Building regulator’s top 10 preparation tips for new home constructions
As interest in new homes and renovations intensifies due to State and Federal stimulus packages, WA’s building regulator is reminding consumers about important considerations before committing to a building contract.
“Building a house is an exciting decision and it is understandable to want your plans to progress quickly, particularly with the current grants to boost the building and construction industry,” Building and Energy Executive Director Saj Abdoolakhan said.
“But it is also a major life commitment and there is usually no cooling off period if you change your mind after signing a home building contract. Doing some homework about your building service provider and checking your contract thoroughly will give you peace of mind and help to avoid issues in the future.”
BUILDING AND ENERGY’S TOP 10 TIPS WHEN CHOOSING A BUILDER AND SIGNING A HOME BUILDING CONTRACT
- Use a registered builder
By law, home building work that requires a building permit and is valued at more than $20,000 must be carried out by a registered builder. The registration system is designed to ensure that the building service provider has the appropriate qualifications, knowledge, experience and business stability. Registered builders are also required to take out home indemnity insurance (see Tip 9) for most large projects, which offers home owners some financial protection.
The Register of Builders is available at commerce.wa.gov.au/buildersearch or you can call Building and Energy on 1300 489 099. The register will also show if the builder’s registration has expired or been cancelled, and any conditions on the type of work they can carry out.
- Seek out independent reviews and check for solvency issues
As with any service, it is worth speaking to more than one builder to compare what’s on offer for your budget, bearing in mind that the cheapest option may not necessarily be the best.
Request a list of the builder’s previous jobs and try to speak to former clients. Online reviews can also be useful, but they may not always be objective or validated.
You can search dmirs.wa.gov.au/announcements for the outcomes of Building and Energy actions against industry participants, or sat.justice.wa.gov.au for building-related decisions of the State Administrative Tribunal.
The Australian Securities and Investments Commission (asic.gov.au) allows you to purchase a current and historical company extract search, which should show whether the company has gone into liquidation or administration.
A Bankruptcy Register Search is available through the Australian Financial Security Authority (afsa.gov.au). While someone’s past financial issues may not reflect their current situation, the search shows if they have had a discharged or undischarged bankruptcy.
- Clarify the cost of preliminary work such as a Preparation of Plans Agreement
Prior to entering into a building contract, you may engage a builder to prepare a unique set of plans and technical papers for your particular building and site, often called a Preparation of Plans Agreement (PPA). Services provided in a PPA contract are separate from those covered by the Home Building Contracts Act (see Tip 5).
Note that costs associated with a PPA may not be refundable if you do not enter into a building contract with the builder involved. Check with the builder about who will own the plans and other PPA items and what costs you could incur if you do not proceed with a building contract.
- Read and understand all parts of your contract, including the fine print
A building contract is a complex document and usually comprises a contract (including a schedule of particulars, addenda or appendix), drawings and specifications.
Home building contracts in Western Australia are not required to include a ‘cooling off’ period, so you usually cannot back out of a contract if you change your mind. For this reason, it is vital to read the contract thoroughly and understand each component, including the fine print. Seek clarification on any aspects you do not understand and consider professional, independent advice from a lawyer, building expert or another relevant consultant.
Most contracts have clauses that cover termination of the contract by either the builder or the owner. Check this information closely and consider getting independent legal advice if a termination appears to be contrary to the terms in the contract.
As well as understanding what’s included in your contract (and what’s not), you should be clear about your own obligations and be aware of the type of contract you are entering into. The most common type is a lump-sum contract in which a figure has been calculated for the project’s total cost. An alternative is a cost-plus contract, in which costs are calculated as a running tab.
- Be familiar with the Home Building Contracts Act and its requirements
In general terms, Western Australia’s Home Building Contracts Act regulates contracts between the home owner and the provider of home building services or associated work, where the fixed-price contract is valued between $7,500 and $500,000. The Act applies even if the service provider is not a registered builder.
Under the law, the builder must provide the owner with a copy of the ‘Notice for the Home Owner’, which summarises the requirements of the Act, before the owner signs the contract. See Building and Energy’s fact sheet for more information on the Act.
- Try to document all discussions in writing
Verbal agreements may hold little weight should a dispute arise. Try to document all discussions in adequate detail and have them confirmed in writing. Keep all your property documentation in good order from day one.
- Be aware of maximum deposits and when to make progress payments
For projects covered by the Home Building Contracts Act, building service providers are allowed to obtain a deposit from the client of no more than 6.5 per cent of the total cost of the work, prior to work commencing. Once the work has started, any progress payments must only be for tasks actually performed or materials already supplied – for example, a builder cannot demand a progress payment for the purchase and delivery of bricks until the bricks are on site.
- Check the provider’s details are consistent on all documents
The service provider’s details should be the same across all documents including contracts, invoices, receipts and insurance. It is particularly important to ensure that the registered building contractor’s name is the same as it appears in the Register of Builders. A legitimate physical address should also be provided in case legal documents need to be served.
Check that the Australian Business Number (ABN) listed actually belongs to the business. You can do a free search through the Australian Business Register (abr.business.gov.au).
- Expect to see the builder’s home indemnity insurance certificate
A policy of home indemnity insurance (HII) is compulsory for residential building work valued above $20,000, with the exception of associated work in isolation (such as swimming pools, carports, pergolas or landscaping, unless they are part of another applicable contract).
HII may cover the home owner, and subsequent owners, against the loss of a deposit (up to $20,000) or the completion or rectification of building work (up to $100,000) should the builder die, disappear or become insolvent within six years from the date of practical completion.
Before commencing work or demanding a deposit or payment, the builder must take out HII and give the home owner an insurance certificate. Make sure that the registered building contractor listed on the HII documents exactly matches their name on the Register of Builders.
- Be aware of time limits for rectifications and disputes
Under the Home Building Contracts Act, builders are required to rectify any building work defects, at no extra cost to the owner, when notified in writing within four months of practical completion.
Building and Energy may be able to deal with contractual disputes relating to lump-sum home building work contracts only (not cost-plus contracts) between $7,500 and $500,000, provided the complaint is lodged within three years from when the cause of the dispute arose.
Complaints about the standard of workmanship can be lodged with Building and Energy, for building work of any value, within six years of the completion of the works.
See the dispute resolution section of the Building and Energy website for details.
USEFUL RESOURCES FOR PROSPECTIVE HOME OWNERS OR RENOVATORS
- Building your new home – a checklist: https://www.commerce.wa.gov.au/sites/default/files/atoms/files/building_your_new_home_a_checklist_0.pdf
- Helpful checks when choosing a building service provider https://www.commerce.wa.gov.au/publications/helpful-checks-when-choosing-building-service-provider
- Home Building Contracts Act – fact sheet https://www.commerce.wa.gov.au/publications/home-building-contracts-act
- A guide to the building approvals process in Western Australia https://www.commerce.wa.gov.au/publications/guide-building-approvals-process-western-australia
- Building contracts and progress payments https://www.commerce.wa.gov.au/publications/building-contracts-and-progress-payments
Building and Energy media contact: BEmedia@dmirs.wa.gov.au
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