A builder made promises to me during negotiations that aren’t in the Contract, what can I do?

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:

  1. Representations in relation to times for obtaining building approvals or the carrying out building works,
  2. 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
  3. 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:

  1. 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.
  2. 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.
  3. 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.

By Sam Roberts,
Managing Director, Accredited Specialist (Commercial Litigation)