What are the consequences of a Builder failing to complete Residential Building Works within a reasonable time; Claimable Damages?

24/01/2023

Watson and Watson Lawyers are experienced in Building and Construction matters including Contracts and disputes relating to construction of residual buildings as defined in the Home Building Act 1989 (“HB Act”). 

There are obligations imposed upon each of the Contractor and the Owner in relation to contracting and undertaking residential building works.  There are numerous rights and obligations applicable under the Home Building Act (HB Act).

Importantly Section 18B of the Home Building Act provides Warranties as to the residential building work which is warranted by the Contractor, by the holder of a Contractors licence and/or the person required to hold a Contractor’s Licence.  These Statutory Warranties are implied in every Contract to do with residential building work. 

The Contractor or Builder cannot contract out of the Statutory Warranties.  Any instrument that purports to restrict or remove those rights of any Statutory Warranty is void.  We refer to other articles on this website which refer to some of those warranties and other obligations and responsibilities of the Builder, Contractor and Owners under the HB Act.

This article relates to the specific warranty by the Contractor which relates to “(d) a warranty that the work will be done with due diligence and within the time stipulated within the Contract or if no time is stipulated, within a reasonable time.”

There are many standard forms of Contracts relating to undertaking of residential buildings. 

Having regard to the adjusted date for Practical Completion of the Building Works as compared with the date of actual Practical Completion, there may be a claim by an Owner for Breach of Warranty that the Contractor undertake the works with due diligence and within the time stipulated in the Contract or if no time is stated, within a reasonable time to undertake the works. 

Many standard forms of Building Contracts for residential building works include a Clause relating to Liquidated Damages which would apply in circumstances, which would be payable or allowable by the Contractor in the event the Contractor does not complete the works within the date of the adjusted Practical Completion.

Liquidated Damages is an agreed pre-estimate of the likely damages that will occur in the event of a delay in the Contractor completing the works to bring the works to Practical Completion as required.  One needs to consider what damages are claimable having regard to the warranty.

In addition, there is often a Clause in the standard form Contracts that allows the Contractor an additional sum for any additional period as a consequence of an Extension of Time in favour of the Contractor to cover the additional costs to be incurred by the Contractor.

In the Standard Forms of Contracts there is usually a Schedule which one usually completes with the “agreed” rates to be applicable in favour of either the Builder for expenses incurred during the extended periods or for the Owner in relation to the amount of damages to be paid in relation to the time by which the date of Practical Completion exceeds the date for Practical Completion.

A rate for Liquidated Damages is typically inserted or attempted to be inserted into a Contract in relation to delays in completing the works.  Often there are objective calculations which would apply to the calculation of anticipated actual damages that an Owner will suffer in the event that the building works are not completed within the Contract period (as may be extended).  For example, it may be calculated on the costs of alternative accommodation incurred by an Owner during the period outside the adjusted Contract period or the loss of rent if the building was for the purpose of leasing.  There may be other objective bases of calculations of Liquidated Damages. 

There are some examples where the ascertainment of the actual damages prior to completion of the works may be difficult.  One example would be landscape works which does not adversely affect the right to occupy a property.

In many standard Contracts there is in the Schedule, a listing note of Liquidated Damages as a default position that the Liquidated Damages is “$1.00 per day”.  Clearly this would be in most circumstances, not a genuine estimate of actual damages for a delay. 

The difficulty is that in many cases the Builder does not agree to what most Owners would believe on an objective basis, would be the losses associated with the delay. 

For many years (which continues today) in which the Contract has set out a rate, for example $1.00 a day or $100.00 per day, the Contractor has argued that this is the only adjustment that can be made in relation to the failure of the Contractor to complete the works within the adjusted time for completion.  This has been upheld in many cases in particular, in numerous Tribunals decisions.

Court Decision

In a recent case, the Supreme Court recently considered the issue on two alterative basis.

Firstly, whether a provision relating to liquidated damages provided an exclusive remedy for damages for delay and Secondly, whether such a claim would be rendered void under the Home Building Act (Section 18G).

The Court determined that the stated Liquidated Damages of $1.00 per working day (being the default amount printed in the standard Contract considered) calculated on a daily basis, did not limit the damages to which an Owner was entitled as a result of the Contractor’s failure to complete the works within the adjusted Contract period.  In those circumstances, in that case the Owner was entitled to a claim for further damages as a result of the delay.

In all cases it is important to consider the facts and whether the Owner’s claim is limited to a note specified in a Contract for Liquidated Damages.

This is one of many issues that arise in Building Disputes in relation to Residential Building Works many of which are not understood, particularly having regard to the Contract terms which may be presented and signed and having regard on the Contractor’s and Owner’s rights and obligations pursuant to the Home Building Act. 

Watson and Watson act on behalf of many Owners and Builders in relation to issues that arise in such circumstances.

Importantly the best course to adopt is to obtain advice as to the appropriate terms of the Contract before entering into the Contract.  We understand that the standard form of Contract is only a pro forma Contract with “Standard terms”.  Those Contracts often do not protect the parties’ interest in various scenarios that could and often occur in relation to the Building Process and the relationship between the parties in particular, having regard to the Contract.

In those circumstances, we recommend that you obtain appropriate advice in relation to the Contract prior to entering into the Contract. 

Further in the event that you are in a dispute situation, contact Watson & Watson to obtain advice in relation to the circumstances and alternatives available to you and similarly, the alternatives available to the other party in the Contract so as to understand your rights, obligations so that you can make an informed decision as to alternatives available and the process that you may take in relation to protect yourself.  Please contact Richard Watson Accredited Specialist in the stream of Building & Construction or his Personal Assistant Shereen Da Gloria to discuss your important matters and obtain the appropriate advice in a timely manner.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 9221 6011.