Can I Get Out of A Building Contract?

HIA Industry Update for NHS
Approx read time: 3 minutes

HIA Industry Update – September 2019

Working with homeowners on a build does not always go 100% to plan. Most of the time small issues and misunderstandings can be worked out and the project completed. But what happens when the working relationship between builder and homeowner, or another element of the build, has gotten so bad that you are considering walking away? Is it possible to get out of a home building contract? And what other options are there for dealing with difficult clients?

Can I get out of a Building Contract? Options for Dealing with Difficult Clients

Firstly, be aware that once you have signed an HIA Home Building Contract and works have commenced, the contract can only be ended under a specific, and limited set of circumstances. A builder is not entitled to end the contract for any of the following reasons:

  • Personal dislike or disagreements with the homeowner
  • The homeowner is complaining about the works (unless this amounts to interference with the building works- to be discussed below)
  • The builder realises the job is not turning out to be profitable or is taking too long
  • Any other conditions of the job agreed to at the time of entering into the contract

This is because NSW contract law treats the act of entering into a legally binding agreement very seriously. It’s expected after signing a contract you will perform the service that you promised your client as according to the terms agreed upon (i.e. completing the build) unless there are significant changes in circumstances meaning the contract can’t be performed, the parties agree to end the contract,  or the other party breaches their side of the agreement. 

Some situations in which a client’s actions may amount to breach are:

  • Failure to pay progress payment by the due date
  • Interference or obstruction with the builder’s possession of the site
  • Failure to give or interference with the builder’s possession of the site
  • Failure to give an instruction or direction required within the time specified

It’s important to be aware that this is a non-exhaustive list of reasons that you may be entitled to end a contract. You should carefully read your building contract to check whether a breach has occurred.

Even if the other party has committed a serious breach of the contract such as one of the acts above, you are not automatically entitled to simply walk away from a job. Contracts have varying procedural requirements around termination. HIA Residential Building contracts, for example, require that the parties give each other a written notice of breach and at least ten days to rectify the breach before the contract can be ended. Builders who attempt to end a contract without following this procedure may find themselves in breach of the contract and even liable for damages.

For these reasons, we recommend doing your research before entering into a contract. Putting aside the excitement of landing a new project, ask yourself whether you can imagine having a personal working relationship with the homeowners in a year or 18 months.

If you do go ahead, it’s also essential to have safeguards in place so that even “difficult” clients can be managed in a professional manner and disputes don’t escalate.

Often this means setting boundaries from the beginning of a build. While you might think to make small allowances such as letting your clients onsite unsupervised, agreeing to variations verbally, or letting progress claims be paid late are harmless ways of getting your clients on the side, blurring contractual rights and obligations often cause problems later on.

For example, not only is the incorrect administration of variations a contravention of the Home Building Act 1989 and subject to penalties from Fair Trading, but a homeowner may legitimately forget about the extra works (and associated costs) they agreed to by the end of a long build. It’s therefore essential that these changes are administered in writing and charged at the same progress stage that they occur.

Variation orders are not the only documents that are a builder’s friend in contract administration. Under a residential building contract, there are many notices that a builder is required to give the homeowner. Staying on top of these can drastically reduce confusion and help owners understand what’s expected of them at every stage of the build. These include:

  • Progress claim certificates
  • Claims for extension of time
  • Notices of Practical Completion
  • Authority for Final Payment

These documents can be purchased from NHS, the HIA Shop or via HIA Contracts Online.

Should you require further information on this topic HIA members please contact a Workplace Advisor on the member services hotline 1300 650 620.

Craig Jennion
HIA Executive Director – Hunter