When builder and client fall out, custody of the compliance certificates required under the development approval can provide the builder with leverage. Without the certificates the client will struggle to secure the occupation certificate. This can prevent the work being used, sales being completed and financiers discharged. However, care needs to be taken as a recent case illustrates that it is by no means a certainty that the builder is entitled to withhold those certificates.
Not many (if any) standard building contracts specifically refer to the compliance certificates required under the development approval. These certificates are also known as Part 4A Certificates, being a reference to relevant part of the Environmental Planning and Assessment Act (1979) NSW. Despite that, given the builder's role and its obligations in respect of complying with the law and satisfying authority requirements, an obligation to procure and supply the certificates to the client is not particularly difficult to imply.
While replacement compliance certificates may sometimes be secured directly from the subcontractor, it is by no means a certainty, particularly with a subcontractor loyal to the builder. An unpaid subcontractor may be more than happy to oblige, provided of course the sum owed to it is paid. Tradespersons (or even certifiers) other than those who perform the works may be able to assist, but the process can be uncertain and expensive. Verifying compliance for issues such as waterproofing, hydraulics, electrical, structural may involve uncovering or opening up completed works. The builder's refusal to provide the compliance certificates can put the client in quite a bind.
The leverage provided by compliance certificates was used by Sebastian-Builders and Developers Pty Limited in respect of residential building work undertaken by it in beautiful Kiama on the South Coast of New South Wales. The work in question involved the construction of four townhouses. As money was owed [eventually agreed at $55,000], the builder withheld the plumbing certificate. In the absence of the certificate, the subdivision certificate could not issue. This in turn delayed completion of the sale of one of the townhouses and the client incurred financial loss as a result.
The builder had also commenced court action to recover the debt. The client cross claimed for financial loss of $136,000. The controversy boiled down to the question of whether the builder was entitled to withhold the plumbing certificate.
The contract form was the Master Builder's Association of New South Wales' ubiquitous BC4. There was no express provision as to compliance certificates.
Clause 23(d) provided:
"The Owner is not entitled to take possession of the works nor receive the keys until the payment to the Builder of all moneys due under this Contract has been made."
The builder argued that the provision of the certificate to the client would be analogous to providing a key to the premises because it would enable the client to sell the townhouse. The client disagreed.
The District Court found in favour of the builder, but its joy was short lived. That decision was appealed to the Court of Appeal in Floruit Holdings Pty Limited & Anor v Sebastian-Builders & Developers Pty Limited [2009] NSW CA 303 (28 September 2009). Click here to read. Bergin J, with whom Allsop P and Young JA agreed, reasoned that the controversy could be resolved by determining whether the expression "the works" in clause 23(d) of the Contract includes the plumbing certificate.
Her Honour concluded that:
"Although the expression "work" and "works" are used in different contexts throughout the Contract, the only sensible and business-like interpretation of the word "works" in clause 23(d) is that it means the completed buildings, the townhouses, and does not include pieces of paper, including certificates and insurance policies that may be held by the Builder either at the site or off-site. The inducement for prompt payment of the Builder was the contractual right of the Builder to lock the Owner out of the "property" on which the "works" were erected or constructed."
Therefore, despite it being agreed that $55,000 was owed to the builder, the builder could not demonstrate an entitlement to withhold the compliance certificate. Accordingly, that which the builder assumed provided leverage in fact proved to be a rod for its own back, with it being held responsible for the owner's financial loss from the delay to the completion of the sale.
Assumptions as to the leverage provided by compliance certificates may not be safe. Care must be taken to ensure that the contract indeed gives the builder the right to withhold them in a manner contrary to implied or other requirements to deliver them up to the client on a timely basis.
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Sydney |
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Robert Riddell |
t (02) 9931 4940 |
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
