Current market factors in the building industry - including a shortage of labour, supply chain constraints and the availability and cost of materials - are affecting many home-building projects.
In some cases, builders may seek to reach an agreement with clients to amend residential building contracts to reflect the increased costs they have incurred.
If this happens with your project, it’s important to understand your rights and what you can do to help ensure your building project keeps moving forward.
Negotiating with your builder
Assuming your builder is continuing to operate and working on your project, you can negotiate in good faith to reach a reasonable agreement about delays and cost increases.
Your builder can’t make changes to your contract without your sign-off, but remember that the circumstances delaying your project and increasing the cost are likely to be beyond the builder’s control, so you should take this into consideration when discussing how the project will proceed.
If you are in doubt about any aspect of your building contract, seek independent legal advice.
If you can’t reach agreement
If negotiations break down, you can access help from Domestic Building Dispute Resolution Victoria, a free service that helps resolve domestic building disputes between homeowners and builders.
If contact with your builder ceases
In some cases, builders may be unable to continue to operate. If you cannot contact your builder, or have concerns that they are in financial trouble or have ceased operating, there are further steps you should take to find out more about what state they’re in, and what you can do next.
A business which is insolvent (unable to pay its debts) cannot continue to operate. To find out whether the builder you have contracted is insolvent, check with:
If you’re not sure, contact both.
During a build, your builder should purchase insurance to cover damage to the building site - and liabilities to third parties for property damage or personal injury. This cover may be known as:
- construction insurance
- contract works insurance
- construction works insurance
- site insurance.
If your builder becomes insolvent, this cover may expire. You should establish what cover is in place and when it will expire. An insurance broker can advise you on taking out new policies if needed.
If the builder is under administration
If your builder has entered administration, but is not in liquidation, it may continue to provide its services to clients. You should contact the administrators, who will be able to advise whether they are likely to wind the business up, or to resolve its financial problems and allow it to continue to operate.
The builder or the administrators may offer to complete your build under new contract terms or at a higher price. They may advise that this is necessary for them to remain in business and/or complete builds.
You are not obliged to accept offers like these. Independent financial or legal advice can help you assess the costs and benefits of the offer. Your individual circumstances should guide your decision.
Make a claim on domestic building insurance
Domestic building insurance (also called builders warranty insurance) is taken out by a builder for you on work valued at more than $16,000. It covers you for the cost of the project if the builder dies, becomes insolvent or disappears.
Domestic building insurance for your project is likely to have been issued by the Victorian Managed Insurance Agency (VMIA), which should be your first port of call to make a claim.
Bear in mind that coverage for uncompleted projects may be limited: your claim may only cover 20 per cent of the contract price, and your insurance will not cover advance payments.
For more information, see our Domestic building insurance and insolvency page.
What to do next
If the business is insolvent, has not provided the services and products it agreed to provide, is being liquidated or is in receivership, you become a creditor and can seek to recoup what you are owed.
Contact the administrator to register with them as an unsecured creditor. The insolvency process will determine whether you are entitled to any refund.
Recouping your money in this situation can be difficult: consumers are unsecured creditors, usually at the back of the queue, behind financial institutions. If the builder has been operating with limited funds, or while insolvent, there may be nothing left after its assets are sold, and what it owes the bank is paid.
For more about domestic building projects, see the Building and renovating section on our website.