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What is a preliminary agreement?

It is common practice for a builder in Victoria to enter into a preliminary agreement before they commit to a building contract. This preliminary agreement could be to complete work such as preparing plans and specifications, attending site inspections, or obtaining foundations data.

This may mean that the builder needs to spend a significant amount of money before the building contract is entered into, only for the owner to later withdraw interest from the project. 

Therefore, to safeguard against the risk of not getting paid for the preliminary work, it is recommended that you first enter into a separate written agreement with the owner, before entering the construction contract. 

When to use a preliminary agreement?

You can use a preliminary agreement to complete work that needs to be undertaken before a domestic building contract is entered into. This could include works such as:

  • Preparing plans and specifications if the value of that work in less than $10,000
  • Obtaining planning approval
  • Obtaining foundations data (soil test, engineering footings design etc)
  • Design work by an architect or draftsperson

What should I include in a preliminary agreement?

Ensure that the obligations of both you and the owner are clearly set out including:

  • What is the scope of the preliminary works?
  • When do the preliminary works need to be completed by?
  • What happens if the agreement is terminated?

HIA has a preliminary agreement available for purchase through Contracts Online that sets out all the terms for you. 

Remember - there are still some rules that apply when using a preliminary agreement!

Deposits limits: Under a preliminary agreement you must not demand or receive a deposit of more that 5% for work over $20,000, or 10% for work under $20,000.

Domestic building work: Preparing plans and specifications is considered domestic building work. This means that if the amount for this work is more than $10,000 then you will not be able to use a preliminary agreement and you will instead need to use a major domestic building contract.

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

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