Your builder went bust – now what?

With the construction sector claiming the dubious first-place title for number of insolvencies in the 23/24 financial year, building a home feels like a veritable minefield.

Thousands of construction companies went bust last year, leaving hundreds of Australians with unfinished homes and millions owed. It begs the question: What did the homeowners do next?

BDN Lawyers solicitor Connie Park says the first move for most people is to lodge a claim through their home building compensation insurance.

Those building a home on their land can do this themselves. For those purchasing property as part of a strata scheme, it’s on their owners’ corporation to engage lawyers – at the owners’ expense.

“There are units in Canberra going through that process at the moment, which is sad,” Connie says. “Unfortunately, you can’t always foresee a builder going into liquidation.”

She says despite the surge in shattered contracts, many buyers are still not doing the minimum due diligence.

To start, buyers should secure a Home Warranty Insurance certificate the moment they sign on the dotted line.

But even before that, they should review the building contract to confirm the scope of works, price, building schedule and defect liability period match their expectations and that the progress payment schedule meets their and their lender’s expectations.

It’s worth checking if there is a liquidated damages clause allowing the buyer to claim compensation for building delays, particularly because prices and schedules always come with an asterisk.

“Owners need to understand that quite often the price isn’t fixed – they will need to review whether the builder charges extra for variations,” Connie says.

“Delays are part of the nature of construction because of unpredictable variables like weather, approvals and the ability to source materials and contractors. In most building contracts, you can expect a clause that allows the builder to extend the build timeframe.

“Unfortunately a lot of clients don’t take the time to engage a lawyer to review their building contract because they don’t realise the importance. Many believe the building contracts are ‘standard contracts’. It’s when things go wrong, you turn to that contract, and if it’s poorly drafted or doesn’t accord with your expectations, you’re in trouble.

“You may not be in a position to negotiate your contract, but the exchange is a critical time and it would still be in your best interest to understand the provisions before you sign your building contract and your build begins.”

It’s something Grant Crapp’s clients experienced first hand when the collapse of popular family-run building business Cubitt’s Granny Flats and Home Extensions left them “high and dry” with what the construction industry calls a “halfway builder” – a complete external structure with nothing inside.

Grant says clients often struggle to find companies willing to take on halfway builds.

“The new builder takes on a legal responsibility for the works. You can get the contract drafted to say ‘We’re not responsible for anything external’ – but you still need to ensure the existing structure is compliant. Down the track if something in the external works impacts something inside, it can get messy,” he says.

“You can inspect it, but you didn’t build it and you don’t know for sure what’s been done. So it’s a risk.”

Regardless, the GDC Built owner accepted the job.

“The clients were understandably very distraught. They’d spent a lot, and to hear the company had gone into liquidation after taking a progress payment just a week before – it was just wrong,” he says.

Grant assumed the uphill battle of negotiations with the suppliers.

“As you can imagine, more than a few weren’t willing to give me anything. They hadn’t been paid, so why would they? I asked if out of the kindness of their hearts, they could supply what was needed. Most did, but it was a terrible experience for all,” he says.

Grant hopes as awareness of the issue grows, buyers will approach with more caution.

At a minimum, he recommends they get eyes on the evidence that their builders have a valid, up-to-date licence and insurance.

Beyond that, he says several red flags can tell buyers a builder could be in trouble.

“Don’t just accept any testimonial – look at their last completed project and specifically, look at when it was completed,” he says.

“Check their social media for client comments and don’t be afraid to ask to speak to recent references. At the end of the day if they’ve had a good run with their clients, they should happily provide you with whatever reassurances you need. Some may even be proactive. I provide recent client testimonials with my fee proposal, as well as all the latest images and projects.

“Don’t go on experience alone. Experience is good, but it’s not always the be-all and end-all. Sometimes it’s good to give hungry young builders a go – you might be surprised at the effort they’ll go to to deliver a quality project to you.”

For more information visit GDC Built and BDN Lawyers.