The Law Handbook 2024

Chapter 6.3: Building or renovating a house 567 the home. Buyers of residential properties have the benefit of these warranties for a period of 10 years, commencing from the date of the occupancy permit. For further information about contracts and warranties, see Chapter 7.3: Consumer guarantees. Deposit A builder must not demand or receive a deposit of more than: • 5 per cent of any contract where the contract price is $20 000 or more; or • 10 per cent of any contract price less than $20 000. Cost-escalation clauses Section 15 of the DBC Act places restrictions on cost-escalation clauses. Such clauses are common in building contracts and provide for an increase of the contract price in certain circumstances, such as variations in the building works, and delays caused by the owner. A cost-escalation clause in a domestic building contract is void unless the contract contains a notice in the prescribed form alerting the consumer to the effect of the clause and the consumer signs or initials the clause in the contract. If, during construction, a builder asks for more money than has been allowed in the contract price, review the contract carefully before agreeing to payment. For example, a builder cannot demand more money because of wage increases or inflation. Check all builder demands against the cost-escalation clauses that you signed or initialled at the time you signed the contract. Builder’s caveats Prior to the DBC Act, it was common practice for builders to place a caveat on the owner’s property. The caveat provided the builder with some security and leverage in respect of payment. Section 18 of the DBC Act has abolished this practice. It provides that a domestic building contract does not entitle a builder to place a caveat on the owner’s property title. Some builders have sought to overcome this provision by requiring owners to sign a side agreement that, strictly speaking, is not a domestic building contract and therefore falls outside the prohibition under the DBC Act. Consumers should avoid signing any such side agreements. Provisional sum and prime cost items Consumers should always try to ensure that every item of work and all material is properly priced, and that price is fixed in the contract. However, this is not always possible. Some items to be included in the work are not agreed prior to the signing of the contract, for example, tile selection, white goods, or tapware may be decided after a building work is commenced. In respect of these items, the builder normally estimates and includes a prime cost item. Similarly, certain works may not be agreed prior to the contract being signed (e.g. fencing, landscaping and painting) and for these works a builder will normally estimate and include in the building contract a provisional sum. Most contracts allow the builder to charge a substantial loading if the consumer spends more than the agreed estimate for a prime cost item or provisional sum. Section 21 of the DBC Act requires a builder to provide a reasonable estimate for provisional sums and prime cost items. Further, before entering into the building contract a consumer must receive a list containing a detailed description of each item of work, a breakdown of the cost estimate for each item or sum and how the builder proposes to charge for any excess amount. The estimate for prime cost items and provisional sums is included in your fixed contract price. Try to avoid including prime cost items and provisional sums in your contract by agreeing on all work and materials before signing the contract. If they are necessary, ensure that a reasonable allowance is made. Clarify in writing whether the allowance includes or excludes the Goods and Services Tax ( GST ). Builders must provide consumers with copies of invoices, receipts or other documents that show the cost of any prime cost item or provisional sum. Other matters The builder must give the consumer a legible copy of the contract. The builder is also required to provide a copy of any notice, order or other document that the builder receives in relation to the building work from any public statutory authority. Be careful about GST. Does the contract price include or exclude GST? If you are unsure about GST, consult your accountant. Avoid verbal agreements or assurances about GST, or about other contract matters; make sure everything is in writing.