Avoiding common building contract pitfalls
There’s a reason why you shouldn’t skimp on legal advice.
Building contracts are seen by many as a tedious administrative exercise getting in the way of the fun parts of a new project, such as choosing tiles and carpet colours.
But though they might not be the most exciting part of renovating or building a home, a good build contract can be one of the most important factors in determining success.
A dispute over a building contract is costly in terms of time and finances and highly destructive of relationships and emotional well-being.
Build contracts, like any legal document, can be filled with unexpected pitfalls and when a family’s entire life savings is going into a new build, a lot is at stake.
Experts say the key to a successful build is a good understanding from both sides of exactly what they are signing up to.
Independent legal advice
Most people sign away their money without legal advice and without fully understanding the agreement they are signing.
Building Disputes Tribunal founder John Green said even with the most astute business-savvy people, when it came to their own home it was as though the ‘‘top of their own head flies off’’.
Most people didn’t understand what their specific obligations were and rushed into the agreement in the excitement of getting things done around the home, or building a new house.
Green said even though lawyers could be seen as an unnecessary cost, the best thing homeowners could do was to get independent legal advice before they signed the contract so they knew what they were signing up for.
Inclusions and exclusions
For homeowners in a hurry to get started, a full list of specifications was not always a priority, but Green said it was vital to understand what was actually being built.
He said disputes over what was specified were hugely time consuming to be resolved and there were many factors involved.
‘‘Parties will always have opposing views and opposing memories to what was said and done.
‘‘Get everything in writing.’’
Securing a fixed price
Green said fixed-price contracts were the only way to go.
‘‘There’s nothing worse than starting the build and then finding out they can’t afford it. Unless there are changes that the owner requires, then the price shouldn’t change,’’ Green said.
He said it was the builder who was taking a risk with a fixed price contract as opposed to the owner taking a risk with a charge up situation.
‘‘The builder is obligated to build whatever has been specified for that price.’’
He said everything that could be priced, should be priced and not left as a provisional sum that could blow out of proportion later in the piece.
Owner responsibilities
Rainey Collins partner Claire Tyler said owners needed to be aware of their rights and responsibilities and, even with a standard building contract, legal advice should be sought before signing because every build should be personalised.
Tyler said common pitfalls with building contracts included owners being required to obtain building consents and compliance certificates, which should be the builder’s responsibility.
‘‘Often final payments are required to be made before a code compliance certificate has been applied for, which often contradicts the owner’s finance approval and bank’s requirements,’’ Tyler said.
She said another key issue was that were a wide number of reasons that a builder could delay progress or cancel the build, which could be detrimental to the owner.
‘‘There are some implied warranties under the Building Act that provide protection to owners and consumers, regardless of what it is in their building contract. Builders cannot contract out of those warranties.’’