Home Building & Construction What Home Builders Should do When Faced with a Dispute with a Difficult Homeowner

What Home Builders Should do When Faced with a Dispute with a Difficult Homeowner

This article explores the various legal avenues available to Home Builders facing disputes with Homeowners.

From contract disputes to construction defects, this article discusses effective legal strategies for resolving conflicts, recovering payments and protecting Home Builders’ interests. In this article we will cover:

  • What are the most common types of home building disputes?
  • Can I recover increased costs of materials or delays?
  • What can I do if a homeowner is refusing access to the property for rectification work?
  • What to do if a homeowner purports to terminate a residential building contract?
  • What is the best way to recover payment if a homeowner is holding back a progress payment?
  • When should a builder consider formally suspending work or terminating a residential building contract?
  • Can a builder still use Security of payment laws to obtain and enforce rights to progress payments if NCAT Proceedings have already commenced?
  • What should I do if I receive a Home Building Application from NCAT?
  • Do I need a Lawyer to defend me in NCAT Proceedings?
  • When should I bring a Cross Claim in NCAT?

What are the most common types of home building disputes?

Home building disputes can arise from a variety of issues. Based on my experience as both a lawyer and a builder, here are the six most common types of disputes.

  1. Quality of Work

    This one of the most common causes of disputes and arises when the homeowner believes that the builder has not delivered work of an acceptable standard or in accordance with the plans and specifications.

  2. Delays

    Building projects often take longer than expected. However, disputes can occur when delays are excessive, particularly if the homeowner feels that the delays are due to inefficiency, lack of planning, or poor management on the part of the builder.

  3. Variations

    These disputes occur when changes are made to the original plans or specifications. Homeowners may disagree with the cost of the variations or believe that the variations were not necessary.

  4. Incomplete Work

    Disputes can arise when the builder fails to complete the project or leaves certain tasks unfinished.

  5. Cost Overruns

    Disputes can arise when the final cost of the project exceeds the original quote or estimate, particularly if the homeowner believes the additional costs are not justified or were not adequately communicated.

  6. Non Payment or Underpayment

    On the flip side, builders also face disputes when homeowners fail to pay the agreed amount on time, pay less than the due amount, or refuse to pay for completed work.

To resolve these disputes, parties can use several avenues, including direct negotiation, mediation, adjudication under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA), or litigation in the NSW Civil and Administrative Tribunal (NCAT) or the Courts.

Can I recover increased costs of materials or delays?

Whether a builder can recover increased costs of residential building materials or construction delays often depends on the terms of the contract between the builder and the homeowner. There isn’t a one size fits all answer, as it’s highly contingent on the specific contractual provisions, such as those concerning variations, changes in law, or force majeure events.

Variations

Most residential building contracts allow for variations to the contract. If the contract has a variation clause, and it’s correctly invoked, the builder might be able to claim additional costs due to increased material costs.

Delays

The ability to recover costs related to delays will typically depend on the reason for the delay. If the delay is caused by something within the builder’s control, it might not be possible to recover these costs. However, if the delay is caused by the homeowner or an unforeseen event outside of the builder’s control, then it might be possible to claim for an extension of time or additional costs, depending on the terms of the contract.

Example of delay caused by owner might be material or finishes selection (for example choosing bathroom tiles or kitchen bench colour), also might be delay in approving variations.
Unforeseen event outside builder control could be COVID restrictions or interruption to the importation of certain materials incorporated into the build.

Rise and Fall Clauses

Whilst particularly rare in standard form residential building contracts, some contracts include a “rise and fall” clause, which allows for adjustments in the contract price according to fluctuations in labour and material costs. If such a clause is in the contract, the builder might be able to pass on increased material costs to the homeowner. Builders should consider having their lawyer draft additional special conditions to append to their preferred standard form contracts to provide for rise and fall.

These points underscore the importance of having a well-drafted contract that anticipates potential changes and provides a clear mechanism for dealing with such changes. In any case, if you find yourself in this situation, it’s critical to seek advice from an experienced construction lawyer. They will be able to review your contract and provide advice tailored to your specific circumstances.

What can I do if a homeowner is refusing access to the property for rectification work?

Importantly, any person who has the benefit from the statutory warranties of the Home Building Act 1989 (HBA) has a positive duty to mitigate their loss.

In cases where the statutory warranties have been breached by the defective work of a builder, the homeowner should inform the builder in writing within six months. Section 18BA of the HBA provides that in such cases, a homeowner must not unreasonably refuse access to the residential building work for the purpose of the rectification of defects.

