A Belated April Fools Special!

In the spirit of April Fools and also with the demise of another home builder I wanted to share some of the more outrageous special conditions that builders have inserted into building contracts over the past 12 months or so. (As an aside my experience with the defunct builder was that they absolutely refused to even consider any changes to their standard contract!)

However, while I offer these for your amusement – take care that you don’t sign a building contract with these sorts of special conditions in it and become the fool!  In fact, you really need to check any sort of property contract before you sign it for clauses like these!  If in doubt – Lewis O’Brien & Associates can review the contract, discuss any concerns we have and suggest special conditions and / or amendments.

Builder’s Right to Terminate

“Commencement must occur within 21 Days after the Builder receives the essential information from the Owner (refer to Clause 13); all necessary building permits and planning approvals (refer to Clause 19); and payment of the deposit under Clause 9, unless (without affecting any other right, entitlement or remedy available to the Builder under the Contract) the Builder provides a notice in writing to the Owner that the Builder in its absolute and unfettered discretion does not wish to proceed with the Contract. Upon providing such notice, the Contract is terminated immediately [and the Builder must return the deposit] and the Builder shall not be liable for any claim, cost, expense, loss and damage, demand or proceeding arising out of such termination.”

This special condition sought to allow the Builder to arbitrarily refuse to proceed with the Building Contract up to 21 days after receiving all information required, all building permits and approvals and payment of the deposit. This would allow the Builder to cancel arbitrarily, even though the Owner was required to arrange for finance to prove they were capable of paying.

Redefining ‘Completion’

“The definition of ‘Completion’ at Clause 1.0 of the General Conditions [of the standard HIA Contract] is amended to read as follows:

Completion means that Building Works that have to be carried out under the contract have been completed in accordance with the plans and specifications set out in the contract, except for minor defects and incomplete works;

  • which do not prevent the Building Works from being reasonably capable of being used for their intended purposes (not including the Owners’ works)
  • which the Builder determines it has reasonable grounds for not immediately rectifying
  • the rectification of which will not prejudice the convenient use of the Building Works
  • which do not cause any legal or physical impediment to the use of the Building Works by the Owner or others
  • an Occupancy Permit or Certificate of Final Inspection, as the Case may be, has been issued for the Building Works under the Building Act 1993 and given to the owner.

This special condition allowed the Builder to declare completion upon finishing the Building save minor defects and incomplete works that ‘do not prevent the Building Works [sic] from being used for their intended purposes…’ – notwithstanding that the Builder was completely able to determine what defects were minor and which were not, and excluding any works that the Owner was obliged to undertake – despite the Contract also ordering that the Owner was to conduct works in accordance with the builder’s direction.

It is hard enough to get builders to remedy defects in the best of circumstances.  I wouldn’t want to risk paying the builder in full then asking them to come back to finish the job!

We commonly see other definitions that remove part of the work usually included in other stages as well.

No Requirement to Carry Out Variations

“Notwithstanding anything contained in this Clause 23, the Builder shall have no liability if it fails to carry out a variation which it is required to carry out under this Clause 23… the Owner’s sole entitlement shall be for the Builder to perform the works that the Builder is to carry out and complete in accordance with the Contract Documents without such variation.”

This Special Condition (which was actually combined with 4 below) provided that where the Builder agrees to a variation and the Owner pays for one, the Builder ‘shall have no liability if it fails or omits to carry out a variation which it is required to carry out under this clause 23’.

Proof of Funds for Variation

“If, within 24 hours of the Builder giving the Owner the notice of particulars under Clause 23.3, the Owner does not give the Builder:

  • A signed request to the variation under Clause 23.4; and
  • Written evidence of the Owner’s ability to pay for the variation,

The request by the Owner for the variation is deemed withdrawn.“

This Special Condition obliged the client to provide proof of payment for variations within 24 hours in writing or it would be deemed as withdrawn. Even in the age of the internet this is a very short period of time!

Private Building Inspectors

“Private Building Inspectors: If the Owner requests for a private inspector to inspect the claim stages throughout the Construction period, the Owner must adhere to this Contract and the following procedures:

(a) Advise in writing at Contract signing what building inspection company or person the Owner is using

(b) Pay a Building Inspection Management fee of $5,000

(c) Cannot be a family friend or relative

(d) Must be an accredited business or sole trader with an ABN

(e) Any inspection required is to be organized through the Builder’s assigned representative and be given a minimum 48 hours’ notice for that site meeting to occur,

(f) The Owner cannot be present during the inspection

(g) The inspection report must be completed within 48 hours of the stage completion and be emailed to the Builder’s assigned representative

(h) The inspection items do not form part of the Contract and therefore do not hold up payment of the [progress] claim.

(i) The Builder will provide a response to the Inspectors report with either agreement to rectify or refusal to rectify any items in the report

(j) The Builder does not have to complete or rectify any items in the Report if the Builder doesn’t agree with the selected items and provide a reason as to why such rectifications are not required. Items that may not be agreed to be rectified may have an engineers sign off or be verified by the Appointed Building Surveyor.

This Special Condition places unnecessarily onerous conditions around appointment of a Building Surveyor – with a likely view to discourage the Owner from appointing one to cross-check the work done by the builder.

This is contrary to our view that you should always appoint a private building inspector to check for defects once the final claim is received and before the final claim is paid!

Concluding Thoughts

In my view, the standard Victorian HIA and MBA domestic building contracts are unfair to owners and are far too accommodating to builders.

Notwithstanding this, some builders want to go even further.  Cost variation clauses and increasing prime and provisional cost components are but one example of this.

Don’t get caught out! For $750.00 plus GST Lewis O’Brien & Associates can provide a written review of your contract, provide draft special conditions and provide a half hour zoom / phone call to answer your questions. Just email me a copy of your building contract and we will get started!

If all you need is our recommended special conditions – you can purchase them online here. We are presently updating these to include special conditions that will help you if the Builder goes into liquidation.

Make sure that you know what you are signing and that you can be confident that you have the right special conditions to protect your interests. With the defunct builder, it appears some owners paid their deposits before insurance was in place – leaving them horribly exposed. Again, don’t risk being the fool because you don’t know what to ask and haven’t sought advice.

If you have a friend or family member that is about to sign a building contract please share this information with them.

Lewis O’Brien