Brander Smith McKnight Lawyers create Legal Precedent, Home Building Act9 April 2022 in Building and Construction Law
The primary source of legal requirements imposed on contracts for residential building work are found within the Home Building Act 1989 (NSW). According to the Act, residential building work includes “work involved in the construction of a dwelling, or the repairing, renovation, decoration or protective treatment of a dwelling”. There are significant implications for a builder’s and contractor’s non-compliance with the contract requirements including fines, non-entitlement to damage and being barred from contractual remedies.
The building and construction lawyers at Brander Smith McKnight recently created a legal precedent with regard to the interpretation of contract requirements under section 7 of the Home Building Act. The relevant decision was reached in Step-Up Renovations (NSW) Pty Ltd v Dyjecinska  (Step-Up).
The contract requirements under the Home Building Act and the consequences for their contravention and non-compliance are discussed below. This discussion explains the importance and impact of the New South Wales Civil and Administrative Tribunal’s recent changes of the contract requirements under the Home Building Act.
Key Contract Requirements under the Home Building Act.
The key requirements imposed on contracts for residential building work are found within sections 7 and 7AAA of the Home Building Act. These requirements vary depending on the price of the contracted work. At the crux of these provisions are the requirements that contracts for residential building work must:
- be in writing, signed and dated by the parties;
- include the names of all the parties;
- contain a description of the work which is the subject of the contract;
- include plans and specifications of the work to be completed;
- include the contractors licence number; and
- state the contract price (if a price is known).
Contracts entered into after the 1st of March 2015 which are over $20,000 (inclusive of GST) are subject to other specific requirements. Firstly, there is the requirement to include a statement of the statutory warranties that are applicable to the contracted work. Further, there is a requirement to include the cost of relevant insurance or alternative indemnity products (as per parts 6 and 6B of the Home Building Act).
Breaches and Non-Compliance
In light of the requirements discussed above builders and contractors must be aware of the consequences of failing to comply with these requirements. Some of the most salient consequences builders and contractors may face for non-compliance or breach are outlined as follows.
Builders and Contractors Barred from Claiming Damages and Contractual Remedies
Section 10 of the Home Building Act will prohibit builders or contractors from claiming or seeking any damages or other contractual remedies where the builder or contractor has failed to comply with Section 7 as set out above.
However, builders and contractors need to be aware that home owners will still be entitled to make a claim pursuant to the contract against the builder or contractor.
Contractors who breach or fail to comply with the requirements under the Home Building Act may still be able to access avenues for legal relief. Primarily, contractors in such circumstances may wish to pursue a claim for a quantum meruit, meaning “the amount deserved”. Quantum meruit claims allow parties to recover a degree of money for partial performance of work.
The Step-Up Decision
This recent important decision made by NCAT should be noted by those in the residential building and construction industry. The building and construction lawyers at Brander Smith McKnight created this legal precedent.
NCAT’s decision in Step-Up concerned a dispute between a builder (the Builder) contracted to carry out residential building on a property for the property’s owner (the Owner).
In summary, the dispute was in relation to money the builder claimed to be owed to them from the Owner. This was because the Owner purported to terminate their contract with the Builder for the works carried out. This action was based on the Owner’s allegation that the Builder’s work was defective.
The parties attempted to negotiate a settlement but were unsuccessful and the dispute was brought before NCAT for resolution.
The Builder sought payment for the residential building work they carried out. Conversely, the owner claimed money from the Builder to cover the cost of rectifying the allegedly defective work.
The issue that is relevant for the purposes of this article, was the Tribunal’s determination of the operation of section 10 of the Home Building Act.
In defence of the builder’s claim, the Owner alleged the contract entered into between the Owner and the Builder was in breach of various residential building contract requirements under the Home Building Act. Accordingly, the Owner claimed the Builder was not entitled to damages or to enforce a remedy in relation to a breach of contract by the Owner. Additionally, the Owner claimed that the contract between the parties was unenforceable.
The parties agreed that they did not sign the contract.
The Tribunal found that s10(1) of the Act did not prevent the Builder from pursuing a claim against the Owner.
In short, the Tribunal took the view that section 10(1)(b) applies to the Builder “if a contract is not in writing; or does not have sufficient description of the work to which it relates”. The Tribunal held that, in the case at issue, the contract was sufficiently in writing and had a sufficient description of the work. This was because of the materials in the negotiations between the parties. In particular, the reference to ‘Extension of existing house’ and drawings prepared by ‘OC innovative designs’.
Further, the Tribunal agreed with the Builder’s reliance on the court’s interpretation of section 10(1)(b) in the case of Hayward v Timilty. In particular, the Tribunal endorsed the court’s following statement in regards to section 10(1)(b):
” I would interpret that subsection to mean that a failure to comply with the provisions of s7 other than those requiring the contract to be in writing and to contain a sufficient description of the work, does not necessarily make the contract unenforceable or render the builder not entitled to damages. This interpretation makes practical sense as s10(1)(b) singles out the two most important aspects of a contract, that it be in writing and that it sufficiently describes the work. In other words, leaving out the contractor’s licence number, for example won’t render the agreement invalid if indeed the builder is licensed”.
The Implications of the Decision
NCAT’s decision in Step-Up represents a nuanced yet important change in relation to contract requirements imposed by the Home Building Act.
Now there is room for builders and contractors who fail to adhere to all of the specific contract requirements in the Home Building Act to obtain relief. Such exception exists where the contract sufficiently describes in writing the work to be completed under the contract.
Other amendments to the legal interpretation of the legislative requirements for residential building work under the Home Building Act may continue to be made by Courts and Tribunals. As such, parties to home building contracts must remain up to date with statutory and common law developments regarding the interpretation and effect of the Home Building Act in New South Wales. The developments can be complex and cover a broad area of law and it is important that you seek legal advice prior to entering into any home building contract.
In the present case, Brander Smith McKnight successfully claimed payment for the builder pursuant to the building contract and obtained a decision which among other things clarified that a partly performed but unsigned written contract satisfied the requirements of section 7 of the Home Building Act.
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