An Overview of Building and Construction Law

4 May 2023 in Building and Construction Law

Are you planning to embark on a building or construction project in New South Wales? If so, it’s crucial to have a solid understanding of the laws and legal frameworks that govern the construction industry. From contracts and regulations to potential risks and disputes, every step of the process involves legal considerations that can’t be overlooked.

This article provides an overview of the key legal principles, state legislation and regulations that govern building and construction projects in New South Wales and Australia.

We aim to provide you with general information about the legal obligations and potential risks that construction companies, contractors and subcontractors, designers, principals and home owners may face when entering into building and construction contracts, as well as practical guidance on how to manage and avoid potential construction disputes.

The information provided is intended as a general overview and should not be considered legal advice as every person’s needs are unique and may require different legal considerations. We highly recommend seeking legal advice tailored to your particular circumstances. The BSM Building and Construction lawyers can assist.

Key Topics:

This article provides a very brief overview of the following key topics and their relevant legislation

1. Six Types of Construction Law Contracts
2. The Home Building Act
3. The Building and Construction Industry Security of Payment Act
4. The Design and Building Practitioners Act
5. Residential Apartment Buildings (Compliance and Enforcement)
6. Access to Adjoining Land and Easements

The Construction Contract

There are a few different types of building and construction contracts and the most appropriate type of contract will depend on the requirements and expertise of the parties involved and the nature of the construction project.  The main types of construction contract are described below.

A Construction only contract is a contract in which the builder enters into the contract to provide construction only.  The owner or principal has a design and provides the design documents and details to the builder.  The builder is obliged to undertake the construction strictly in accordance with the design provided by the principal.

A Design and Construction contract is a contract in which the designer and builder provides the design and construction of the project.  The owner or principal may provide a performance criteria or concept and the designer and builder will then develop a design (often with the assistance of subcontractors such as engineers and architects) and the builder will then construct that design.  This type of contract is most often used for complex or large engineering projects.

A Project Management Contract is a contract in which the owner or principal engages a party, usually an engineer, to manage the construction contract on behalf of the owner or principal.

A Fixed Price Contract is a contract in which the price is fixed.  This approach can be used for any type of construction or design and construction contract.  As the title suggests the price is fixed and the risk of any price overruns are the risk of the contractor.  There are some exclusions to this risk allocation that must be set out in the contract.  Typical exclusions include the risk of unforeseen ground conditions that may cause additional cost, and variations in scope directed by the owner or principal,

A Cost Plus Contract is a contract in which the price is not fixed, the owner or principal will direct the builder to perform any works and pay the builder for the cost of materials and labour.  The owner or principal will bear the risk of price and for this reason this type of contract results in the owner or principal bearing significant price risk and should only be used by sophisticated owners or principals.  This type of contract is usually used where the scope of work is uncertain.

A Home Building Contract is a contract for the construction of residential building work.  These contracts are governed by the Home Building Act 1989 (NSW).  

The purpose of any construction contract is to properly describe the key elements of the construction transaction which include, the scope and quality of the work, time for the work to be complete, price for the work and risk allocation.  The key clauses in any construction contract will fall into one of these categories. For more information see our article on types of building contracts.

Home Building Act 1989 (NSW)

The Home Building Act 1989 (NSW) governs all residential building work (as defined in that Act).  Builders and home owners must comply with the Home Building Act 1989 (NSW).

The Home Building Act 1989 (NSW) also provides homeowners and successors in title (any person who has purchased the property but did not enter into the building contract with the builder) with various rights.  Section 18B of the Home Building Act 1989 (NSW) provides homeowners that contracted with the builder and successors in title with warranties regarding the residential building work.  The warranties relate to, among other things, the quality of the residential building work, and provide home owners with contractual remedies in the event that the builder fails to satisfy those warranties.

The Home Building Act 1989 (NSW) also provides the form of any home building contract and specifies clauses that must be included in any home building contract.  Section 7 of the Home Building Act 1989 (NSW) provides that a home building contact must be in writing, dated and signed and must specify the parties, a description of the works and the price if known, among other things. 

The Home Building Act 1989 (NSW) also provides that builders must be appropriately licensed and procure insurance for the residential building works and provide an insurance certificate to the home owner (section 92 of the Home Building Act 1989 (NSW)).  For more information, see our article on the Home Building Act.

The Building and Construction Industry Security of Payment Act 1999 (NSW)

The purpose of the Building and Construction Industry Security of Payment Act 1999 (NSW) is to ensure that any contractor, subcontractor, consultant or supplier who undertakes work or supplies material under a construction contract is paid on time or has a prompt method to recover such payment.  

The Building and Construction Industry Security of Payment Act 1999 (NSW) provides statutory rights for a party claiming a payment including a right to progress payments, a right to interest on late payments, a right to suspend work, and a right to a lien. These provisions are often included in a standard form construction contract which is a pre-drafted agreement that sets out the terms and conditions of the contract.

