful of in a fixed-price contract is the cost of variations. Although you may have agreed on a fixed-price with your builder, this amount may be varied by approval if there has been an increase or decrease in the scope of works or a change to the materials. It is important to know what is included in the scope of works to avoid any surprise costs, and beware of variations charged by the builder to deal with issues the builder should have been reasonably aware of before starting the works.
Entering site
A clause that all owners should be aware of and one that is included by builders in nearly all building contracts that we see, is a specific provision for when a client is allowed to enter the site (your home). It can be very problematic if you enter the site unannounced when notice must be given under the contract, as the builder may use this as grounds for your breaching the contract and as a way to try and terminate the contract. We have often seen clients who are very “chummy” with the builder when quotes are being given; however, if the builder has under quoted to get the job and then finds he/she cannot complete the project for that amount, they often use this as a reason to try and get out of the contract.
Implied warranties
Whether or not your contract has stated warranties, you are covered under the QBCC Act a set of statutory warranties deemed to be part of the contract. If the builder breaches any of these warranties, it may give rise to various remedies, and, if legal action is required, it must be commenced within the warranty period.
Extension of time
Your contract will have either a date, or how a date is to be determined, for when the building or renovation works should be completed by. However, more often than not, builders require extra time to complete the work i.e. unanticipated inclement weather or approved variations. Your builder is required to give you a written notice requesting an extension to the completion date, which you must respond to as required under the contract. Make sure you know and understand what can be considered an extension of time under the contract.
Liquidated damages
Liquidated damages is not a contract requirement under the QBCC Act; however, it is prudent to include it in the contract for your own protection. By including an amount for liquidated damages, it will help you with compensation for extra costs or losses that are likely to incur if the builder fails to complete the project by the date set for practical completion. When considering an amount for liquidated damages, think of the expenses you will be out of pocket for because you cannot move into your new home when expected, such as the extended rental costs.
Please make sure not to put $0 or N/A next to this item in the contract schedule as you could find yourself severely out of pocket if things turn ugly.
Consumer Building Guide
If you enter into a level 2 contract, being $20,000 or more, your builder is required to give you a copy of the QBCC Consumer Building Guide to sign within 5 business days. This guide gives you a high-level review of the clauses under the contract. If the builder is delayed in providing you with a copy of the guide, it will prolong your cooling-off period under the contract.
Takeaway
When entering into a domestic building contract, it is important that you understand what you are signing and to not be afraid to negotiate on the terms of the contract with the builder. It is always wise to obtain legal advice before entering into a contract, especially when your home is most likely your largest and most expensive asset that you will ever own.
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