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Cancelled contracts and refunded deposits

September 03, 2019

Most major domestic building contracts allow for the agreement to be terminated if the building permit is not issued within a specified amount of time. These contracts will also have a clause stating that the builders are entitled to reasonable pay for the completed building work. Builders normally deduct this cost from the deposit before they refund it to the owner.

Builders will often provide owners with invoices, either from themselves or their sub-contractors, as evidence of the work that was carried out on site. A recent decision by the Victorian Civil and Administrative Tribunal (VCAT) suggests that the provision of an invoice might not be enough evidence of the work carried out on the building site.

In this matter, the builder provided an invoice of $4,500 for the hire of machinery and trucks for a site cut carried out by a sub-contractor. The invoice stated that three truckloads of rubbish were cleared from the building site.

The owners disputed this claim. They believed that the builder was only entitled to $1,500 as not much work was done before the contract was terminated. The owners provided photographs of the building site when the contract was signed and when it was terminated. The photographs did not show a drastic change in the ground level before and after the alleged building work.

The owners also provided copies of correspondence from the builder, before the contract was signed, stating that the site cut only comprised of “stripping grass and removal of excess dirt dumped on site from other people”.

On the basis of the evidence provided, the VCAT member agreed that $1,500 was a reasonable sum for the work carried out on site. The member stated that the builder bears the onus of proving that the costs claimed are reasonable for the amount of work carried out. The builder failed to do so because they only provided an invoice whereas the owners provided photographs showing that significantly less work was carried out and correspondence suggesting that the site work only consisted of stripping grass.

The VCAT member ordered the builder to refund $3,000 back to the owner. The builder was also required to reimburse the owners the cost of the filing fee under section 115B of the Victorian Civil and Administrative tribunal Act 1998 (Vic).

The HIA’s major domestic building contracts have clauses stating that builders are entitled to reasonable pay for completed building work if the agreement is ended before completion. We encourage members to ensure that they are able to prove the amount of work they have completed prior to claiming this amount from clients.

For further information, please call 1300 650 620 to speak to a Workplace Adviser.