Building your dream home: the hidden risks in entering into a building contract

Building your dream home shouldn’t cause you sleepless nights.

The release of land in newly created suburbs and the Mr Fluffy Buy-back scheme has led to an increasing number of opportunities to buy a vacant block of land on which to build your dream home. But it is no secret that constructing your own home can be fraught with danger. Indeed complaints about residential building work doubled between 2009 and 2015 (according to the ACT Government) and the MBA has recently estimated that poor construction in the ACT has cost nearly $1 billion since 2010. While the Government is undertaking a further review of current building legislation, the best thing you can do as an owner to protect yourself is ensure that the building contract adequately covers you against risks that might arise during the building works. But what should you look out for?

Approvals

Many owners approach the process of building a home under the assumption that the builder will obtain all approvals for construction of the dwelling. Typically, this will include development approval for the plans and a certificate of occupation once the dwelling has been constructed. This is a reasonable position to take as the builder is likely to have greater experience with the approval process and plans may have been prepared in consultation with the builder.

Often, however, a building contract will not reflect this assumption and the obligation and risk of obtaining approvals will fall to the owner. Even where the builder assumes responsibility for obtaining approvals, typically building contracts will contain provisions passing on any additional costs of complying with amended approvals to the owner. The building contract may also require that the final progress payment be made prior to a Certificate of Occupancy and Use being issued for the dwelling, leaving the owner in a position where all payments have been made but the owner is unable to obtain a Certificate of Occupancy.

Variations

Another common assumption made by owners is the contract price agreed to with the builder is an all-inclusive price for the construction of the dwelling. While this may be the case, in reality, most building contracts will provide for variations to be made to the building works if required in certain circumstances (e.g. hidden site conditions or compliance with amended legislation or guidelines) and for the cost of these variations to be passed onto the owner. While this may be a reasonable position – as a builder is unlikely to assume the risk of hidden site conditions where the owner has already purchased the block – owners should be aware of additional costs which may be imposed to ensure they are adequately covered should this eventuate.

Delays

Finally, while an owner may be relying on construction being completed within a particular timeframe so that he or she can move into the dwelling, builders will be permitted to delay construction of the building works in certain circumstances. This includes inclement weather or industrial disputes but may extend to a delay in obtaining approvals or any act, default or omission of the owner (to use the MBA ACT’s standard form building contract as an example). To ensure that building works are not unnecessarily delayed, owners should require that permitted delays are limited to events that are reasonable (e.g. inclement weather). The owner may also be met with a shock following any delay, as this gives the builder the right to increase the contract price where the delay results in an increase in the costs of construction.

As submissions for the ACT Government’s current inquiry into building quality close on 30 November 2018, there may be legislative changes on the horizon to provide greater protections for owners looking to construct their own dwelling. Until then, owners should be aware of the deficiencies of any building contract to ensure that the experience of building their dream home doesn’t turn into a nightmare.

Before entering into a building contract, we recommend that you have a lawyer review the contract for you. To discuss further, please contact the Property Team at BAL Lawyers, who have extensive experience with building contracts.

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