Where there are no obvious signs the builder may be suffering financial difficulties, owners’ interests may best be protected by working with the builder to minimise the impact of late completion. Because of the unprecedented demand for trades and materials it is unlikely that a different builder would be able to complete a home any quicker.
Under the Home Building Contracts Act 1991 a builder cannot demand or receive from the owner any payment other than a genuine progress payment for work already performed or materials or services already supplied. It’s important for consumers to note that payments made that do not meet this criteria may not be covered by home indemnity insurance.
Late completion is primarily a contractual matter between the owner and the builder. In most cases the builder will keep the owner informed and will negotiate any contractual adjustments necessary. Variations to a home building work contract must be in writing.
Most contracts will contain provisions that address the event of a builder not meeting the agreed date for completion. You should read and understand these provisions.
The first step in this case would be to contact your builder in writing in an attempt to reach an amicable agreement. Should the response be unsatisfactory you may then wish to obtain legal advice with respect to your options.
The Building Commission recommends keeping a diary regarding the work progress, weather conditions and contractor/supervisor contact, but at a minimum make sure you take notes on all discussions with the builder or builder representative and keep copies of any written communications.
Should the attempt to resolve the issue directly with the builder be unsuccessful the Building Commission’s dispute resolution process may be able to assist consumers and industry.
Indications that a builder might be in financial distress may come to light in a variety of ways. Social media is one way that consumers and tradesmen quickly circulate their concerns. A high number of incomplete projects or the builder failing to respond to its clients are clearly worrying signs. However, it is important to engage in dialogue with your builder and resist the urge to rush to judgement before obtaining enough information.
The Building Commission works closely with home indemnity insurers. We also undertake investigations when concerns about improper conduct are identified with the building contractor. In appropriate cases the Building Services Board will commence proceedings to deregister a builder if it believes it is in the public interest to do.
Company insolvencies are covered by Commonwealth law via the Corporations Act 2001, or when an individual building contractor becomes bankrupt, via the Bankruptcy Act 1996. The Building Commission does not play a role in triggering company administration or bankruptcy proceedings.
We understand this is a frustrating time for anyone who has incomplete work but it’s important to know that all residential building work valued over $20,000 is required to be covered by home indemnity insurance (HII).
HII provides protection to owners against financial loss if a builder cannot complete residential building work or meet a valid claim for faulty or unsatisfactory building work because of death, disappearance or insolvency.
The insurance is required to be taken out by the builder in the name of the home owner before they demand any payments or commence work.
If you are worried about your builder’s ability to complete your building project you should raise these concerns with the Building Commission by phoning 1300 489 099 or email email@example.com.
Confirmation that a company is insolvent can be found on ASIC’s insolvency notices board. If the contractor is an individual then a search can be conducted on the National Personal Insolvency Index.
Home owners affected by a building contractor insolvency should be covered by a policy of home indemnity insurance and contacting the insurer is the first step. Details of who you need to contact will be on your Certificate of Insurance.
HII policies are issued by RBUA (formerly Calliden) or QBE Insurance. In the event of larger-scale insolvency, the insurers may provide dedicated information for policy holders on their websites on how to lodge a claim.
One of the biggest risks for anyone purchasing a home and land package or a yet-to-be-built house, unit or apartment within a development, is the prospect of it not going ahead.
Off-the-plan buyers might expect a refund of any deposit paid if a project doesn’t proceed, however, this depends on the type of property and specifics of the contract. In the event of insolvency a consumer’s cash can be tied up, unless steps have been taken to protect it. Ultimately a buyer could join a list of unsecured creditors.
To avoid this it is absolutely essential off-the-plan buyers ensure any money paid up front is held in a designated trust account by an independent party, such as a real estate agent, until the property is ready to settle (remember this timeline can blow out from months to years depending on the status of planning applications, how many other buyers have signed up and subsequent bank loan approvals). Contracts have usually been drawn up in the developer’s best interests, so buyers need to take measures to protect themselves if things go wrong.
For strata title or survey strata property sales, deposits MUST be held in the trust account of a solicitor, real estate agent or settlement agent but only until a strata/survey strata plan has been registered with Landgate. A clause would need to be added to the contract to prevent its release until settlement.
As of April 2017 a change in sale of land laws means if you buy a lot or sub division before the developer is the registered owner, your contract will have to say so and your deposit must be held in an Australian trust account. There will be a deadline for the land ownership to be obtained by the developer, or your deposit money will be refunded. Read more at www.landgate.wa.gov.au.
Consumer Protection’s guide, Buying property "off the plan", covers other scenarios, including what happens to a deposit if an off-the-plan buyer can’t go through with the deal due to changing circumstances. Interest rate rises, falling property values and loss of employment can all affect a buyer’s ability to get finance at settlement time. A buyer defaulting could mean a loss of deposit and even the prospect of paying damages to the developer.
If you are a subcontractor and find yourself in a situation where you are not being paid or are being paid late by a head contractor, acting quickly to determine your options is the vital first step. You should consider whether lodging an adjudication claim is appropriate in your circumstances. Adjudication claims must be made within 90 days of a payment dispute arising.
Keep lines of communication open with your customers and inform them of any developments or reasons for delays in a timely fashion. Negotiate any contractual adjustments where necessary to avoid issues becoming complaints. Ensure notice of any variation is given in accordance with the Home Building Contracts Act, and make sure all variations are in writing and signed by both the builder and the owner.