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Client requests to suspend building work

April 20, 2020

The COVID-19 pandemic has caused some clients to consider suspending or terminating building contracts. This may happen because of financial pressures which may arise because the client has lost their job or has been stood down or is concerned that they may lose their employment. Other possible reasons include the client deciding that they are not willing to spend the money at this time or the client deciding that the building work is not worth proceeding with as expected financial benefits will not be achieved.

Whatever the reason, once the contract is signed the client usually needs to negotiate with the builder if they wish to suspend or terminate the contract. The exceptions to this rule include the cooling off period and the builder themselves being in breach of the contract. Builder who receive a request from a client to suspend or terminate should negotiate with the client as practically it is difficult to force a client to continue with a contract, and especially so if there are legitimate financial reasons for the client wanted to take this action.

It is important however for members to remember that domestic building contracts in Victoria are heavily regulated and these regulations unfortunately make it a dangerous option for a builder to agree to anything other than a short (such as a month) suspension of building work. The cost escalation clause ban in particular makes it difficult for a builder to recover increased costs when a project is delayed. For this reason, if the client insists on a suspension it is recommended that the builder only agree if the client accepts that they have to pay a reasonable cost increase to cover increased costs and the builder’s loses while waiting to recommence the building work. If this is not acceptable to the client then it may be preferable to agree to terminate the contract. The client then can came back to the builder when they are ready and a new contract can be negotiated.

If the client and builder agree to terminate the contract then it is vital that this agreement be documented. The price to be paid to the builder or the refund of any part of the deposit needs to be included in this agreement. If a building permit has been obtained the builder must notify the relevant building surveyor in writing that the contract has been terminated.

If an agreement cannot be reached and the client refuses to allow the builder to continue building work then the builder should get further advice.

The HIA COVID-19 website has a number of resources about managing your business, including contracts, during this difficult time.

Access the HIA COVID-19 website.

Members are welcome to visit this website or call a HIA Workplace Adviser on 1300 650 620.