Avoiding Construction Disputes

There is an emphasis on avoiding and resolving disputes before they reach litigation. This is a direct result of improved methods in construction management and dispute resolution, combined with applying the lessons learned by both builders and homeowners over the years. Builders are being advised to adopt new best practices, as well as recognising that “amicable” dispute resolution saves huge amounts of money and time.

The most common reasons for disputes between builders and homeowners arise due to confusion and ambiguity in the terms of the Building Contract such as claims for liquidated damages, defects, incomplete works and variations. As such understanding the governing terms of the Building Contract between the builder and homeowner is fundamental and it is advisable to consult a legal professional to not only advise, but also negotiate and vary the terms of such agreement where so required.

The Home Building Act 1989 (NSW) and Home Building Regulation 2014 govern the home building industry in New South Wales.
The Act and Regulations contain the building licensing regime, rules of conduct for builders, statutory warranty framework, minimum building standards, consumer protection provisions and dispute resolution processes.
Implementing the following principles may avoid and mitigate costly disputes now and in the future:
i. Keeping records of everything, and ensuring they are signed by the homeowner;
ii. Clear and regular communication between the builder/ and homeowner;
iii. In the initial meeting, discuss the scope of works as per the Building Contract, and ensure that the scope of works are detailed with particularity and included within the Contract.
1. Suspension of Works:
Builders must tread carefully when it comes to serving a notice of suspension of works. Seeking legal advice before doing so is of the utmost importance, as a notice served incorrectly could result in grave consequences, such as damages being claimed by the homeowner.
This notice should only be served in particular circumstances. Some reasons that are considered adequate for the use of this notice include:
i. Homeowner does not pay progress payment
ii Homeowner does not have claim for incomplete/ defective works yet does not make a progress payment
ii Homeowner breaches/ repudiates the contract by not paying,
2. Variations:
Section 18B(a) of the Home Building Act 1989 requires a builder to perform works in accordance with the plans and specifications set out in the Building Contract.
If variations are necessary, they are required to be in writing and approved by the homeowner. If they are not written down, they do not comprise as a term of the Building Contract, and therefore the builder may not be entitled to payment for such variation.

In some circumstances, the homeowner may be reluctant to pay for the variation, resulting in arguments and conflict. To avoid this, it is essential that variations are approved by the homeowner in writing prior to commencement of any works.
The homeowner may not be liable for the variation in certain circumstances wherein:
i. The work was carried out without their knowledge;
ii. The variation was only necessary because of defects caused by the Builder’s negligence.
These arise in exceptional circumstances, and the homeowner is required to prove this.
3. Delay in completion of construction works:
Delay to completion is one of the most significant issue causing disputes amongst homeowners and builders. When more time is required by the builder, for example in the case of bad weather, public holidays it is advisable that the builder provide the homeowner with an ‘Extension of Time’ notification, in written form. The extension of time must be reasonable to avoid a claim by the homeowner for liquidated damages which is usually a provision stipulated in the Building Contract. Builders are advised to specify the reasons for such as per the following examples:
i. The reason for delay was not within the builder’s control, e.g. weather, suspension of works, lack of materials/ supply;
ii. the delay was caused by the homeowner not doing something on time, such as, result of variation, not providing specifications on time etc…
In the event that the homeowner does not respond to a request for an extension of time, it may be assumed that having been properly provided to the homeowner it would vitiate acceptance. The homeowner may respond to the request, and dispute it in writing, however, they must provide reasonable grounds for their objections.
4. Notice of Termination:
A notice of termination is only intended to be served in extreme circumstances. A builder may only terminate a Building Contract where a substantial breach of the Building Contract has occurred. It is advised that a builder must consult a legal professional before the decision to terminate a Building Contract, to avoid detrimental consequences, as being liable for damages to the homeowner. It is crucial to obtain legal advice in relation to the provisions of Termination pursuant to the Building Contract as there are certain steps and rules required to be adhered to terminate.

Contact SKM Lawyers and let our experienced and dedicated legal team guide you.

Disclaimer:
SKM Lawyers prepared this article. It is intended to provide general information. The contents do not constitute legal advice and should not be relied upon as such. Formal legal advice should be sought.