Building your home is likely to be one of the most significant financial investments of your lifetime. As BEN Kuzman from RMB Lawyers explains, it is important homeowners understand their building contract and avoid incurring unforeseen costs over the course of their build.
Building contracts for the construction of residential dwellings represent a legally binding agreement between a builder and homeowner.
In practice, building contracts are “builder friendly” in nature, so homeowners must be aware of how key terms of their building contract operate. Common clauses which can result in an increase to the costs include those relating to variations, prime cost items and delay damages.
Most residential building contracts allow for variations to the scope of building works to occur at the request of the homeowner or builder. Variations which involve additional work or materials will increase the contract price.
Homeowners should ensure that they are well acquainted with the scope of work included in their building contract to understand when items of work suggested by their builder may result in a variation and increase in the contract price.
Builders may also charge an administrative fee for processing homeowner-requested variations, so homeowners should be mindful of incurring additional costs each time they request a variation.
Building contracts provide for prime cost items, which a homeowner has not selected or whose value is not known at the time of entering a building contract. Accordingly, an allowance is made for these items in the contract. Homeowners should bear in mind that where the actual cost for these items exceeds the corresponding allowance amount in the contract, the difference is added to the contract price.
Occasionally, building works will not be complete by the date on which the dwelling is required to be fit for occupation under the building contract. In these circumstances, building contracts will generally entitle the homeowner to liquidated damages, which accrue on a daily basis and are meant to compensate the homeowner for the costs such as rental expenses which are incurred due to the works not being completed on time.
However, building contracts often require homeowners to accept a nominal amount of liquidated damages, such as $1 per day. Where possible, homeowners should avoid agreeing to such terms, as it clearly does not represent a genuine pre-estimate of their potential losses.
Considering the hidden costs of most building contracts, we recommend homeowners seek legal advice before negotiating or entering into binding agreements with builders.
Are you currently or about to begin building? If yes, your first step should be to contact our office to arrange a free consultation. You can contact us by by phone or our 'Ask a Question' tool on our website.