A building contract for a new home, home extension or renovation is a very large document, its wording is complex, and it contains so many details that unless you are a legal wiz; reading it could well make your head spin! I’m sure I don’t need to tell you that you should check a fixed price building contract before signing (or at least before the cooling off period has lapsed). But do you really know exactly what to look for? Read on for some information on the areas that you must check thoroughly.
• Standardised contracts like HIA Fixed Price Building Contracts are easier to check!
If your builder uses HIA Fixed Price Building Contracts, these are easier to check, as they are the industry standard. They contain standard clauses, so you can focus your attention on the sections of the contract that contain text which is specific to your building work e.g. contract price, deposit and progress payment schedule.
• Does the contract come with a detailed specification section?
This is where your builder should itemise how many, what make and model and the locations of almost every fitting and fixture that is being supplied. This part of the building contract is comprehensive and time consuming for a builder to produce, especially for custom new homes, extension or renovations. But you should be glad when you have many pages to check, as a less thorough builder will be tempted to cut corners (even at contract stage). The more information the better, as you then have a detailed legal document to refer to if items supplied differ from your expectations.
• Check that your builder is qualified to do your work.
Only Registered Builders can enter into a major domestic building contract and take out domestic building insurance which is required for work over $16,000. This insurance protects you if the builder dies, becomes insolvent or disappears. Don’t assume, ask for evidence of registration from the Victorian Building Authority. This is not the same as membership of the Housing Industry Association or Master Builders Association.
• Do the specifications in the building contract match the included items in your building quote?
I have mentioned in a previous article, the importance of having a detailed quote. This is essential to making a well informed decision about which builder you are going to use to build your home. And the value of having this detailed information at contract stage is beyond measure. Check the building quote against the contract and ask questions if you have any doubts. Be cautious, but also be aware that your builder may have made an honest mistake; it’s a big document with a lot of detail and it’s not impossible to imagine the occasional error. The important thing here it to get any errors corrected before work commences.
• Keep a copy of the signed contract documents.
This one is so obvious, but it does bear mentioning as you may have selected this builder because of recommendations, or because he is someone you trust, or you may just be so excited that your dream home is finally getting started. None of these are good reasons for not having a copy of your building contract. I actually spoke to someone recently, who is in financial distress because their home builder didn’t do the right thing, and they didn’t have a signed copy of the building contract to refer to. Unfortunately the builder they trusted betrayed them, by changing inclusions in the contract after it was signed. Needless to say they are trying to resolve this through the legal system at great expense.
• Watch out for excluded items.
These are items that your builder will not be including in his work. They are therefore your responsibility and if there is any uncertainty in this area it can cause problems. Once again, these excluded items should be documented in the builders quote, so take the time to ensure they are listed exactly the same in the excluded items section of the building contract.
• The following fees should be included (unless you have already agreed to pay them).
- the building permit fee, which should include the cost of mandatory inspections by the building surveyor
- crossing deposit or asset protection fee paid to the local council and refundable at the end of the project, if no damage has occurred to council property
• Are the working drawings included in the contract documents?
A good building contract will refer to the working drawings, to ensure that both parties are aware of how the work is to be carried out. This is vital, as some items, particularly structural components are too technical in nature, for a homeowner to be able to check. In this instance it’s ok to have a clause in the contract along the lines of ‘Refer to Working drawings’.
So the take home message for this blog is to take the time to thoroughly check your building contract and the related documents. Don’t feel that this displays a lack of trust; this is simply a sensible way for a homeowner to ensure they are getting what they expect. And of course it goes without saying to never enter into any major building work without a fixed price building contract as this is a recipe for disaster!
You may have some comments, and I would love to hear what you think. Why not give me a call on 9776 7101?
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