It is a question that is increasingly being asked in Victoria – should a domestic builder provide evidence of insurance before the deposit under a building contract is paid?
Certainly, some customers of Porter Davis regretted paying the deposit first. Porter Davis seems to have been in the habit of providing insurance some months after the contract was signed and the deposit was paid.
When the company went into liquidation those customers were left with no claim against insurance. They were mere unsecured creditors and likely to receive very little return on their funds. However, public pressure has led to the Victorian Government announcing relief for these customers of Porter Davis – but apparently not customers of other builders in the same position.
Notwithstanding this situation I have spoken to clients this week who have builders that are still insisting that the contract is signed and the deposit is paid first and then the insurance is provided later. These builders are quite aggressive in asserting this is both common practice and perfectly legal.
But is this right?
What Does the Law Say?
I will assume that your building contract involves more than $16,000 of domestic building work. In simple terms this means that the builder must be a registered builder and the Domestic Building Contracts Act 1995 (Vic) will apply.
This will in turn mean that section 135 of the Building Act 1993 (Vic) applies. Simplified, this section allows the relevant Minister to publish an order in the Government Gazette requiring building practitioners to be covered by insurance.
Such an order was indeed published on 23 May, 2003 – Ministerial Order S98. Again, in simplified terms, this provides that, before entering into the contract, the builder must ensure that a complying contract that covers the building work to be done is issued. It is possible for the builder to sign a contract first – but no payment can be made or work done until after the insurance is issued.
If you would like to see the Order referred to above – click here.
This makes it abundantly clear that a builder who requires any payment (including the deposit) before providing evidence of builders warranty insurance is breaking the law!
Best Practice
The bottom line is that you should insist on getting evidence of insurance before you pay any money.
There are two reasons for this:
- The law requires it; and
- Your deposit is not protected by the builder’s warranty insurance if the builder goes into liquidation (or suffers other forms of calamity) before the insurance is issued.
Builders Warranty Insurance has its limitations and doesn’t always cover you. This is a topic for another day….. However, it should protect you against a builder that becomes insolvent after you pay the deposit and before work commences.
Building Contract Review Service
Lewis O’Brien and Associates offers a building contract review service to help owners about to sign a building contract. For a fixed fee of $750.00 plus GST (for domestic building contracts) we will provide:
- a written review of your building contract which highlights issues that you should be aware of and special conditions inserted by the builder;
- our recommended special conditions to help ensure the contract is fair; and
- you can book an individual zoom or phone call to ask questions about the review and the contract generally with an experienced lawyer.
Reminding you that the insurance should be provided before you pay the deposit is only one element of our contract review service!
If you are about to sign a contract for a six or seven figure sum – getting the contract reviewed by a lawyer that is on your side is a simple and cost effective way to protect yourself and feel more comfortable.
To contact us and arrange a review – please click here.
If you aren’t thinking of signing a building contract, but know someone that is please share this article with them.
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