When you must have a written contract
A written contract is vital if you are going to build a house, or intend repairing, renovating or extending your home, regardless of how much you are spending.
It is a crucial document in settling any dispute with your building contractor. Essential requirements for home building contracts are set out in the Domestic Building Contracts Act 1995.
It is essential that you have a written contract for all building works, regardless of size and price.
By law, you must have a written ‘major domestic building contract’ for work worth more than $10,000, including:
- erecting or constructing a home, and any associated work. For example, landscaping, paving, retaining structures, driveways, fencing, lighting, heating, air conditioning, water supply or sewerage. Go to note.
- renovations, alterations, extensions, repairs and any other improvements to a home
- work carried out in conjunction with the renovation, alteration, extension or repair of a home. This includes work such as landscaping, paving, retaining structures, driveways, fencing, garages, workshops, swimming pools or spas. Go to note.
- demolition or removal of a home
- any work associated with the erection or construction of a building on residential-zoned land purposes and for which a building permit is required
- any site work, including work to ensure access to the property
- preparation of plans or specifications by the builder (unless prepared by a registered architect, engineer or building designer)
Note: the examples of work listed here are considered to be domestic building work only when carried out in association or conjunction with the construction or renovation of a home. However, a contract that only involves these types of work and that work is not associated with, or to be conducted in conjunction with, the construction or renovation of a home. For example, a contract solely for landscaping work such as planting a lawn, would not generally be considered domestic building work. For more information on landscaping work and scenarios covering when you do or don’t need a major domestic building contract, visit Landscaping – VBA website.
Only registered builders can:
- enter into a major domestic building contract and take out domestic building insurance, which is required for work over $16,000 and protects you if the builder dies, becomes insolvent or disappears
- reblock, restump, demolish or remove a home, regardless of the value of this work.
You are not required to have a domestic building contract for jobs that involve only one of the following:
- plastering
- tiling (wall and floor)
- electrical work
- glazing
- insulating
- painting
- plumbing, gas-fitting and draining
- installing floor coverings
- attaching external fixtures (awnings, security screens, insect screens and balustrades)
- erecting a chain wire fence around a tennis court
- erecting a mast, pole, antenna, aerial or similar structure.
However, we recommend you have a written contract for all work carried out on your property. The builder is required to give you sufficient time to have the contract documents reviewed by your legal representative before you sign.
Some building contractors use standard contracts prepared by industry organisations. Even if your contract is standard, we recommend you get independent legal advice before you sign - although this means you no longer have five days to change your mind after signing the contract.
The builder must also give you a copy of the contract signed by you and the builder. Do not accept a copy unless it has been signed by the builder.
Model domestic building contract for new homes
You can use our free model domestic building contract when planning to build a new home. The contract balances your rights and obligations and the builder’s rights and obligations. If a dispute arises, the contract provides a clear path to the requirements of the law.
Download a copy:
Before you sign a major domestic building contract
Check:
You automatically have rights to visit your building site. For more information about this, go to Building progress. Before you sign, we recommend you:
- delete any clause in your contract that limits your rights to visit your building before you sign
- get a building lawyer to review your contract before you sign. The Law Institute of Victoria has a referral service that can help you find a building lawyer.
Check these costs are included in your contract price:
- the building fee, which may or may not include the cost of mandatory inspections by the building surveyor and may vary between companies
planning permit fees (if your council requires a planning permit)
- lodgement fee paid to the local council for recording purposes
- crossing deposit or asset protection fee paid to the local council and refundable at the end of the project, if no damage has occurred to council property
- inspection fee, a non-refundable fee paid to the council for the cost of their inspection of council assets
- government levy charges when the contracted cost of work is more than $10,000. There are three levies based on the total cost of your building, which also apply to owner builders. Your building surveyor can advise you of these costs.
For more information on what to do before you sign, go to Building contracts checklist.
Liquidated damages
Your building contract may include a liquidated damages clause. This may be a pre-determined sum that is used when building work is delayed and actual damages are hard to prove. This may be referred to as 'delay damages'.
This is an estimate of your potential losses if your builder breaches the contract; for example, if the builder fails to complete your home by the date agreed to in your contract.
The amount included in the liquidated damages clause can cover losses such as rent, travel and other out-of-pocket expenses. You should estimate these costs and ensure that any amount set for liquidated damages by the builder covers these costs.
