Every week we at Houspect WA are approached by both Home Owners and Builders/Contractors to conduct building inspections to assist parties resolve disputes over new homes and home renovations work. These disputes create enormous angst, can take many months to resolve and can add substantial costs to a project. Sadly, the key protection that the WA Government has established is not adhered to in many of these disputes.
The Home Building Contracts Act 1991 (the Act) regulates contracts between any person undertaking home building or associated work for a home owner, including owner-builders. It excludes contracts between trades people/subcontractors and a builder, if the builder has a contract with the owner for the performance of the work. The Act is supported by Regulations.
The Act applies to parties entering into a ‘home building work contract’, being a contract for the performance of ‘home building work’ or ‘associated work’, where the value of the fixed price contract is between $7,500 and $500,000. Home building and/or associated work includes:
- erecting a new home or making additions to an existing home;
- installing a swimming pool;
- cabinetry or tiling work for a kitchen or bathroom;
- constructing a garage, shed or pergola;
- performing landscaping work; and
- other similar work.
Contracts Must Be In Writing!
Contracts must be in writing, contain all the terms, conditions and provisions of the agreement, show the date and be signed by both parties. An oral agreement is not sufficient to comply with the Act.
Builders and Contractors!
Under the Act a ‘builder’ is any person(s) who carries on a business which performs home
building work or associated work for others. That person may or may not be a registered builder.
Cap on Deposits
A home building work contract cannot provide for payment of a deposit prior to the commencement of work that exceeds 6.5 per cent of the total cost of the work. Once work has commenced, any progress payment must only be for work actually performed or materials already supplied. For example, a builder cannot demand a progress payment for the purchase and delivery of bricks until the bricks have been delivered to the site.
Home Indemnity Insurance (HII)
It is compulsory for all residential building work above $20,000 to be covered by HII, except associated work alone (eg swimming pools, carports, pergolas and landscaping). Before commencing work or demanding any payment including a deposit, the builder must take out HII and give the home owner a certificate confirming the existence of the insurance cover.
The provisions of the Act are for the protection of both consumers and builders. Where a builder fails to comply with the provisions of the Act, penalties of up to $10,000 in the case of an individual and $50,000 in the case of a company can be imposed. If you are contemplating performing home building or associated work or carrying on a business to perform such work, you should seek independent legal advice about complying with your obligations under the Act.
What are the Key Items Contained in the Notice for the Home Owner?
The Act requires the builder/contractor to provide the owner with a copy of the ‘Notice for the Home Owner’, which summarises the requirements of the Act. The notice is Schedule 1 of the Home Building Contracts Regulations 1992. Key Components of the Notice include:
- A builder must give a copy of this notice to you, as the owner, before you sign a contract for home building work that is covered by the Home Building Contracts Act 1991.
- Who are “owners” and “builders”?
- What the Act covers
- Home indemnity insurance
- Contract — steps to be followed
- Special rules for cost plus contracts
- Provisions that are not allowed
- Prime cost/Provisional sum
- Contract price must be fixed
- Varying the contract
- Where approvals are delayed
- Defects – making good
- Termination of contract
The WA Government has created an infrastructure to support home owners and builders/contractors when entering into contracts to build or renovate properties. When the contract price excess $7,500 but does not exceed $500,000 the Home Building Contracts Act will generally apply.
Thousands of contracts are completed in WA every day without issue. However, a small percentage of contracts end up in dispute and a disproportional number of these contracts, especially renovations, have not complied with the Home Building Contracts Act.
Houspect WA undertakes building inspections to prepare independent expert reports to support Home Owners, Builders/Contractors in construction disputes which are being progressed through the WA Building Commission, State Administrative Tribunal or WA Magistrates Court.
If you are undertaking work as a Home Owner or Builder/Contractor protect yourself and make sure your work is complaint with the Home Building Contracts Act.
See a Summary from the WA Government
Where appropriate, Home Owners or Builder/Contractors should seek independent legal advice.
Correct as at November 2018
Build, Buy, Invest in property with confidence.