Get your building contract legally reviewed
Have you read a building contract lately?
Statutory requirements, provisional sum allowances, special conditions, liquidated damages, cost escalation clauses … what do they all mean, and are they important?
What you don’t know can hurt you. You need to arm yourself with information so you don’t end up burnt.
We’ve compiled a list of essential Q&As to help you get started.
Answers to questions like:
- What critical things need to be in a residential building contract?
- How do I stop the build a house cost from rising?
- Is building a safe investment?
If you read the information on this page, you should have enough understanding to start negotiations with your builder.
Once a draft contract has been prepared, you should always get it approved by a lawyer before signing, to make sure your legal rights are protected.
If you’re already familiar with some of the basic concepts then just skim ahead to the later questions. Lets go!
What is a building contract?
A building contract is an agreement between a land owner and a builder. The builder is often referred to as “the contractor”, and sometimes the owner is called the “the principal”. Together, the owner and the builder are referred to as the “parties”.
A contract is quite simply a series of promises about the rights and obligations of each party. These promises are called the “terms”. If a party doesn’t stick to its promises, it will be “in breach” of the contract. If a breach is serious enough, the other party might be able to end the contract through a process called “termination”. The innocent party might also be able to sue in a court to recover any money lost as a result of the breach (called “damages”).
In Queensland, a building contract must be in writing if the value of the building work is more than $3,300.
What are the obligations in a building agreement?
The builder’s primary obligation is to build the works in accordance with the contract and all mandatory building standards (the standards are usually referred to as “statutory requirements”). The owner’s primary obligation is to pay the payments specified in the contract when they become due. There are usually many hundred of other subsidiary obligations that are specified in the contract terms.
A building contract is a bit like a short-term marriage: you are bound together until the building works are finished. Once the contract has been signed, you can’t just jump ship because you’re not happy with things. The contractual relationship can only end sooner if the contract is validly terminated. Contracts usually have special termination procedures that have to be strictly followed, and it’s not so easy to guarantee that a termination will be valid (even for a lawyer!).
So choose wisely when deciding on a builder – and always get your building contract reviewed by a building and construction lawyer, before you sign.
What documents should be included in a building contract?
A building contract normally includes the following documents:
- Terms and conditions – this is where the rights and obligations are spelt out in detail. The numbered parts are usually referred as “clauses”. In most standard form contracts, this document should not be directly amended.
- Contract schedule – the schedule is like a form where all the relevant details are filled in and different options are selected. The numbered sections of the schedule are usually referred to as “items”. The schedule will specify things like the parties’ names and contact details, the contract price, the building period and many other important details. Seemingly small changes to items in the schedule can have a big impact on how residential building contract terms and conditions operate.
- Building plans – these are the technical drawings, usually prepared by an architect. Sometimes you will have the plans drawn up by your own architect, but often the builder arranges for the plans to be prepared.
- Specifications – the building specifications specify exactly building materials will be used, along with other details about how the works will be built.
Many building contracts will also have “special conditions”, which are special terms that override the regular terms and conditions. Special conditions can remove clauses, add in new obligations, or change how the existing terms are worded.
You should always get legal advice about any special conditions in standard contracts, because these conditions might alter the fair balance.
What is the difference between commercial and residential building contracts?
Commercial building contracts are used for a wide range of non-residential construction projects, from corporate or industrial developments to local business premises. Commercial contracts are often also used for large-scale residential developments such as multi-level apartments or townhouse complexes.
Residential building contracts (also called domestic building contracts) are normally used for building or renovating homes that people live in. Residential building includes free-standing houses, duplexes, townhouses and small blocks of units (but probably not houseboats!).
Smaller-scale building investments usually also use residential building contracts.
There are special laws that apply to residential building to provide protection for owners, in particular the Queensland Domestic Building Contracts Act 2000. The law states that residential building contracts are supposed to include certain terms and are set up in a particular way.
Always have your contract reviewed by a lawyer to ensure it is compliant with these legal requirements.
What are the different types of building contracts used in Queensland?
Most builders will use one of the “standard-form” contracts rather than prepare their own from scratch. The two most popular residential contract templates are the HIA building contracts and the Master Builders contracts.
Both the HIA and Master Builders contracts are written by building industry organisations. While the general terms and conditions usually comply with the mandatory legal requirements, these template contracts do not necessarily provide you with protection, because the builder can alter the terms in the other contract documents. A lawyer needs to review your contract to make sure the fair balance is maintained.
The Queensland Building and Construction Commission (QBCC) also produces a residential building contract that is more in favour of the owner, although it is not as widely used.
Sometimes builders will use older versions of the standard contracts that have not been updated to incorporate the most recent legal requirements.
While the HIA and Master Builders also produce contracts for larger-scale residential and commercial developments, the SAI Australian Standard Contracts are generally more comprehensive and provide better protection for commercial developers.
What is the difference between a cost-plus and a fixed-price building contract?
A fixed-price contract will have the total price specified, so (in theory) you will know in advance how much the build will cost. Most fixed-price contracts have building progress stages and corresponding progress payments.
A cost-plus contract does not have a total price specified. The builder is entitled to claim from the owner all of its costs plus a set margin. Some commercial contracts will have a schedule of rates specified, particularly where the scope of the building works have not been finalised or will be subject to significant revision. Commercial building contracts often have monthly progress claims that relate to the value of the works completed.
How do I prevent the build a house cost from rising?
