Domestic Building Contracts Act Amendment Bill 2025 - What you need to know

The Victorian government has introduced legislation into Parliament to update the Domestic Building Contracts Act 1995 (“the Act”). Review the Domestic Building Contracts Amendment Bill 2025 (“the Bill”).

The start date for the new provisions will be no later than 1 December 2026. Some provisions may start earlier.  We will keep members informed of the status of the legislation.

Importantly, there is no need to change your use of home building contracts - yet.  HIA will provide notice of the timing of these changes and will have new standard contracts available for members to use before any new laws take effect.

What does this bill do?

The Bill amends, but does not fully replace, the existing Domestic Building Contracts Act (DBCA) which regulates all contracts involving domestic building work in Victoria.  The changes are significant, however, and will require builders to use new contracts once the changes come into effect.

The changes can be broadly broken down into:

• How builders and developers contract to build multiple homes
• Certain preparatory work will not be "domestic building work” under the Act
• Explicit permission of Cost Escalation Clauses (with significant restrictions)
• Reforms to Progress Payment Clauses & Deposit Limits 

Builders, developers and multi-unit projects

A significant, but under reported, change in the Bill is to how the Act applies to homes built for developers.  The existing Act applies to any contract including those involving building multi-unit projects for developers.  

While developer projects are covered by the Act, under the changes, certain requirements such as the cooling off notice, the checklist, the price change warning, the ban on cost escalation clauses, and the prescribed progress payments and deposit limits, will not apply to them.

HIA has long recommended this change, as it ensures that the protections of the Act are only available to end consumers and not developers who are capable of protecting their own interests in contracts.  It should help to stop disputes between developers and builders being referred to the Domestic Building Disputes Resolution Victoria as a first resort.

 Please note that this change does not allow a Commercial Builder – Unlimited or Commercial Builder – Limited to build multi-unit homes.  Only Domestic Builders-Unlimited can continue to carry out this work under the changes, as the builder needs to be eligible to buy domestic building insurance policies.

Certain preparatory work not building work under the act

HIA has lobbied for several years to remove certain types of preparatory work from the Act. The government has listened, and the Bill proposes to clarify that “the preparation of plans and specifications” and “the preparation of a bill of quantities” are added to the list of building work that is explicitly not covered by the Act.  This will bring Victoria in line with other jurisdictions.  It should also resolve the current confusion about the use of preliminary agreements and the $10,000 threshold.

Cost escalation clauses

Victoria will now become the first jurisdiction to explicitly allow the use of “Cost Escalation” clauses in domestic building contracts.  Currently, cost escalation clauses are effectively prohibited under section 15 of the DBCA.

The new provisions will allow cost escalation clauses but only:

• Where the contract price is $1 million or more;
• The cost escalation clause limits cost increases to no more than 5%;
• The builder has set out clearly how the cost escalation clause operates; 
• Increased cost of the contract has been calculated with due care and skill taking account of all the information reasonably available at the time.

There is no change to the rules for cost plus contracts.  HIA has already notified the government that we expect that most builders and their clients will choose to use cost plus contracts for higher value projects.

Progress payments and deposit limits

The Bill proposes to remove the current definitions and stages and replace these with prescribed stages and prescribed percentages at each stage. These new prescribed stages and percentages will be set out in regulations rather than the Act.  This will allow for greater flexibility and the ability to set progress payments suited to different types of building contracts.

The Bill specifies the following types of contracts:

• Where more than 50% of the costs are associated with modern methods of construction (MMC)
• Where 30% to 50% of the cost are associated with MMC
• Where less than 30% of the cost are associated with MMC

We believe there is an opportunity to reform progress payments more broadly than in relation to the MMC percentage of a building. We will consult with members on the types of contracts and the appropriate progress stages that we believe should be included in the Act. We will continue to engage with the government in relation to progress payments and work with the government to develop the regulations.

The Bill also proposes removing the deposit limits from the Act and instead prescribing in regulations how deposits are to be determined. The reason for this is to allow for more flexibility in how deposits are set and changed, and to allow for different deposit limits for different types of building contracts.  This is something the HIA has been advocating for, and we welcome this change.  We will work with the government to develop these new regulations.

The apparent removal of the use of method 2, or method B, for progress payments is a concern. HIA will seek to have the option of clients and builders being able to negotiate their own progress payments reinstated.  There are projects where the scope of project or the conditions of the site makes use of even updated prescribed progress payments not tenable.

Rights where contract not signed

Proposed changes to s31(2) will make it explicit that if a major domestic building contract is not signed by both the builder and the building owner the builder has no contractual rights or entitlements under the contract, but the building owner may enforce their rights.

This may also impact where a home building contract is signed with a client who has untitled land, requiring home builders to review their process for entering into such contracts and their exposure to limits on DBI.

If the builder cannot enforce a contract under this amended law then the builder may be able to entitled to recover money relating to the cost of the work done and a reasonable profit but only if VCAT is satisfied that there are exceptional circumstances, or that the builder would suffer a “significant or exceptional hardship” if the builder was unable to recover the money and it would not be unfair to the building owner for the builder to recover the money.  This is similar to the existing test in place for seeking VCAT approval to be paid for incorrectly processed variations.

What about this “new right” for consumers to cancel contracts?

Despite what you may have heard, there is no new right for consumers to cancel contracts created by the Bill. The government’s media release, and subsequent media and social media coverage, caused some confusion by stating that the Bill will allow:

“consumers to cancel contracts if timelines blow out by more than 50 per cent or costs rise by more than 15 per cent”

The existing Act in section 41 already provides that a building owner may end a contract where “…the contract prices rise by 15% or more…”  or “…the contract has not been completed within 1½ times the period it was to have been completed…” and the increase was not something that could have been reasonably foreseen by the builder. 
The change removes the requirement that the increase was something the builder could not have reasonably foreseen and adds “...arises as a result of a variation under section 37 that is initiated by the building owner”.  HIA does not expect that these changes will be material as in practice section 41 is used by clients when the relationship with the home builder has broken down and question of whether the builder could have foreseen the delays and cost increases is not a major issue.