There has been some media focus on the alleged failures of the Victorian Building Authority. You can access details of the recent Sixty Minutes story here.
It raises the question – what effective remedies are available to home owners under the standard domestic building contracts in Victoria?
A common situation that owners complain about is a builder that is late completing the work and doesn’t seem to have any interest in completing the work. The builder has received 90% or even 95% of the money due under the building contract but the work isn’t complete and the home owner can’t move in. If you find yourself in this situation – what are your rights?
Victorian Building Authority
The Victorian Building Authority regulates the Victorian Building Industry. One of its services is to undertake inspections and audits and enforcing compliance with relevant legislation. Another service is to register and discipline building practitioners.
Hence if your building project is defective or the builder is in breach of your contract you may be able to lodge a formal complaint with the Victorian Building Authority. The Authority has the power to order the builder to remedy defective work and can potentially deregister the builder.
The difficulty is that there seems to be more sites to inspect than the Authority’s inspectors can get to. The result is often delays of six months or more. This may be something an owner can tolerate if, for example, you have already moved into the property. However, if the project is incomplete or uninhabitable the holding costs (mortgage payments, property outgoings or rent on another property) associated with a six month delay may mean that lodging a complaint with the Authority is an unrealistic solution.
Domestic Building Dispute Resolution Board
The Victorian Civil and Administrative Tribunal (VCAT) has jurisdiction over domestic building disputes. This means that if you want to sue your builder or get a court order then you need to go to VCAT. VCAT was intended to be a convenient and informal way for people to access the justice system.
However, before you are allowed to take a domestic building dispute to VCAT you are required to lodge a complaint with the mediation service known as the Domestic Building Dispute Resolution Board. Again, this is a well intentioned idea to save owners time and money by providing a low cost mediation service.
The bottom line is that this combination is a disaster!
It will typically take 6 months or more for your dispute to be heard by the Domestic Building Dispute Resolution Board. The service they offer is mediation. The idea is that if we put the parties in a room with a mediator and tell them to be reasonable we can resolve the issue. The difficulty is that usually the owner has initiated this process because they believe the builder is being unreasonable. This suggests low prospects of success unless the owner makes extensive concessions. The Board cannot order anything the builder does not agree to.
Once mediation fails – you will get a certificate that allows you to commence proceedings in VCAT. VCAT proceedings are likely to take 6 months or more before you get a hearing and a decision.
Meanwhile your building project is presumably stalled, you as owner are paying substantial holding costs for potentially in excess of 12 months and the builder has moved on to other work.
The simple truth is that most owners cannot afford these delays and builders know it!
Contract Termination
In many cases the owners’ only option is to terminate the contract.
This is a drastic step that should not be taken lightly. You should get legal advice before you terminate the contract.
You also need to be aware that terminating the contract will likely result in you forfeiting any right to liquidated damages / damages for delay from the builder.
The cost of getting an alternate builder to complete the work is likely to be relatively high.
You may also face issues getting the required builders warranty insurance in place for the work.
Most gallingly of all, terminating the contract may entitle the builder to make a claim for a final payment from you.
Despite all of this, sometimes terminating the contract is the least bad alternative and the only way forward.
The Practical Consequence
I have spoken to a number of clients recently that have a striking problem as a result of these issues.
In these cases, the builder has completed most of the building work – but has not completed it. The builder continues to make vague promises about completing the work and may even attend occasionally to do a little bit here and there.
The client doesn’t want to wait 6-12 months + for the Victorian Building Authority to intervene or go to VCAT. Equally, if the client terminates the contract, the client will not only lose their claim to liquidated damages (which are typically inadequate) but will likely owe the builder money! This arises because the owner can only claim a deduction for the cost to complete the work and can’t deduct liquidated damages on termination.
Hence the client continues to be strung along by the builder – in some cases for years! All the while holding costs just keep adding up.
Building Contract Review Service
A key part of the solution is do carefully investigate the builder’s track record before you sign a contract. It should go without saying that there are many competent and conscientious builders out there.
Another key part is to get advice before you sign a building contract.
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.
We will include a number of special conditions that will help protect your rights if the builder doesn’t finish the work whether that be a result of insolvency or a simple lack of professionalism.
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 help to ensure the builder is motivated to deliver the project on time.
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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