Contracts for Building Projects
A written building contract between you and your builder is vital when building, renovating, extending or repairing your home regardless of how much you intend to spend.
A contract is a crucial document in settling any dispute that may arise with your builder. Essential requirements for building contracts are outlined in the Domestic Building Contracts Act 1995.
This page will help you understand the following:
- When do I need a building contract?
- Preliminary agreements
- Getting out of a building contract
- Liquidated damages
- Unfair contract terms
- Building contract content checklists.
When do I need a building contract?
It is recommended that you have a written building contract for all building works, regardless of the size, scale or cost.
You are required by law to have a written 'Major domestic building contract' for work worth more than a certain cost, which is typically between $1,000 and $12,000 depending on which state you are building in.
You should have written building contracts for:
- Erection or construction of a home, including all associated landscaping, paving, retaining structures, driveways, fencing, electrical works, plumbing works and heating and cooling installation
- Renovations, alterations, extensions, repairs and any other improvements or works associated
- Preparation of plans or specifications by the builder (unless prepared by a registered architect, engineer or draftsperson)
- Any work associated with building on land zoned for residential purposes and for which a building permit is required.
Note: This is not a conclusive list.
Only registered builders can enter into a 'Major domestic building contract' and take out domestic building insurance. You are required to have a registered builder to re-block, re-stump, demolish or remove a home regardless of the cost of the works.
Your builder is required to give you sufficient time to have the contract documents reviewed by your legal representative before you sign. Some builders use standard contracts prepared by industry organisations. Even if your contract is standard, you should get independent legal advice about what it means for you.
Your builder is required to give you a final copy of the contract that has been signed by both parties. You should not accept a copy of the contract unless your builder has signed it.
You are not required to have a building contract for jobs that involve only one of the following:
- Electrical work
- Plumbing, gas fitting or draining
- Installation of floor coverings
- Attaching external fixtures (awnings, security screens, insect screens and balustrades)
- Erecting a chain wire fence around a tennis court
- Erecting a mast, pole, antenna or similar structure.
Though these works do not require a contract it is recommended that you have a written contract for all works carried out on your property.
Your rights to your building site
You automatically have rights to your building site.
You have the right to 'reasonable access' at any time during construction under section 19 of the Domestic Building Contracts Act 1995.
You may not enter the site unless you or someone accompanying you has a state White Card (site safety induction card).
The right to access the site is restricted to the site only. Access to the building after lock-up must be arranged with your builder.
Some builders ask you to sign documents before the main contract, which are sometimes referred to as:
- A preliminary agreement
- A quote
- An order
- A prelim contract estimate
- A provisional quote to build on your land
- An authorised tender acceptance
- A contract request
- An authority to proceed.
These documents may be used to get your agreement to a soil report, however some builders also include costs for drawing up plans and specifications.
If the preliminary agreement covers more than a soil report it is recommended that you seek legal advice.
If a builder provides you with a preliminary document that includes domestic building work the document automatically becomes a domestic building contract and you have the rights outlined under the Domestic Building Contracts Act 1995.
Below are some points to consider before entering in to a building contract:
- Choose your builder and all of your fixtures and fittings (also called selections) and include all works to be completed in one major domestic building contract
- Include the details of all of your fixtures and fittings (such as the make, model, colour and style) in your contract
- Where possible, do not agree to make your selections of fixtures and fittings at a later date (after you have signed the contract)
- Building companies usually own the copyright to display home designs and plans. If you sign a preliminary agreement and pay for particular plans, you cannot have the home built by a different builder
- If you decide not to proceed with construction after signing a preliminary agreement, the building contractor may be able to keep some or all of the money already paid.
Getting out of a building contract (cooling-off period)
You have five business days after receiving a signed copy of your building contract to change your mind. This is called the cooling-off period.
The cooling-off period starts from the date you receive the signed copy, regardless of when you signed the contract.
If you decide to withdraw (cool-off) from the contract you should put your decision in writing to your builder.
The law sets out how you must deliver this to the builder within the five-day period. You must do one of the following:
- Give it to your building contractor in person
- Leave it at the building contractor's address as stated in your contract
- Serve it on the builder in the way that is stated in your contract.
It is recommended that you provide the notice in a way that records when it was delivered to the builder, for example delivering notice by registered post. The builder is entitled to keep $100 and out of pocket expenses for completed work that you approved before you withdrew. They must refund all other money.
If you withdraw during the cooling-off period, you are not liable to the builder in any way for withdrawing from the contract, for example for loss of profit.