It must be a reasonable estimate of your expected loss and not extravagant or out of proportion. If it is not commensurate with your potential loss than this could create further dispute and additional delay in payment.
If your contract does not contain a liquidated damages clause or the amount is left blank, you can still claim damages. Calculating damages is not a generic formula and will differ depending on each case and its circumstances. You should seek legal advice when claiming damages.
Extension of time notices
Generally, a builder is entitled to an extension of time if the builder is delayed in achieving completion of work by the finish date due to any of the following reasons:
- severe weather conditions
- an industrial dispute
- anything beyond the reasonable control of the builder and is not the builder’s fault
- work is finished, except for small issues that don’t stop it from being used as intended and where it’s not practical for the builder who has a good reason to delay fixing them
- an act or omission by the owner or any person who is in any way acting on the owner’s behalf or under the owner’s instructions
- a suspension of the work by the builder in accordance with clause 35 of the free model domestic building contract.
Where a builder wants to claim an extension of time, they must give the owner a claim within 15 business days after the delay ceases, stating:
- the reason for the delay
- the length of the claimed extension of time.
Challenging extensions of time notices
You should start by reviewing your contract to understand the process for disputing extensions. Generally, it is within 10 days of receiving the claim, you must respond by stating in writing that you either wholly accept the extension of time or dispute wholly or partly the extension of time. However, you should ensure that you check your contract for specific clauses regarding notice period. If you are disputing the builder’s claim, you must clearly state that you are disputing the extension of time and provide a detailed explanation in your written notice.
You are encouraged to try to negotiate a resolution with the builder which may be a shorter extension of alternative compensation.
If you do not respond within 10 days to the extension of time, the ‘finish date’ will be adjusted as set out in the claim.
Your contract may include a clause regarding dispute resolution processes. If you choose to rely on the free model building contract, disputes as to the builder’s claim for an extension of time will be dealt with under the Dispute Resolution Procedure (Clause 34). Alternatively, Domestic Building Dispute Resolution Victoria (DBDRV) offers a free, confidential dispute resolution service for domestic building disputes.
Unfair contract terms
Victoria has laws to prevent unfair terms in consumer contracts, including contracts to build a house, and renovate, extend or repair an existing house.
Make sure your contract does not include these illegal terms:
- a clause requiring any dispute to go to arbitration (a compulsory arbitration clause)
- a caveat (a warning of some right or interest on the land title) on the building site land
- any statement that restricts or denies your rights to implied warranties (see building warranties and insurance)
- a cost escalation or ‘rise and fall’ clause, unless the contract price exceeds $500,000. The onus is on the builder to calculate into the contract price any likely rise in costs caused by inflation, wage increases and the like. If the builder wants to include a cost escalation clause, the Director of Consumer Affairs Victoria must approve it. The director has not yet approved any cost escalation clauses
- an agreement to pay the builder by a cost-plus method, if your contract is less than:
- $500,000 for contracts entered into before 1 August 2017, and
- $1 million for contracts entered into on or after 1 August 2017. An example of a cost-plus method is when a builder charges by the hour and you do not have a fixed price for your contract. You can use a cost-plus contract if you are renovating an existing house, but only in very limited circumstances. Get legal advice before you sign any cost-plus contract
- the expression ‘practical completion’. If you find it in your contract, delete it and insert ‘complete in accordance with the plans and specifications’.
Find more information about unfair contract terms.
Contracts for home improvements
We recommend using a written contract, regardless of the cost of the work. This ensures both parties are clear about the terms of the contract and their obligations.
For work worth up to $10,000, a contract should include:
- the date the contract is effective (this is the date on which both parties have signed)
- a start and finish date for the work, with allowances for delays
- a plan and specifications (detailed description) of the work to be done, including references to any Australian standards that apply
- the make and model number of any fittings such as ovens, tiles or tapware, and who is responsible for supplying these
- details of how variations to the contract may be made
- labour costs per hour; and per person if more than one person will be doing the work
- any insurances or warranties that may apply
- details of what happens if you cancel the contract, including any cancellation fees.
Look very closely at any long-term ‘guarantees'. These can sound attractive but may not be of any benefit if the business is later sold or closed. Check carefully what they cover.
Contracts for outdoor projects
Go to Outdoor home building projects checklist.
Pre-construction contracts
Go to Pre-construction contracts.
Changing a major domestic building contract
Go to Changing a major domestic building contract checklist.
Getting out of a building contract
Go to Getting out of a major domestic building contract checklist.