Practical completion - NSW HIA new dwelling and reno contract

Why is reaching practical completion important?

Practical completion is an important milestone in the building process. It determines when the risk for insuring the works passes, when the defects liability period starts and whether you are liable to pay liquidated damages. It also determines when you get final payment.

Reaching practical completion also “triggers” the commencement of both the statutory warranty period under the Home Building Act 1989 and insurance under the Home Building Compensation Fund (HBCF). This is a 2-year warranty period for minor defects and 6 years for major defects. These time frames commence from when the works are completed under the contract.

Definition of practical completion

“Practical completion” means when the building works are complete except for minor omissions and defects that do not prevent the building works from being reasonably capable of being used for their usual purpose.

If you are not sure whether any omissions and defects are “minor” or may prevent the works from being used for their usual purpose, you should contact your HIA workplace adviser or building and technical advisor for guidance.

Procedure for practical completion

1) Provide a notice of practical completion

At least 5 days before you actually reach practical completion you must give your client a notice of practical completion. The notice must:

• state what you believe will be the date of practical completion
• state a date and time to meet your client on site to inspect the building works and
• have your final progress claim attached.

Note: Notices of practical completion can be purchased from your local HIA office or online.

2) Meeting the client on site

When you meet your client on site to inspect the works, your client must either:

• pay the amount of the final progress claim or
• give the builder a written notice detailing what they believe needs to be done for practical completion to be reached.

If your client pays the final progress claim, the date of practical completion is that stated in your notice is deemed to be the date of practical completion.

What if the client provides a list of defects?

If your client gives you a list of items they think need to be done for the works to reach practical completion you can either:

• attend to those items listed and then give your client another notice of practical completion or
• give your client a written notice rejecting your client’s claims and referring the matter to dispute resolution. You are not obliged to carry out any further work on the site while the dispute remains unresolved.

What if your client does not pay the final progress claim or give you a notice?

If the client does not pay the final progress claim and does not provide you with a notice that disputes practical completion:

• the amount of your final progress claim is treated as a debt owning to you
• the date of practical completion is the date stated in your notice of practical completion and
• the owner is deemed to acknowledge that practical completion has been reached.

Final payment and occupancy certificates

Final payment is due and payable upon practical completion of the scope of works under the contract.

HIA contracts do not require the builder to obtain the final Occupancy Certificate (OC). While the builder may be undertaking the majority of the project, you may not necessarily be responsible for all things required to obtain OC. For example, the owner may want to do their own painting or landscaping. In this case, the builder would not include obtaining OC as part of their scope of works as they will not be able to reach practical completion and claim final payment until all this additional work is completed.

In the event that the builder is undertaking responsibility for all the works and has agreed to obtain OC, then the clause can be amended by a special condition.

What to provide at handover?

Under the HIA contract, handover occurs once practical completion has been reached. 

It is only after payment of the final progress claim that the keys and other relevant documents to the building works are provided to the owner. Examples of what may be required to be provided include:

• certificates of compliance for drainage, waterproofing, electrical, etc
• manuals, instructions, guarantees from manufacturers, maintenance guides and
• automatic door openers, remotes and the like.

HIA also provides a Complete Home Owner’s Manual and Checklist  that you can provide to your clients that outlines the owners’ duty of care and maintenance requirements. 

To find out more, contact HIA's Workplace Services team

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