If there’s a proven failure by the homeowner to comply with the duty to provide access for repair, that failure can be taken into account by the Tribunal.

Nevertheless, it is not an uncommon situation for a homeowner to not provide access to a builder to repair defects and when that occurs, there are several avenues open to builders that should be considered, based upon the terms of the relevant contract, as well as legislative and common law rights.

Consult Your Contract

The first thing the builder should do is consult their contract. Most construction contracts will contain terms that expressly provide the builder with access to the site to rectify defects. In that instance, the builder should issue a formal notice to the homeowner stating their intention to rectify the work and the need for access.

Mediation

If the homeowner is still refusing access, the builder can seek mediation or other dispute resolution methods outlined in their contract.

Legal Action

If all else fails consider seeking legal advice on the possibility of legal action. In some circumstances, it might be appropriate to apply to NCAT for Orders NCAT has power to grant Orders to compel a homeowner to provide access to premises for the carrying out of rectification work.

Remember, these are general options and the builder should seek legal advice for their specific situation. The exact legal remedies will depend on the terms of the contract, the nature of the defects, the reason the homeowner is refusing access, and other relevant circumstances.

What to do if a homeowner purports to terminate a residential building contract?

If a homeowner purports to terminate a residential building contract the builder should take the following steps.

  1. Consult the Contract

    The builder should first consult the terms of the contract. The contract will likely outline the circumstances under which the homeowner is allowed to terminate, and what processes must be followed.

  2. Seek Legal Advice Promptly

    If the builder is unsure about their rights or the legitimacy of the termination, they should seek immediate legal advice. A lawyer specializing in construction law can provide advice tailored to the specific circumstances.

  3. Document Everything

    The builder should keep a detailed record of all communications and actions. This includes the reason given for the termination, any notice given, and the actions of both parties before and after the termination.

  4. Communication

    Communicate with the homeowner to understand their reasons for termination and, if possible, negotiate a resolution. This may involve remedying any issues they may have with the work, negotiating a new agreement, or discussing a fair settlement for work already performed.

  5. Enforce Your Contractual Rights

    If the termination is not in accordance with the contract terms, the builder may have the right to reject the termination and enforce the contract or seek damages. However, this action should only be taken after obtaining specialist advice from an experienced building and construction lawyer.

  6. Claim Your Money

    If the builder has completed work for which they have not yet been paid, they may have the right to make a payment claim under Security of Payment laws.

  7. Dispute Resolution

    If a dispute arises over the termination, and it cannot be resolved directly between the homeowner and the builder, the parties may need to follow the dispute resolution process outlined in their contract. This could involve mediation or taking the dispute to the NSW Civil and Administrative Tribunal (NCAT) or Court.

Terminating a building contract can have significant legal and financial consequences for both parties, so it’s essential to seek legal advice from an experienced building and construction lawyer as soon as possible. The specific action the builder should take will depend on the circumstances of the dispute and the terms of the contract.

What is the best way to recover payment if a homeowner is holding back a progress payment?

In New South Wales (NSW), a builder who is having trouble receiving a progress payment from a homeowner can take several actions:

Consult the Contract

Check the contract for the specific terms relating to progress payments. This will clarify the builders contractual rights and provide guidance on next steps.

Communicate and Negotiate

Initially, it is beneficial to communicate with the homeowner to understand the reason for the non payment. If there are minor disputes, they might be resolved through clear communication and negotiation. It might be a misunderstanding or a small defect that can be quickly remedied..

Security of Payment Laws

If communication and negotiation don’t work, it will often be open to the builder to serve a payment claim under the Building and Construction Industry Security of Payment Act 1999. The Act establishes a process for making and responding to payment claims, and for referring disputes to an independent adjudicator if necessary.

Debt Recovery

When a homeowner owes a builder money and still refuses to pay, the builder might need to take steps to recover the debt. That could involve engaging a debt collection agency or taking further legal action to enforce the judgment.

Legal Action

If the dispute cannot be resolved through Security of Payment Laws, builders should consider taking legal action. This will usually be an application bought before the NSW Civil and Administrative Tribunal (NCAT). Legal action can be complex and costly if you are unsuccessful, so it’s essential to get legal advice from an experienced building and construction lawyer before proceeding.

When should a builder consider formally suspending work or terminating a residential building contract?