Even in fixed-price contracts, there are still mechanisms that allow for the price to rise, such as prime cost/provisional sums allowances and cost-escalation clauses. Your building lawyer can advise whether these terms will impact on you.
The other way that costs can increase is through variations to the contract. The builder can issue variations for any additions or changes that are requested after the contract is signed. A variation can also be issued for additional works that become necessary due to unforeseen circumstances, such as “latent conditions” on the site.
While it is difficult to completely protect against any price increases, your building lawyer can recommend changes to the contract that will reduce the risk of variations arising.
How does a lawyer building contract review service work?
Most building contracts are complicated. After the contract has been signed, you can’t simply change your mind because you didn’t realise the effect of a particular term, or because something written in the contract wasn’t explained to you.
Normally the builder will provide you with a draft version of the contract. Never be pressured into signing on the spot. You should provide the draft contract to a building lawyer, who will take the time to carefully review the contract and then advise you if anything changes are recommended.
Building contract legal advice can be given verbally or in writing. If you are getting verbal advice, be sure to write down any important recommendations.
Contract Owl’s Queensland building contract review program has been specifically set up to make the review process as simple and cost-efficient as possible. Your building contract can be uploaded to the website or sent via email. An expert Brisbane building lawyer will then prepare a written report that analyses the contract in detail and provides specific recommendations about how the contract should be amended.
You will also receive detailed written advice that contains important information about what to look out for after the contract has been signed.
After reading the report, you can schedule in a free telephone conference to speak with the lawyer about any further concerns you may have.
Do I need a lawyer during the building process?
By getting your contract legally reviewed before it is signed, you drastically reduce the chances of ending up in a situation where your legal rights have been compromised. Disputes are less likely to arise if the contract has been properly set up and all parties understand their rights and obligations.
If you get your contract approved by a lawyer and follow the advice given to you, it is not usually necessary for a lawyer to become involved in every stage of the house building process.
You should however be particularly careful if you receive any contractual notices, as you may be “deemed” to have accepted a notice if it is not responded to in a certain way. When in doubt, get legal advice.
Of course, even the best contract cannot guarantee that there will be no problems. If a dispute does arise, or if the builder asserts you are in breach of the contract, you should always seek immediate legal advice, because the consequences of failing to take the proper steps can be very costly.
If I am purchasing a house and land package, what contracts do I need to sign?
If you are dealing with a company that organises both purchasing land and building a house, it is important to understand that you will normally be signing two separate contracts:
- the sale of land contract, and
- the building contract.
Even though you may be negotiating with the one salesperson, the two contracts will likely be with different entities.
You will generally use a conveyancer or property solicitor to oversee the sale of land contract. Keep in mind that, particularly for new estates, the sale of land contract may have conditions specifying the design requirements for any house built on the land. Be sure that the building plans and specifications are compliant with any such requirements.
A conveyancing lawyer will not be able to properly advise you about your building contract. You need a QLD building lawyer who understands the intricacies of construction law to separately review and approve this contract.
Is investing in building safe?
Residential building investments can have a profitable return. Some investors choose long-term profit through rental income and steady capital gains, but many investors seek short-term profits through immediate sale of the improved property, especially through subdividing or multi-apartment units.
Whatever investment strategy, there is always a risk that the building cost will rise after the contract is signed. Your single biggest enemy is delay, because not only will you incur additional finance cost, the market conditions may change.
Often a build investment property is promised to be full turnkey, which is supposed to mean that you can immediately start renting the property as soon the works are practically complete. You need to check the contract very carefully to make sure all essential fixtures are included, such as security screens, kitchen appliances and landscaping.
Particularly with modular homes or prefabricated houses, often connection to basic services will not be included such as water, electricity and gas supply. These costs need to be taken into account as part of your overall calculations.
You should think carefully about taxation implications such as GST and stamp duty. The entity you use to purchase the land and build the works can be important, for example a family trust and/or company. Seek professional advice from an accountant to determine which investment vehicle is most suitable.
As most building investments are funded through finance, any delay to the works will lead to increased interest payments, lost rent and reduced profits. You need to make sure the contract has been properly set up so that the chances of delays are reduced.
If a builder performs defective works (or worst still goes bust), you need to be sure that you will be covered for the cost of rectifying or completing the works.
Investors who do not intend to live in the building also need to be very careful when receiving progress claims or invoices issued by the builder. If these are not responded to in a specific way, the entire claim may become legally enforceable, even if the amounts claimed are actually incorrect.
The lawyer reviewing your contract will give you more information about when and how you need to respond to progress claims.
Where can I find more online building information?
Below are some useful links:
Contract Owl – building contract review QLD program
Skelton Law – Brisbane building and construction solicitors
QBCC – Queensland Building and Construction Commission
Queensland Law Society
HIA – Housing Industry Association
QMBA – Queensland Master Builders Association
MPAQ – Master Plumbers Association of Queensland
MCAQ – Master Concreters Association of Queensland
ASIC – Australian Securities and Investments Commission
Australian Taxation Office
Law Council of Australia
Master Electricians Australia
Department of Justice and Attorney General
Land Titles Registry
Of course, the information on this page is of a general nature only, and cannot replace the need for expert professional advice that is tailored to your specific circumstances.
Avoid the 3 Ds: Defects, Delays and Dollars. Always get your contract reviewed before signing.
Contract Owl is Brisbane’s most economical and comprehensive building contract review service.
Click here to learn more about how the service works.