Owners of apartments within strata schemes often want to add to or alter their lot property. This invariably involves entering into construction contracts with builders, architects, other contractors and consultants, as well dealing with the owners corporation. It is important that network of relationships is managed carefully and consistently. A key factor in this is a proper understanding of how contracts should be set up in each case.
Construction contracts are generally negotiated using one of the construction industry standard contracts as a template, such as the Housing Industry Association (HIA) and the Master Builders Association (MBA). Each of these has advantages and disadvantages, but all require some modification to deal properly with a range of legal and practical issues pertaining to strata schemes.
For example, Home owners entering into a HIA form of contract need to be aware of some of the potentially onerous conditions of that contract, and seek expert legal advice on the amendment of the standard form if they find those conditions unacceptable. Those kinds of conditions include:
1. Response Time Requirements: There are a number of conditions where claims made by the builder cannot purportedly be disputed unless the owner has issued a written notice with reasons within a prescribed number of days (usually 5 working days) from the date of the claim. Self-executing administrative provisions like this have much to commend them in terms of saving administrative costs and the potential for disputes, but they are ‘high risk’ in that if the owner slips up the owners could be liable for a large claim, even if that claim is otherwise without merit.
2. A Neutered Variation Power: Most construction contracts give the owner a power to direct variations, and the contract provides a means of fair compensation or contractual adjustment with the builder. The HIA form diminishes that variation power. The builder can refuse to perform a variation. This puts the builder in an overly strong negotiating position if a variation is required mid-project.
3. Final Certificate Risk: Under the HIA form, the builder is not required to obtain the occupancy certificate or final inspection certificate. On turnkey projects this places the onus on the owner, when the builder should be better placed to deal with the relevant authorities.
4. Broad Powers of Suspension: The HIA form provides that the Builder may suspend performance in the event of a breach of contract by the owner. In some, but not all, circumstances this may be fair enough. It leaves the way open for an unscrupulous builder to take advantage of what may be a trivial breach. The types of breach warranting the exercise of this power should be limited and specifically identified.
In some cases owners may find such clauses acceptable, particularly if the contract price is attractive. But it would be a foolish owner who accepts such terms without giving serious thought into how the resultant risks are to be managed.
Context is everything, not just in terms of the circumstances of a particular project or owner’s requirements, but also the regulatory world of bylaws, council approvals, legislative changes, and developing case law. A layman cannot be expected to keep pace with changes in what is in any event a specialist form of contracting.
As the name implies, building contracts are part of the day to day business of a building contractor. A home owner may only enter into a building contract once in a lifetime. The contrast is stark, and where the stakes are high the owners shouldn’t suffer the disadvantage. For a miniscule percentage of the construction cost expert legal advice is available.
***The information contained in this article is general information only and not legal advice. The currency, accuracy and completeness of this article (and its contents) should be checked by obtaining independent legal advice before you take any action or otherwise rely upon its contents in any way.
Prepared by David Bannerman and Tony Earls
17 August 2016
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For more information on this topic or any legal enquiries please contact your Strata and Development Team.