Reviewing the contract
January 14, 2020
You should take particular note of the plans and specifications which detail the selection of components and finishes.
Professional builders will go through the contract with you, point-by-point. This helps to eliminate errors or misunderstandings, and is a great opportunity for you to ask questions. Here are some pointers for reviewing the contract (note: this list is not exhaustive. Refer to the home building legislation in your state or territory for all mandatory requirements for contracts). Make sure you check:
- the correct spelling of names
- the date that the contract is entered into is clearly stated
- the builder’s licence or registration number is included
- the commencement and completion date of the project is clearly stated or can be easily worked out
- all attachments or schedules that form part of the contract are referenced in the main contract document. This includes site plans, drawings, specification list, design and approvals process for customised homes, etc.
- the details in the plans and specifications, including the:
- type and size of the hot water system fits your needs
- number and location of power points and taps
- quality and colour of paint to be used on any surfaces to be painted
- extras and upgrades you have chosen (e.g. model, brand name, size, colour, price, etc.)
- the contract states who is responsible for connection of utilities such as water, sewerage, telephone and electricity
- the price is clearly stated
- the price includes any applicable allowances (often called prime cost and provisional sum allowances) such as for lighting and kitchen cabinets. The amount should be noted in the contract with a description of what happens if your builder goes over or under budget
- it is clearly stated if the contract is conditional on financing, along with the number of days allotted for obtaining the mortgage and the process for notifying the builder. It should also be clearly stated what happens if the mortgage application is turned down (e.g. the contract is null and void and the deposit will be returned in full)
- any special conditions, such as a ‘subject to finance’ or a ‘favourable review of the contract by your solicitor’ clause, is detailed to ensure nothing is left to chance or misinterpretation
- progress payment milestones are clearly outlined (builders are not entitled to seek advance payments)
- the builder is not illegally asking for an excessive deposit. Each state has a different legal limit for deposits:
- Queensland, Victoria, NSW and ACT – 10 per cent if the contract price is less than $20,000; 5 per cent if the contract price is $20,000 or more
- Tasmania – 10 per cent if the contract price is less than $20,000; 3 per cent if the contract is $20,000 or more
- SA – the builder cannot demand any deposits in excess of $1000 but may require upfront payment for certain out-of-pocket expenses
- WA – a deposit is not to exceed 6.5 per cent of the contract price of any contract price that is between $7500 and $500,000
- NT – no limit.
- there’s a clause that states that the homeowner has the benefit of the implied warranties.
It is recommended that you consider having a solicitor review the draft contract before you sign it. Alternatively, you can make your acceptance conditional on a favourable review by your solicitor. It is sometimes wise (and less costly) to agree with the builder on the price and terms before involving a solicitor. (If you cannot reach an agreement with the builder on these fundamental points, there is no need to pursue the contract any further.) If a standard form contract is used, any extra terms can be inserted as a special condition or attached as a separate schedule with a brief notation in the main text that additional conditions exist.
It may also be a good idea to get a building consultant to check over any plans and specifications that the builder provides you before signing the contract.
Exceptions: house and land packages
The information set out above in relation to a building contract is not relevant to the details of a contract for the purchase of land, whether separately to the building or as part of a house and land package.
If you do not yet own the land and are also entering into an agreement with the land developer, builder/developer or another party to buy the land, you will need to independently consider the terms of any contract for purchase of the land.
Ideally, obtain legal advice before signing any land contract and utilise the services of a solicitor or professional conveyancer throughout the conveyancing process.
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