The sums involved in residential building disputes are often substantial and the disputes frequently involve complex issues relating to defects and contract variations. The risks and consequences of such disputes are heightened for residential builders as the business owners will typically have either significant paid up capital or personal financial exposure when problems arise as a result of the requirements for obtaining Home Building Compensation Cover (Insurance).
To make matters worse, when disputes with homeowners arise, to date the unavoidable forum for resolution of the dispute is the NSW Civil & Administrative Tribunal. Proceedings in the Tribunal can be protracted and expensive meaning that residential builders will typically experience a significant impact on their cash flow as a result of the dispute in addition to facing ongoing legal costs and Barrister’s fees.
The Building and Construction Industry Security of Payment Act 1999 (NSW) and interstate equivalents exist to empower head contractors, subcontractors and suppliers to manage these risks and maintain reliable cash flow, however, to date has not been available for residential builders to rely upon in relation to residential building contracts with owner occupiers.
Changes for Residential Builders
Significantly, from 1 March 2021 residential builders will be able to utilise the hard-hitting security of payment laws to resolve disputes with owner occupiers, promptly recover progress payments and avoid drawn out and expensive litigation in the NSW Civil & Administrative Tribunal. This will be the case even for contracts entered into prior to 1 March 2021 provided that the builder has served a valid Payment Claim on or after 1 March 2021.