Building Block #3 – The Domestic Building Contract

Much of the work we do for clients in the area of building disputes is as a result of work that has been done by a person who is either not properly qualified or does not hold the correct building licence for either the work contracted to be done or to supervise the work contracted to be done.

The Consumer and Business Services website has a useful search tool that enables a public user to search the National Register for details of licenses held by builders. However navigation of the website to find other useful and important information can be tricky and time consuming.

Consequently we thought it might be helpful to put together a series of BLOG’s to assist you in understanding the basics BEFORE you engage the builder, contractor or supervisor or sign a building contract. We have recently discussed basics of avoiding building disputes here and then the regulations surrounding builders licences and supervisors registrations here.

(Please note: words in italics indicates content taken directly off the CBS website or their published guidelines or directly quoted from the Legislation).

When do I need a domestic building contract?

You need a written domestic building contract when you engage a building contractor to perform domestic building work that is valued at $12,000 and over (this figure used to be $5000 and over, prior to the 15th October 2001).

Domestic building contracts must:

• be in writing,
• contain full details of all the contractual terms,
• set out the business name of the building work contractor and the contractor’s licence number,
• if the building work contractor is a partnership, also include the names and licence numbers of the other persons with whom the contractor carries on the business partnership,
• comply with any requirements of the Building Work Contractor Regulations 2011 as to the contents of domestic building work contracts, (see the requirements in the pdf at the bottom of the page)
• be signed by the building work contractor and the building owner (or their agents), and
• Stipulate a fixed price (can include a “rise and fall” clause), and payment terms.

Domestic Building work (as defined under the Building Work Contractors Regulations 2011) is:

(a) the construction, alteration, repair or improvement of a swimming pool or spa within the external walls of a house, within the curtilage of a house or on the boundary of the curtilage of a house;

(b) any other building work carried out within the curtilage of a house or on the boundary of the curtilage of a house; 

(c) the installation, maintenance, repair and removal of insulation.

[Source: www.legislation.sa.gov.au/LZ/C/R/Building%20Work%20Contractors%20Regulations%202011.]

Please note that curtilage is defined as the area, which is usually enclosed encompassing the grounds and buildings immediately surrounding a home that is used in the daily activities of domestic life.

Exemptions:

There are 3 major exemptions to the need to have a written building work contract:

1. Where the value of the domestic building work is less than $12,000
2. Where the domestic building work consists solely of demolition work [refer section 5(8) of the Building Work Contractors Regulations 2011]
3. Where the domestic building work is in respect of the performance of domestic building work for the construction of a multi-storey residential building. [Refer to Section 5(9(a)) of the Building Work Contractors Regulations 2011]

RED FLAG – As a general rule, if the value of the building work (providing the work does not consist solely of demolition work) is over $12,000 and the building contractor is reluctant, resistant or refuses to put what is agreed into the proper form of a building contract, this is a major concern and a signal that things may not be right.  

The presence of a building contract is important as it affords the owner protection by way of a statutory warranty.

Form 1 – Your Building Contract, Your rights and obligations

As soon as reasonably practicable after you (the building owner) and the building contractor have signed the building contract, the building contractor must give you a copy of the signed contract together with a copy of the Form 1 in the prescribed form in accordance with the Building Work Contractors Regulations 2011.

The Form 1 contains a series of disclosures about your rights in relation to the building contract and a copy can be found in the pdf at the bottom of the page, (for Form 1 see pages 19-23).

What is a Statutory warranty? (Is it different from Builders Indemnity Insurance?)

A statutory warranty is created by virtue of law and in this case the statutory warranty arises under the Building Work Contractors Act 1995 (“the Act”). A statutory warranty is different from (and in addition to) builders indemnity insurance.

Division 2, Section 32 of the Act stipulates that:

For every contract entered into on or after 22 January 1987 the following [statutory] warranties on the part of the building work contractor are implied in every domestic building work contract:

1. the building work will be performed in a proper manner to accepted trade standards and in accordance with the plans and specifications agreed to by the parties;
2. all materials to be supplied by the contractor will be good and proper;
3. the building work will be performed in accordance with all statutory requirements;
4. if the contract does not stipulate a period within which the building work must be completed—a warranty that the building work will be performed with reasonable diligence;
5. if the building contract is for the construction of a house—that the house will be reasonably fit for human habitation;
6. that the building work and any materials used will be reasonably fit for the particular purpose(where the building owner has expressly made known to the contractor a particular purpose for which the building work is required)
7. that the building work and any materials used will be of such a nature and quality that they might reasonably be expected to achieve that result(where the building owner has expressly made known a particular result required to the contractor and relied on the contractor’s skill and judgement to ensure that the building work achieves that particular result).

Who benefits from a statutory warranty?

The Act says: A person who has purchased or otherwise acquired a house succeeds to the rights of the person’s predecessor in title in respect of statutory warranties. 

This means that whoever owns the house at the time that a problem becomes known may commence proceedings for a breach of statutory warranty against the building contractor, provided that the period of the statutory warranty has not expired.

The Act says: If a person has purchased a house from a building work contractor who performed domestic building work in relation to the house, the purchaser has rights under statutory warranties as if the house had been purchased from a third party for whom the vendor had performed the building work under a contract subject to statutory warranties.  

This means that if you buy a house off the builder (or owner builder) and a problem becomes known, you may still commence proceedings for a breach of statutory warranty against the builder (or owner builder) provided that the period of the statutory warranty has not expired.

How long does a Statutory Warranty last?

Proceedings for breach of a statutory warranty must be commenced within five years after completion of the building work to which the proceedings relate.

The date of completion of the building work is the date that the builder lodges a notice of completion with the relevant City Council as required by regulation 83AB of the Development Regulations 2008.

Note: There are some instances where a builder can be pursued beyond the statutory warranty period, more specifically where the builder or subcontractor did not perform the work in accordance with the specifications or performance standards required. If you are the owner of a building that is more than 5 years old which has significant structural problems it may be worth your while seeking legal advice to see what remedies are available to you.

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This article is posted in Adelaide, South Australia by Tri-meridian Corporate & Commercial Law and is intended to be used as a guide only. It is not, and is not intended to be, advice on any specific matter. We do not accept responsibility for any acts or omissions resulting from reliance upon the content of this article. Before acting on the basis of any material in this article, we recommend that you consult your professional adviser.