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It is important to ensure you understand the ‘red flags’ of when a home owner may be in financial distress and the steps you can take when you are owed money prior to commencing legal action. If you are a subcontractor and worried about the financial position of parties you are contracting with, read here. HIA also has information on statutory demands, company debts and windups and bankruptcy proceedings.
The best way to avoid dealing with a payment dispute is to avoid it in the first place. By following these practical measures, businesses can set up good payment practices, be aware of what to look out for when it comes to financial issues with homeowners, and other options available when a debt remains unpaid.
Businesses should understand the ’red flags’ of financial distress to prevent a debt from escalating. Some signs that a homeowner may be in financial distress include:
If the homeowner is displaying any of these red flags, this may be a sign for you to reconsider undertaking significant works without obtaining evidence of their capacity to pay or without doing further due diligence checks (such as discussing the issues with them).
Before signing a contract, carry out appropriate due diligence including:
A contract is a written record of the agreement between the builder and homeowner. The contact sets out important information about to your right to payment including:
If you don't have a contract, you may have trouble getting paid.
It is important to follow the contract processes strictly and ensure you are carrying out proper contract administration. This includes:
If payment is late, you should follow the steps available under your contract. HIA contracts may provide options including:
It is important to check your individual contract terms to understand what options are available to you.
In some jurisdictions, the rapid adjudication process under security of payment laws allow unpaid builders and contractors to recover overdue payments from a homeowner quickly and in a less expensive way compared to traditional legal proceedings in court. If considering this option, make sure you check your local requirements.
A letter of demand is a time and cost effective debt recovery tool. Generally, the demand will provide the debtor with 7 days to pay the debt, failing which the creditor may commence legal proceedings to recover the full amount.
HIA contracts provide builders with the right to recover debt collection costs which can include costs incurred from solicitor letter of demands.
If all other steps have been unsuccessful, you may consider commencing legal proceedings in your local court. The court that you commence in will depend on the value of the debt. The debt may also be dealt with via a tribunal before it is heard by a court which can often be a more time and cost efficient process for parties.
Commencing legal proceedings is a serious and complex step. Ensure that you understand your rights, responsibilities and risks in taking these steps by consulting with your solicitor before taking any of the legal steps outlined above.
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