The Law Handbook 2024

570 Section 6: Houses, communities and the road Progress payments Building contracts normally provide for payments to be made to the builder at various stages of the work. Section 40 of the DBC Act regulates the amount that can be claimed by the builder on completion of each stage of the building works. In a contract to build all stages of a home, a builder cannot claim more than: • deposit: 5 per cent; • base stage: 10 per cent; • frame stage: 15 per cent; • lock-up stage: 35 per cent; • fixing stage: 25 per cent. Ensure you are familiar with the progress payment provisions in your contract. Ensure your cash flow is adequate. Check to see that the stage is completed by the builder and that they are entitled to payment. A registered building inspector can assist you with this important task. Definitions of work stages and an explanation of how the restrictions operate can be found in section 40 of the DBC Act. The restrictions will not necessarily apply if the contract is being administered by an architect and the builder is paid monthly. In this case, the contract should contain an appropriate disclosure to the consumer that the limitations under section 40 do not apply. If the work is being financed, the bank may wish to inspect the work periodically before releasing funds to the builder. Progress payments should be paid within the time allowed by the contract. Failure to pay the builder on time may attract interest. It is also a breach of the contract by the consumer. Do not commit to a large upfront payment to the builder. Such payments are fraught with risks should the builder later encounter financial difficulties. It may mean that there is not enough money left to complete the work. If the builder becomes insolvent, such payments may not be recovered. Home warranty insurance limits the amount of payments that are recoverable from an insolvent builder. Insurance Home warranty insurance The level of cover provided by home warranty insurance policies is set out in ministerial orders. Home warranty insurance is only required if the contract price is more than $16 000. Accordingly, a large amount of minor work does not carry home warranty insurance. Typically, the policies cover: • defective building work (including breach of the implied warranties); • non-completion of work; • loss of deposit or progress payment; • alternative accommodation; and • breaches by the builder of the ACL&FTA. Structural defects are normally covered for six years, non-structural claims must be made within two years. Domestic building insurance is insurance of last resort. It can only be claimed if the builder has died, gone bankrupt, or disappears. For policies issued after 1 July 2015, the policy will pay a claim if the builder fails to comply with a final order from VCAT or a court. Any appeal periods must have expired. The policy limit is $300 000. In most cases, the insurance policy will not assist owners and they will need to deal with the builder. If the builder does not satisfactorily address the owner’s concerns, it may mean lengthy and expensive legal proceedings against the builder. Cover for completion costs is capped at 20 per cent of the contract price. Also, legal costs and expenses are included in the policy limit. A consumer must make a claim within 180 days of the date when they first became aware, or might reasonably be expected to become aware, of the circumstance giving rise to a claim. If an insurer declines a claim, any appeal must be brought within 28 days at the Victorian Civil and Administrative Tribunal ( VCAT ). An insurer must make a decision on a claim within 90 days, failing which the claim is deemed to have been accepted by the insurer. Section 54 of the Insurance Contracts Act 1984 (Cth) should assist consumers who notify defects outside of the policy period, provided that the defects were detected within the policy period ( see Chapter 10.4: Insurance). It is important that you read the home warranty insurance policy carefully. Not all defects are covered. In all instances, your first contact should be the builder. You may need to negotiate with the builder to get them to return and repair defects. Home warranty insurance is not required for high-rise residential buildings that provide more than three storeys of residential accommodation.