Guide to home building contracts

IMPORTANT: All residential building work worth over $5,000 requires a written contract.

Contract essentials

By law, you must provide a written contract for residential building work:

• If the contract price is over $5,000 (including GST), or
• if the contract price is not known, is for the provision of labour and materials by the contractor the reasonable market cost of which is more than $5,000 (including GST).

Small jobs contracts

Residential building work worth between $5,000 and $20,000 must be covered by a ‘small jobs’ contract. The written contract must be dated and signed by, or on behalf of, each party.

It must contain:

• the parties' names, including the name of the holder of the contractor licence as shown on the contractor licence
• the number of the contractor licence
• a description of the work
• any plans or specifications for the work,
• the contract price if known,
• a 'quality of construction' clause that states the work will comply with:
  1. the Building Code of Australia, to the extent required under the Environmental Planning and Assessment Act 1979
  2. all other relevant codes, standards and specifications that the work is required to comply with under any law
  3. the conditions of any relevant development consent or complying development certificate.
• a clause that states that the contract may limit the liability of the contractor for failure to comply with the above work compliance clause if the failure relates solely to:
  1. a design or specification prepared by or on behalf of the home owner (but not the contractor) or
  2. a design or specification required by the homeowner if the contractor has advised the home owner in writing that they go against the 'work compliance clause'.
• A contract that is entered into on or after 1 January 2018 must include a copy of the Consumer Building Guide published by the Department of Finance, Services and Innovation in May 2016.

Contracts for large jobs

Residential building work worth more than $20,000 needs an extensive home building contract. These contracts must contain:

• the date and signatures of both the contractor and homeowner
• the home owner’s name and the exact name on your contractor’s licence and licence number
• a sufficient description of the work to be carried out
• attached plans and specifications
• relevant warranties required by the Home Building Act 1989
• the contract price, if known, which must be prominently displayed on the first page and a warning with an explanation if the contract price is not known or subject to change
• the cost of cover under Home Building Compensation Scheme if insurance is required
• a clause that states that any agreement to vary the contract or any plans and specifications to be done under the contract (including variations):
  1. are taken to form part of the contract
  2. must be in writing and signed by both the homeowner and contractor.
• A progress payment schedule, which may only include the following types of payments:
  1. fixed payments to be made following the completion of specified stages of work. Payments must be of a specified amount or percentage of the contract price, and the stages of work must be described in clear and plain language.
  2. payments to be made as work is performed and costs are incurred (and which may include the addition of a margin), at intervals fixed by the contract or on an ‘as invoiced’ basis. Claims for this second type of progress payment must be supported by invoices, receipts or other documentation.
  3. a combination of the above two types of payments.
• a termination clause, which must include a statement that the contract may be terminated in the circumstances provided by the general law and that this does not prevent the parties agreeing to additional circumstances in which the contract may be terminated.
• a checklist of 17 items that are prescribed in the Home Building Regulation 2014
• a caution about signing the contract if the homeowner cannot answer yes to all items in the checklist
• a note about the home owner’s entitlement to a copy of the signed contract within five days of signing
• a note about the contractor's obligation to give an insurance certificate under the Home Building Compensation Scheme (formerly known as home warranty insurance) if the contract value is over $20,000
• a clear statement setting out the cooling-off period of five clear business days within which the homeowner may cancel the contract, applicable to contracts valued at over $20,000
• the homeowner must provide a statement of acknowledgement that they have:
  1. read and understood the Consumer building guide which explains procedures for the resolution of contract and insurance disputes
  2. completed the checklist and answered yes to all items on it.
• a 'quality of construction' clause that states the work will comply with:
  1. the Building Code of Australia, to the extent required under the Environmental Planning and Assessment Act 1979
  2. all other relevant codes, standards and specifications that the work is required to comply with under any law
  3. the conditions of any relevant development consent or complying development certificate.
• a clause that states that the contract may limit the liability of the contractor for failure to comply with the above work compliance clause if the failure relates solely to:
  1. a design or specification prepared by or on behalf of the homeowner (but not the contractor) or
  2. a design or specification required by the homeowner if the contractor has advised the homeowner in writing that they go against the 'work compliance clause'.

Consumer Building Guide

If the work exceeds $5,000, you must provide the homeowner with a copy of the Consumer building guide. You can download the Consumer Building Guide. It is updated to reflect any changes to laws or policies about home building.

Deposit

You cannot request a deposit of more than 10 percent. This applies to both small jobs contracts and contracts for large jobs.

Off-the-plan contracts for sale

The off-the-plan contract for sale must include terms that:

• inform the buyer that the developer selling the property does not need to give a certificate of cover under the Home Building Compensation (HBC) Scheme (formerly known as home warranty insurance) if the building work has not yet started
• inform the buyer that the law requires there be a certificate of cover under the HBC Scheme on the building work (unless it is a construction of a multi-storey building)
• require the developer to give the purchaser the certificate of cover under the HBC Scheme within 14 days after the insurance was taken out
• enable the purchaser to cancel the contract for sale if the certificate of cover under the HBC Scheme is not provided within 14 days after being available.

The developer/builder who sells residential property off-the-plan does not need to attach a certificate of insurance under the Home Building Compensation Fund (formerly known as Home Warranty Insurance) to the contract for sale, as long as the work contracted with the builder has not yet commenced.

Cancellations

The legal right of cancelling a contract under the Home Building Act 1989 is limited to situations without a certificate of insurance under the Home Building Compensation Fund (formerly known as Home Warranty Insurance) at the arranged time. In this situation, the prospective purchaser can only cancel before the contract has been completed (ie before settlement).

Fair Trading home building contracts

Fair Trading home building contracts can be downloaded for free. There are two contracts available to use depending on the value of the building work:

1. Home building contract for work over $5,000 and up to $20,000 is suitable for trade work, maintenance and repair work as well as smaller alterations or improvements likely to cost less than $20,000.
2. Home building contract for work over $20,000 is suitable for new homes, alterations and additions.

The Fair Trading home building contract is in a saveable and fillable PDF format. They can be completed on screen and printed, then saved on your computer for re-use at another time.

Alternatively, as a builder or tradesperson, you can use your own contract or one purchased from an industry association. Ensure you understand each clause and that the contract contains all of the items listed above as well as the contract checklist for owners entering a building contract.

Preliminary contracts in residential building work

Builders sometimes provide services to consumers which occur prior to construction. The contracts used to perform these types of services are commonly referred to as ‘preliminary contracts’ or ‘preliminary agreements’ and may include services such as:

• arranging a site inspection and conducting a survey of the property to acquire measurements
• demolition work
• obtaining a soil report or foundation data
• developing design, plans or specifications to support the construction (e.g. engineering or environmental reports), and
• submitting documents to the appropriate authorities for approval (e.g. local council or certifier).

Builders offer these types of contracts as there needs to be initial work done to work out the type of construction possible on a project. Preliminary contracts cannot include any ‘residential building work’ as defined by the Home Building Act 1989.

It is important for builders to know that if a preliminary contract does include any residential building work, and the total value of the contract is over $5,000 (including GST), then it will be considered a residential building contract. If the total value of the residential building work is over $20,000 (including GST) builders will need to comply with other requirements, such as needing appropriate home building compensation cover.