You do not get a cooling-off period if you:
- Have previously entered into a major domestic building contract with the builder on the same terms for the same home or land
- Engaged a lawyer to check the contract before you signed.
It is recommended that you engage a building lawyer to review the contract despite losing the five-day cooling-off period.
It is important to ensure the building lawyer you engage is acting in your interests and not your builder's. If you do not engage a building lawyer and need help to cool-off or it is too late to use your cooling-off rights you can contact a Consumer Affairs office in your state.
Your building contract may include a liquidated damages clause. This is a nominated amount of money that is payable to you if your builder breaches the contract, such as not completing the works by the agreed date. The liquidated damages clause can cover losses such as rent, travel and other out of pocket expenses.
If your contract does not contain a liquidated damages clause or the amount in the liquidated damages clause is left blank you may still be able to claim damages in the event of a breach of contract. If this applies to you it is recommended that you seek legal advice on this matter.
Unfair contract terms
Most states have laws to prevent unfair terms in consumer contracts, including contracts to build, renovate, extend or repair a house.
You should make sure that your building contract does NOT include the following illegal items:
- A clause requiring any dispute to go to arbitration (a compulsory arbitration clause).
- A caveat (warning of some right or interest on the land title) on the building site.
- Any statement that restricts or denies your rights to implied warranties (see building warranties insurance).
- A cost escalation of rise and fall clause, unless the contract price exceeds $500,000. The onus is on the builder to calculate into the contract price any likely rise in costs caused by inflation, wage increases and the like. If a building contractor wants to include a cost escalation clause the director of Consumer Affairs in your state must approve it.
- An agreement to pay the builder by a cost plus method if your building contract is for less than $500,000. A cost-plus method is when a building contractor charges by the hour and you do not have a fixed price for your contract. You can use a cost-plus contract if you are renovating an existing house, but only in very limited circumstances. You should seek legal advice prior to signing any cost plus contract.
Building contract content checklists
Your building contract must:
- Be written clearly in English
- Set out all the terms of the contract in full
- Give detailed descriptions of the work to be carried out under the contract including plans and specifications with enough detail required to get a building permit for the work
- State the names and addresses of the parties to the contract
- State the registration number as it appears on the building contractors registration certificate
- State the date when the work is to start or how the start-date is to be determined
- State that the building contractor will do everything that is reasonably possible to start work as soon as possible if the start date is not known
- State the finish date of the work, or if the start date is not known, the number of days required to finish the work once it has started
- State the contract price
- State the date the contract is made
- Set out the details of the insurance required under the Building Act 1993 (not applicable in all states)
- Include the approved cooling-off period notice required by law
- Have a separate section giving definitions of specified words used in the contract
- Show which words are used in the contract that are included in the list of definitions
- Set out your implied warranties
- Contain an approved checklist.
You should check the following costs are included in your contract price:
- The building fee, which may or may not include the cost of mandatory inspections by the building surveyor and may vary between companies
- Planning permit fees (if your contract requires a planning permit)
- Lodgement fee paid to the local council for recording purposes
- Crossing deposit or asset protection fee paid to the local council and refundable at the end of the project if no damage has occurred to the council property
- Inspection fee, which is a non-refundable fee paid to the council for the cost of their inspection of council assets
- Government levy charges, which are levies based on the total cost of your building. These also apply to owner builders. Your building surveyor can advise you of these costs.
Before signing your contract, you should be able to answer 'yes' to the following:
- Is the builder registered with the Building Practitioners Board?
- Has the building contractor confirmed that they have obtained and reviewed the foundation date?
- Is the work clearly defined in the contract, plans or specifications and any other relevant documents?
- If your house is based on a display home, do the plans and specifications include customised items and all requested changes in design, materials, finishes and costs clearly described and illustrated in your contract?
- Are provisional sum and prime cost items clearly stated in the contract?
- Is the deposit within the legal limit?
- Do you understand the procedure for changes or variations to plans and specifications?
- Do you understand your rights to visit the building site?
- Are the start and finish dates clearly stated?
- Is the procedure for delays and extensions of time clearly stated?
- Is the amount for exceeding the time for construction (liquidated damages), clearly stated and sufficient to cover your costs?
- Is the clause containing the five-day cooling-off period included?
- Do you understand the circumstances in which you or the builder can end the contract?
- Have you had the contract for long enough to read it thoroughly and have it checked by a building lawyer?
For advice on domestic building contracts or assistance with a building problem, contact the Consumer Affairs or Consumer Protection Office in your state.