One of the primary benefits of the Building and Construction Industry Security of Payment Act 1999 (NSW) for any contractor is the prompt process for payment or recovery of a payment claim described in Part III, Procedure for Recovering Progress Claims.  This part provides that once a contractor has made a payment claim the Head Contractor or Principal must either pay the payment claim or provide a payment schedule within 10 days.  

In the event that the Head Contractor or Principal provides a payment schedule and does not pay the entire payment claim the contractor may make an adjudication application pursuant to section 17, which may also be used to resolve disputes and ensure that the interests of all parties are taken into consideration.

It should be noted that parties to a construction contract cannot contract out of the Building and Construction Industry Security of Payment Act 1999 (NSW). This means that even if the parties have agreed to other terms in the agreement, the Act will still apply to the payment provisions of the contract.

The Design and Building Practitioners Act 2020 (NSW)

The construction industry has seen substantial changes since the introduction of the Design and Building Practitioners Act 2020 (NSW). This was recently introduced following a number of major structural failures in significant construction projects, primarily residential towers.  The Shergold Weir Report was commissioned in 2017 and identified and documented compliance failures in the NSW construction industry.

The Design and Building Practitioners Act 2020 (NSW) and the Design & Building Practitioners Regulations 2021 (NSW) were introduced to, among other things, improve the standard of building and design compliance, address issues of responsibility and liability and introduce registration obligations for any design, engineering and building practitioners working on Class 2 buildings (multi-dwelling building). These practitioners must also comply with the national construction code and building code.

Section 37 of the Design and Building Practitioners Act 2020 (NSW) also introduces a retrospective duty of care as follows, “A person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects”.  

The New South Wales Supreme Court held in the case of Goodwin Street Developments Pty Ltd as trustee for Jesmond Unit Trust v DSD Builders Pty Ltd (In liq) that building work and construction work is not limited to residential building work and therefore includes major engineering projects and the duty of care applies to any person involved in coordinating, supervising,  project managing or otherwise having substantive control over the carrying out of the work. Therefore, contractors and other parties involved in construction must be aware of the legal issues and contract law regarding their agreements.

The Design and Building Practitioners Act 2020 (NSW) has introduced significant implications for the liability that may be imposed on any person who carries out construction work. This includes compliance with standard form construction contracts and payment legislation for payment claims. Additionally, the Act has implications for domestic building work, the plumbing code, work health and safety laws and security of payments.  For more information, see our article on the Design and Practitioners Act.

Residential Apartment Buildings (Compliance and Enforcement) Act 2020 (NSW)

The Residential Apartment Buildings (Compliance and Enforcement) Act 2020 (NSW) is a significant development for the building and construction industry in New South Wales. It is designed to ensure compliance with the highest standards in construction work and reduce defects in residential apartment buildings.  This law enables the rectification of serious defects before occupation which is a crucial step to improve the quality of new buildings.

The Act also outlines the legals capacity and common law principles of the contracting parties involved in the construction contracts. In cases where a dispute arises, this Act provides a framework for resolving such disputes and offers debt recovery and payment legislation. With the Act in place, building projects must comply with minimum requirements set by the Australian Building Codes Board (ABCB) and National Construction Code (NCC).

The Residential Apartment Buildings (Compliance and Enforcement) Act 2020 (NSW) applies to developers and thereby imposes additional liability on any developer.  Developer is defined as:

1. The person who contracted or arranged for, or facilitated or otherwise caused, (whether directly or indirectly) the building work to be carried out
2. The owner of the land on which the building work is carried out at the time the building work is carried out
3. The principal contractor for the building work within the meaning of the Environmental Planning and Assessment Act 1979 (NSW)
4. The developer of the strata scheme within the meaning of the Strata Schemes Management Act 2015 (NSW)

Access to Adjoining Land and Easements

Building work will sometimes require access to neighbouring land that is not owned by the contractor. This could be necessary for a variety of reasons, such as placing utilities or performing construction work itself. Understanding the relevant legal issues and complying with applicable laws and regulations is crucial for contractors as failure to do so can result in payment claims, disputes with other parties and even legal action. Therefore, it is important for project managers to contact local government planning department as needed while remaining aware of their legal obligations and considering the costs and risks involved in accessing neighbouring land.

The Access to Neighbouring Land Act 2000 (NSW) provides at section 7 that, “A person who, for the purpose of carrying out work on land owned by the person, requires access to adjoining or adjacent land may apply to the Local Court for a neighbouring land access order.”

The Conveyancing Act 1919 (NSW) provides at section 88K that, “The Court may make an order imposing an easement over land if the easement is reasonably necessary for the effective use or development of other land that will have the benefit of the easement.”

The above legislation may provide useful for the facilitation of many building projects.

This article provides only a general overview of the legislation relevant to construction law, construction contracts and the construction industry and must not be relied upon as legal advice.  Any person requiring legal advice should seek legal advice relevant to their specific circumstances.  This article may not be appropriate for your circumstances and Brander Smith McKnight does not provide any warranty regarding the accuracy or currency of this article.