Residential Building Contracts where the Price Exceeds $20,000.00 (incl. GST)

The following contracting requirements apply to contracts to do “residential building work“where the contract price or (if the contract price is not known) the reasonable market cost of the labour and materials involved exceeds $20,000.00 (inclusive of GST) by virtue of the Home Building Act 1989(NSW).

Consumer Building Guide

Before entering into a contract the holder of the Contractor License must give the other party to the contract prescribed information that explains the operation of the Home Building Act and the procedure for the resolution of disputes under the contract or for the resolution of disputes relating to insurance (Section 7AA(1)).  The prescribed information is the Consumer Building Guide March 2015.

Contracting Requirements

The contract must be in writing and be dated and signed by on behalf of the parties to it (Section 7(1)).

The contract must also contain the information and details required by Section 7(2) of the Act.

If the contract price is known, it must be stated in a prominent position on the first page of the contract (Section 7(4)).

If the contract price is not known or may be varied, the contract must contain a warning to that effect and an explanation of the effect of the provision allowing variation of the price. The warning and explanation must be placed next to the price if the price is known (Section 7(5)).

The contract must also include a checklist in the form set out in Schedule 2 of the Home Building Regulation 2014 (Section 7(3)) and Regulation 8(b)).

The contract must include (and is taken to include) each of the terms set out in Part 1 of Schedule 2 to the Act (Section 7E(1)).  If the Contract contains a term that is inconsistent with a term set out in Part 1 of Schedule 2 it will be unenforceable to the extent of the inconsistency.

The contract must contain a statement relating to the cooling off period (see below) and the other party’s rights to rescind the contract during the cooling off period complying with Section 7(2)(g) of the Act.  If the contract does not contain such a statement the other party to the contract may by notice in writing rescind the contract within seven (7) days of becoming aware that the contract should have contained such a statement (Section 7BB(2)).

It is also essential that the contract make provision for the payment of one or more authorised progress payments (see below) (Section 8A).

Other Contract Requirements

A signed copy of the contract in the form in which it was made must be provided to the other party to the contract not later than five (5) clear business days after the contract was entered into (Section 7B).

Authorised Progress Payments

It is also an offence to demand or receive payment of a progress payment under a contract or to enter into a contract pursuant to which the person is entitled to demand or receive payment of a progress payment unless the progress payment is authorised by Section 8A(4).

Whilst a contract can provide for more than one (1) kind of authorised progress payment, it is essential that the contract at least provide for the payment of one (1) or more of the following authorised progress payments (Section 8A(2)):

  1. A progress payment of a specified amount or specified percentage of the contract price that is payable upon completion of a specified stage of the work and where the work that comprises that stage is described in clear and plain language in the Contract, and
  2. A progress payment for labour and material in respect of work already performed or costs already incurred (and which may include the addition of a builder’s margin), where provision for a claim for payment to be supported by such Invoices, receipts or other documents as may be reasonably necessary to support the claim and where payment intervals are fixed by the Contract or stated as an “as invoiced” basis.

Cooling Off Period

Generally, a party to a contract for works over $20,000.00 (incl. GST) will be entitled to cool off or rescind the contract by giving a notice in writing at any time before the expiration of five (5) clear business days after the person has given a copy of the contract or becomes aware that they were entitled to be given a copy of the signed contract (Section 7BA(1)).

This cooling off right may be shortened or avoided by a provision in the contract, however, the provision will not take effect unless or until the other party to the contract gives a Certificate under Section 7BA(5) of the Act signed by an Australian Legal Practitioner (Section 7BA(4)).

Insurance under the Home Building Compensation Fund

Before any work is carried out under the contract, a Contract of Insurance under the Home Building Compensation Fund (formally known as the Home Warranty Insurance Scheme) must be in force and a Certificate of Insurance evidencing the Contract of Insurance must have been provided to the other party to the contract (Section 92(1)). It is an offence to demand or receive payment under a contract where the requirements of Section 92(1) have not been complied with.

Significantly, where a Contract of Insurance under the Home Building Compensation Fund is not in force in relation to any residential building work done under a Contract the contractor who has performed the work:

  1. is not entitled to damages, or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, and
  2. is not entitled to recover money in respect of that work under any other right of action at law (including on a quantum meruit basis) unless a Court or Tribunal considers it just and equitable (Section 94(1) and (1A)).
Introduction – Contracting Requirements under the Home Building Act
Requirements Applicable to All Residential Contracts
Residential Building Contracts where the Price Exceeds $5,000.00 but not $20,000.00
Residential Building Contracts for Works less than $5,000.00

Disclaimer

The above information is intended as a guide only and does not address all types of contracts regulated by the Home Building Act or Regulation.  This information in no way constitutes or substitutes legal advice.  Roberts Legal accepts no responsibility for any actions taken or not taken on the basis of the information above.

You should obtain specific legal advice on any matters of interests arising from this article.

Call now to speak to one of our Building & Construction Lawyers.
1300 553 343

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