Understanding Your Building Contract

For most people, building a home is the largest financial commitment of their lives. For this reason alone, it is also often considered one of the most stressful events in a person’s life.

Usually, legal advice is obtained for the purchase of land. However, more often than not legal advice is not sought for the residential building contract even though the cost of building will generally match or exceed the cost of the land. Residential building contracts can be large lengthy documents which are often ignored until a problem arises.

The issue with not understanding your residential building contract is that when problems arise they are often very expensive problems to rectify. Further, why would you sign a contract worth hundreds of thousands of dollars that you do not understand? Some of the most common complaints in building disputes involve: defective work claims, breach of contractual terms, incomplete work, delay and unknown additional costs.  More often than not these complaints can be avoided with basic understanding of the agreement.

Prior to signing a residential building contract, it is important to read and understand the terms of the contract. Many homeowners under estimate the importance, duration and procedures that are required prior to commencing construction. You should understand your rights and obligations under the contract, as well as the builder’s rights and obligations. As a homeowner your primary obligation is to obtain finance and make the progress payments as per the contract and your failure to do so may lead to the contract being terminated.  You should understand the building plans, what is included in the cost and what is excluded. This is an area that without firm understanding often leads to the greatest disappointment and expense for homeowners. You should know whether it is you or your builder’s responsibility to lodge the development application and whether you will use a private certifier or local council as the certifying authority. Once construction commences, many homeowners are confused when it comes to excavation, retaining walls, prime cost items, insurance, variations, and handover. However, these are items which should be understood and agreed prior to signing the contract.

Generally speaking, it is insufficient and a conflict of interest for the builder who has a financial interest in the contract to provide you with legal advice about the contract.  Good advice, a firm understanding of your building contract and organisation are key to a smooth and successful build.

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