Anyone entering into a building contract needs to keep these three things front of mind: cost, time and quality:
Cost
A “fixed price” building contract is rarely a fixed price – most contracts will allow a builder to increase their prices.
Most builders, when they use the term ‘fixed price’, mean that their contract doesn’t have ‘provisional sums’ or ‘prime costs’ for things like kitchens and driveways. This means they have fully spec’d and priced all aspects of the build. The devil is, of course, in the detail – specifically, it’s in the fine print.
The majority of building contracts will include provisions in the fine print that will allow a builder to charge you more if their costs increase, if there is a shortage of materials, if there is poor weather, if they have problems getting staff or subbies on site, or if there are access issues or foundation issues (amongst other things).
The Master Builders Association have also recently advised members to avoid any true fixed price contracts due to their associated risk. We usually recommend people allow at least 15% extra in their budget, for unexpected items and variations.
Time
A residential build takes about 20 weeks, right?
Most building contracts use the terms “substantially complete” or “practically complete”. Definitions vary, but this generally means the time when a building is mostly complete (except for some minor bits and pieces) and is able to be lived in. At that point, the balance of the contract price is often due, and you can move in. We have found (especially in this market) that building supply shortages have meant that those last few bits and pieces have taken a lot longer than most people expect, to be completely finished.
The fine print of a building contract also often allows a builder to extend the build time if something unexpected arises at their end, and there is usually no consequence (i.e. no penalties) if the build is delayed. Always have a backup plan in place!
Quality
You get what you pay for.
As with any contract, you need to know exactly what you are getting. This means checking the contract and specifications in precise detail – before you sign. If you ask for any changes after the contract has been signed, these variations will be at your cost.
If you have expectations of a finish that is higher than the general accepted standard, this needs to be set out and included in the specifications within the contract.
Owners also have the benefit of a 12 month ‘defect liability' period after construction has been completed, in which they can require that the builder remedies any defects in the original build. It’s always worth remembering to undertake a full inspection/audit of your new home at around the 9–10-month period, so you can identify any final defects and ensure you notify your builder before the expiry of this period.
In short: Review your contract.
Building a property is a very exciting time! But building contracts can be complex, so we recommend your legal advisor reviews your contract to help avoid any headaches or heartaches down the road. Time and Cost can change, and Quality can vary from contract to contract.
If you were to check nothing else, we recommend that you check that the builder will obtain the Code Compliance Certificate (CCC) before completion, as a lack of CCC can cause insurance risk, and difficulty on-selling the property.
If you are considering entering into a building contract and would like to discuss any part of the process, please do not hesitate to contact the team at iCLAW. You can book a meeting with us directly by clicking here, by emailing info@iclaw.com, or phoning us on 07 929 4300.
Article by Jamelle Keatley, Senior Solicitor.