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Writing up the contract

January 14, 2020

The negotiation of the contract - from offer to contract

The process from first offer to final agreement can be quick, or it may involve several steps over a longer period of time. It can be an intense time, but bear in mind that you and the builder are aiming for the same goal.

The negotiation of the contract normally starts with the builder presenting you with a written quote or tender.

The builder’s quote should include:

  • details of the works
  • indicate what works or services are not covered (e.g. obtaining development approval, connecting electricity to the site, etc.)
  • the builder’s timeframe for starting and completing the house
  • the price
  • reference to the formal contract that will be used, e.g. ‘in accordance with HIA new homes contract’. 

You may accept the builder’s offer or make a counter offer (by changing the price or terms such as the building period, etc.). It is up to you as to what is contained in your counter offer but consider including a deadline for the builder’s response.

You may wish to compare the builder’s quote with other builders.

If you make a counter offer, the builder may accept it or may wish to re-counter.

This process continues until an agreement has been reached between you and your builder.

When you are not dealing directly with the builder, the sales representative may not be able to ‘close the deal’ on the spot without a review by the builder.

The next step is to formalise the contract.

Formalising the contract

The building contract is a legally binding document that outlines the terms and conditions of the construction of your house.

Often the builder will present you with a standard form building contract prepared by a professional association, such as the Housing Industry Association. Alternatively, the builder may write up their own contract or you may choose to have your lawyer prepare the contract.

Most standard form building contracts are split up into different sections. They include:

A signing schedule

A signing schedule includes a schedule of terms to be inserted into the contract such as the:

  • parties’ name and details
  • builder’s licence details
  • property address
  • on-site commencement date and building period
  • scope of works
  • price
  • encumbrances or easements affecting the land (where applicable).

Standard terms and conditions

These are the clauses set out in the body of the contract and usually:

detail the contract processes to be followed, i.e. when payment is due, what to do if there are delays and extensions of time, the procedure for variations of plans or specifications, etc •detail the rights and obligations of both the builder and owner

set out the consequences of a breach of contract.

Plans and specifications

The plans and drawings are the instructions for the builder about the physical layout of the site and measurements for the house. They are often prepared by a draftsman, building designer or architect.

The specifications are the technical documents which set out details of the methods of construction used by the builder to build the home, showing the selection of materials, components and finishes for the house.

Warning statements and cooling-off periods

Home building contract legislation across all states and territories contains various requirements for the builder to provide you with a contract information statement and/or warning statement or checklist before you sign the contract.

Also, home buyers in Queensland, NSW, Victoria and South Australia have a five-day cooling-off period during which they can terminate the contract. Exceptions exist where legal advice was obtained prior to signing the building contract.

What should the contract include?

Some important terms of the contract that you and your builder should consider are:

  • when works are to start and finish and what happens if there are delays (you may wish to include a liquidated damages clause if the builder runs over time)
  • deposit amounts
  • the payment schedule (how much you will pay and when)
  • access to the property during construction
  • insurance and risk provisions. Note: Builders are required to take out a policy of homeowners warranty insurance which covers you for defective works and non-completion of works if the builder disappears, dies or goes insolvent. In Queensland, this coverage is more extensive. The builder should take out contract works and public liability insurance which covers any damage to the works, e.g. fire, as well as property damage and injury caused to third parties as a result of the works, such as damage by neighbours during the course of construction
  • what extra costs the builder can charge you along the way
  • whether the builder can suspend the works
  • what happens at handover and when the builder reaches practical completion.

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