Australia: The changing landscape of building contracts – Beware of Special Conditions

It is now more important than ever to get advice on your building contract from a lawyer with experience and understanding of the building industry specifically.

Following the pandemic, our building and construction team have noticed a very stark change in building contracts that are often highly detrimental to landowners' rights.

The major change has been in the special conditions of building contracts. It is almost safe to say that there are no standard building contracts now, even if they are based on specific building association contracts. Abnormal price rises for building materials has driven this change in how builders are operating.

Some of the changes are transparent, clear and concise however others are stealthier, with special conditions being attached as additional documents or attachments or placed at the end of contracts and often using unclear wording.

The nature of the special conditions have also changed and we have recently seen domestic building contracts for what would be considered standard building work with low prices, with up to seven pages of special conditions. Previously there would have only been a few clauses or at most one page.

Anyone who is outside of the industry would likely be unaware that this is the new normal and the risks that this carries.

What changes we are seeing

These special conditions are making amendments to a range of contract terms such as:

Landowners and possible purchasers of land and home packages must be careful and get advice before they sign contracts and supply agreements.

Whilst there continues to be shortages of materials and trades to work on builds, these contracts can mean that landowners are paying thousands more than what was originally agreed to.

Examples of special conditions being used now

One example was a contract we reviewed that included a special condition that allowed the builder to increase costs in the project was not completed in the project timeline.

In no way does this provide any protection for the landowner and may be an incentive for the builder to delay the project, to be able to charge more. Whilst we consider this type of clause to be unenforceable by the builder, it is still best to not have to deal with it in the first place. Also, an unsuspecting landowner may actually go along with the contract to their loss.

Another common issue that we are seeing clients are having with builders is that they are paying builders extra money to speed up the timeframe. Whilst this may seem like an incentive, it does bring up a lot of legal issues and may not actually make the builder work any faster, nor carry out the work to the best quality.

Paying additional amounts or paying a progress payment too early is not allowed under fixed-price building contracts. The law protects landowners from builder charging more than the contracted price or having to pay before the works have been carried out for that section.

Secondly if you do something that is outside of the contract, then it should always be in writing and agreed to by both the Owner and the Builder. Quite often these payments for sums up to tens of thousands of dollars or more are all done on a 'handshake deal' and are even harder to enforce if the Builder doesn't follow with the agreement. If the Builder or a trade person is asking you for more money to speed up your build, we can quickly help advise you on the correct protocol and what your contract says, so your hard-earned money is not wasted.

How we can help

At PCL Lawyers we are experienced in advising clients in the building and construction industry. Landowners should be wary of entering into building contracts especially given the price increases over the last year or so. We act for many parties in the construction industry including builders, contractors and landowners and property developers.

Contractors and suppliers should also be aware that their standard agreements may not be so standard anymore.

Beware landowners, you are at a disadvantage in experience

Whilst it fair for builders to protect themselves, likewise, so should landowners. Many of these special conditions are extraordinarily weighted toward protecting the builder. It is important to keep in mind that your Builder has likely been in the industry for many years and knows what to look out for. If this is your first or one of many builds, keep in mind that all building contracts are unique to each project and should be considered by a trained legal eye very carefully.

We will review the contracts and make sure you understand the possible ramifications of these clauses and if need be, can help you negotiate other terms or amend those clauses with the builder

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.