Builders should consider suspending work or terminating a residential building contract under certain circumstances. However, suspension and termination are both significant steps with potentially serious legal and financial implications, so it’s essential to seek legal advice from an experienced building and construction lawyer before taking either of those actions. The following is a list of situations in which a builder might, depending on individual circumstances, consider suspension or termination.

Homeowner’s Failure to Pay

If the homeowner fails to make payments to which a builder is contractually entitled, especially after formal reminders, then suspending work or terminating the contract might be considered. However, builders should be extremely careful to ensure that they follow any procedures set out by the contract before taking those actions.

Unreasonable Changes or Requests

If the homeowner insists on changes that are not agreed upon in the contract, or that are unreasonable and would result in significant additional cost or delay, then the builder might consider suspension or termination.

Unsafe Work Conditions

If the builder believes that continuing the work would pose a risk to health and safety, suspension or termination may be appropriate. Examples of such situations may be the discovery of significant asbestos, unsafe site conditions, or serious harassment from the homeowner.

Remember, in any of these situations, it’s important to communicate clearly with the homeowner and to give them an opportunity to rectify the problem, if possible.
Any decision to suspend or terminate should be a last resort and should only be made after seeking legal advice from an experienced building and construction lawyer.

Can a builder still use Security of Payment Laws to obtain and enforce rights to progress payments if NCAT Proceedings have already commenced?

It is open for builders to utilise SOPA to obtain and enforce rights to progress payments even if proceedings before the NSW Civil and Administrative Tribunal (NCAT) have already commenced.

Importantly though, any proceedings to enforce statutory payment rights arising under SOPA cannot be heard by NCAT and must be bought separately in the Court of the most appropriate jurisdiction which will be determined by the size of the payment sought to be enforced. The SOPA process for independent adjudication can also be utilised concurrently with NCAT proceedings. Those processes can be particularly useful where there might be a significant delay, and NCAT can finally determine the matter.

It is crucial to note however, that the SOPA adjudicator’s decision is an interim one. That means that it does not prevent the parties from having the dispute determined finally by NCAT, a Court, or in arbitration, depending on the contract and the nature of the dispute.

When the substantive matter is finally determined by the Court or Tribunal, the outcome of that process could result in a party having to pay back amounts awarded by the adjudicator.

The interaction between SOPA processes and Court or Tribunal proceedings can be complex, and the right approach can depend on the specifics of the situation. Therefore, when builders find themselves in that situation, it’s essential to seek legal advice from an experienced building and construction lawyer to understand your options fully.

Security of Payment Guide

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What should I do if I receive a Home Building Application from NCAT?

Receiving notice of a Home Building Application from NCAT indicates that proceedings for the determination of a building dispute between the Home Builder, and either the homeowner or the builders’ subcontractor, have been commenced against the Home Builder. Such a notice is most usually accompanied by a notice of listing for the first directions hearing. Here’s a general guide on what to do if a Home Builder receives that notice.

Review the Application Carefully

Check the names of the parties. If the name of the builder does not match that of the name in the contract, the application might be liable to strike out or to be amended. A common error we see is an action being commenced against the builder in person, when the builder’s company was actually the contracting entity for the relevant residential build.

It is important the builder understands the issues that have been raised and the orders sought by the applicant.

Seeking Legal Advice Urgently

Disputes of this nature can have significant consequences, so it’s a good idea to speak to an experienced building and construction lawyer as soon as possible. They can help to understand the issues, the builders rights and obligations, and the potential outcomes. See below for what to do if you don’t understand the issues.

Prepare Your Response

The builder has the right to respond to the application. This should include any evidence that supports the builders case. Be sure to address all the points raised in the application. If there are any defects or other issues, be prepared with a plan detailing how and when they will be remedied.

Attend the Hearing

The initial NCAT hearing will be very short and will usually provide an opportunity to attend an assisted mediation with the homeowner.

Take advantage of that opportunity as it may be possible to settle the dispute without the need for drawn out and sometimes costly litigation.

Make sure you attend and be prepared to explain your case and answer any questions. If a resolution cannot be reached, the Tribunal will make a timetable for the future service and filing of further details of both the claim and the defence, as well as evidence.

Comply With Any Orders

If NCAT makes orders at any stage you will need to comply with them. A failure to comply with orders is never viewed favourably, and can result in further legal action against the builder and the cancellation of the builder’s licence.

Do I need a Lawyer to defend me in NCAT Proceedings?

