Historically, the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act) excluded residential building work in New South Wales. This is no longer the case. Since 1 March 2021, builders undertaking residential projects in New South Wales have been able to utilise the Act to obtain swift payment of their progress claims.
Homeowners need to be aware that payment disputes aren’t dealt with solely under their building contract. If a builder serves a valid payment claim under the Act and the homeowner fails to respond with a proper payment schedule within the strict timeframe, the claimed amount becomes a debt recoverable in court. This means the homeowner may be forced to pay in full—even where there are concerns about defective or incomplete work—with those issues left to be resolved separately (and often at additional time and cost).
What Is an Owner Occupier Construction Contract?
Relevantly, the Act applies to ‘owner occupier construction contracts’ entered into after 1 March 2021.
An ‘owner occupier construction contract’ is a construction contract for the carrying out of residential building work within the meaning of the Home Building Act 1989 (NSW) on premises that the party for whom the work is carried out resides in (or proposes to reside in).
When Can a Residential Builder Make a Payment Claim?
The Act was amended in August 2024, to ensure that a builder is not entitled to a progress payment for work that they have contracted to do unless they are suitably licensed and insured to undertake that work.
Do Unlicensed or Uninsured Builders Have Payment Claim Rights?
Section 8(2) of the Act now provides that a builder is not entitled to a progress payment under the Act if the construction contract:
- does not comply with Section 4 of the Home Building Act 1989 (NSW) (which deals with unlicensed contracting); or,
- involves construction work that is residential building work done in contravention of Section 92 of the Home Building Act 1989 (NSW) (which deals with the requirement for a builder to obtain homeowners warranty insurance).
How Long Does a Homeowner Have to Provide a Payment Schedule?
Homeowners should not assume that payment disputes will be dealt with solely under the terms of their building contract. For homeowners, the consequences of failing to understand the Act are significant.
If a builder serves a payment claim that complies with the Act and the homeowner fails to respond with a valid payment schedule within the required timeframe—usually 10 business days—the claimed amount becomes a statutory debt recoverable in court.
What Happens If a Homeowner Misses the Payment Schedule Deadline?
Once a debt arises under the Act, a homeowner is indebted to the builder for the full amount of the claim – even if they have concerns about defective or incomplete work – and their ability to raise those concerns will instead need to be pursued in separate proceedings, at additional time and cost.
How Does the Security of Payment Act Affect Residential Builders?
For builders, the Act provides an important enforcement tool to ensure they receive payment quickly. Whether a payment schedule is served or not, the ability to either enforce a statutory debt or invoke the adjudication process offers a fast-tracked and cost-effective mechanism to secure payment, reducing the cashflow pressures that often arise in residential projects.
