From 1 August 2017, the threshold amount for a major domestic building contract increased from $5,000 to $10,000, and the threshold amount above which cost plus contracts are permitted increased from $500,000 to $1 million.
You must give your client a copy of the Domestic Building Consumer Guide before they sign a major domestic building contract.
The contract must be in writing and must:
be written in clear English - set out in full all the terms of the contract
- give detailed descriptions of the work to be carried out
- state the names and addresses of the parties to the contract
- state your registration number as it appears on your builder’s registration certificate
- state the contract price
- state the amount of the deposit and progress payments as required by law
- state the date the contract is effective (the date on which both parties have signed the contract)
- give clear advice about the five-day cooling-off period
- include definitions of words and key phrases used in the contract
- set out implied warranties
- contain an Approved checklist (Word, 100KB).
The contract should also, when applicable to the proposed work:
- include plans and specifications containing enough information to get a building permit for the work
- set out details of the required domestic building insurance, if the contract is for more than $16,000
- state the number of days allowed for each type of foreseeable delay and inclement weather
- state a start and finish date, with allowances for delays. If the start date is not known, the contract must state:
- how the start date will be determined
- that you will do everything that is reasonably possible to start work as soon as possible
- the number of days required to finish the work once it has started.
Check these costs are included in your contract price. They should not be added later as an extra cost:
- 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 the 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.
- Goods and services tax (GST).
- Government levy charges when the contracted cost of work is more than $10,000.
Make sure the contract does not include these illegal items:
- a compulsory arbitration clause
- a caveat (a warning of some right or interest on the land title) on the building site land
- a waiver or negation of implied warranties
- a cost escalation or ‘rise and fall’ clause, unless the contract price is more than $500,000. You must calculate into the contract price any likely rise in costs caused by inflation, wage increases and the like. If you want 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
- a cost-plus method, if the contract is less than $1 million. An example of a cost-plus method is charging by the hour and not giving a fixed price for the contract. You can use a cost-plus contract if you are renovating an existing house, but only to cover the investigative work required to establish the contract price. Even if you are using a cost-plus contract for this, you must give a fair and reasonable estimate of the total amount you are likely to receive. You must enter a fixed-price contract with your client for the remaining work
- the expression ‘practical completion’. Delete it and insert ‘complete in accordance with the plans and specifications’.
Before offering the contract to your client, confirm:
- you are registered with the Building and Plumbing Commission (BPC) if the contract is more than $10,000, or if you are going to restump, reblock, demolish or remove a home regardless of the value of this work
- you have confirmed the site is suitable for the proposed works. It is your responsibility to satisfy yourself that the foundation data is accurate
- the work has the required building and/or planning permits, or the contract states how these will be obtained
- the work is clearly defined in the contract, plans or specifications and any other relevant documents
- the client has included all special requirements and finishes in the plans and specifications
- fixtures and fittings included in the contract, but not specifically identified or where the price is unknown, are clearly stated as provisional sum or prime cost items
- you have provided the client with the certificate of currency for the domestic building insurance that applies to work worth more than $16,000 on their property
- the deposit is within the legal limit
- the price and progress payments are clearly stated and accord with the law
- your client understands the procedure for changes (variations) to plans and specifications
- you and your client understand what is ‘reasonable access’ for your client to visit the building site
- the start and finish dates are clearly stated
- the procedure for delays and extensions of time is clearly stated
- the amount for exceeding the time for construction (liquidated damages) is clearly stated
- the clause containing the 5-day cooling-off period is included for contracts over $10,000
- you and your client understand the circumstances in which either of you can end the contract.
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 and your client’s rights and obligations. If a dispute arises, the contract provides a clear path to the requirements of the law.
Download the Building contract for new homes (Word, 1.2MB)