Generally in building disputes less than $30,000 in value, NCAT encourages parties to represent themselves due to its goal of providing a low-cost, informal, and accessible avenue for dispute resolution. However, there are several factors to consider:

Amount in Dispute

If the value of the dispute exceeds $30,000, it will be open to a builder to be legally represented. However, it’s important to note that legal representation is not automatically allowed in NCAT. If a party wants to be represented by a lawyer, they usually need to seek permission from the Tribunal, unless they fall within certain exceptions.

The Tribunal will consider factors including the complexity of the matter, the relative capacities of the parties to represent themselves, and whether the right to be represented would be in the interests of justice when all of the circumstances of the individual application are considered.

Complexity of the Case

If the dispute involves complex legal issues, substantial sums of money, or complicated facts, having an experienced building and construction lawyer can be beneficial. They can assist in understanding the legalities, preparing your case, presenting evidence, and arguing on your behalf.

Good construction lawyers will have a thorough understanding of the law and can guide you on how best to present your case, respond to the claims made against you, and interpret any legal jargon used during the proceedings. Additionally, experienced building and construction lawyers will be very familiar with the practice and procedures of the Tribunal, and can anticipate and formulate the right types of arguments that are likely to be persuasive to the Tribunal. This experience can be invaluable, particularly if the other party also has legal representation.

While it’s not always necessary to have a lawyer to defend NCAT proceedings, it can be beneficial depending on the circumstances. Always consider the complexity of the case, the potential financial impact, and your comfort level with representing yourself when making this decision.

Even if you decide not to have a lawyer represent you at the hearing, you might still find it helpful to seek some legal advice beforehand to understand your position and the potential arguments and evidence you should submit.

When should I bring a Cross Claim in NCAT?

A cross claim is essentially a counterclaim against the party who initiated the action. NCAT will almost always deal with both the claim and cross claim at the same time, which will save both parties time and money.

As a builder, you might consider bringing a cross claim against a homeowner in the following circumstances:

Unpaid Amounts

If the homeowner has unpaid amounts due under the contract, such as for work completed, variations, or expenses incurred as a result of the homeowner’s actions, and they haven’t been paid.

Breach of Contract

If the homeowner has breached the contract in a way that has caused you loss, such as by preventing access to the site, not providing necessary approvals in a timely manner, or not complying with the contracts terms.

Setoff

If the homeowner is claiming a setoff for alleged defects or delays, but you dispute these allegations or believe that the homeowner has contributed to the issues, for example, through late design, approvals, decisions or changes to the work, you may wish to cross claim to dispute the setoff.

Remember, a cross claim needs to be relevant to the original application and is subject to the same rules and procedures. Before deciding to bring a cross claim, consider the strength of your case, the likely cost and time involved, the potential to resolve the dispute by negotiation or mediation, and the financial situation of the homeowner, as that can also affect your ability to recover any amount awarded.

Legal advice should be always be sought from an experienced building and construction lawyer before deciding to bring a cross claim, as it is important to fully understand your rights and obligations, the potential consequences, and the best strategy for your specific circumstances.

A Home Builder’s Guide to Resolving Disputes in NCAT

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The complex legal landscape of residential construction disputes in New South Wales necessitates a prompt and informed response. Rapidly changing legislation, complicated contract case law and the often highly technical nature of the actual issues in dispute make this an area where specialised knowledge is imperative. The importance of obtaining fast, reliable advice from a construction lawyer cannot be overstated.

An experienced construction lawyer not only can provide valuable legal advice but will also bring a wealth of negotiation, litigation and settlement experience to the table. Their insights into relevant past cases, the workings of the industry, and current market trends can offer unique perspectives that will prove to be beneficial in any dispute resolution.

Lastly, it’s important to remember that while disputes can be disruptive and damaging, they also present an opportunity to reflect, learn and build stronger, more efficient business models and contracts for the future. With the help of expert legal guidance, these challenges can be transformed into stepping stones towards growth and improved industry practices.

Therefore, investing in professional, swift, and knowledgeable legal advice should be viewed not as an optional extra, but as an essential component of risk management in your residential construction business.

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The information in this article is not legal advice and is intended to provide commentary and general information only. It should not be relied upon or used as a definitive or complete statement of the relevant law. You should obtain formal legal advice specific to your particular circumstance. Liability limited by a scheme approved under Professional Standards Legislation.

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Author
Jack Lindgren
Special Counsel
Accredited Specialist (Commercial Litigation)