The Home Building Act 1989 (NSW) (Part 3): What are the requirements in relation to home building contract documents, variations to a contract and the maximum amount payable as a deposit?

The Home Building Act 1989 (NSW) (“the Act”) sets out the following minimum requirements for home building contracts to ensure fairness and a level of certainty in the scope and detail of the contract works.

Contract documents and variations to the contract

Section 7E(1) of the Act provides that a contract for residential building work in excess of $5,000.00 must include (and is taken to include) each of the following terms:

• “All plans and specifications for work to be done under this contract, including any variations to those plans and specifications, are taken to form part of this contract.” (Part 1(1)(1) of Schedule 2), and
• “Any agreement to vary this contract, or to vary the plans and specifications for work to be done under this contract, must be in writing signed by or on behalf of each party to this contract (Part 1(1)(2) of Schedule 2).”

These mandatory contract terms prevent builders and subcontractors from relying on the contract when seeking to recover payment for variations work that is not agreed in writing. It is important that contractors and their employees have suitable variations notices which can be completed on site if necessary and provided to the customer for signature.

A maximum amount as payment of a deposit

Section 8 of the Act provides that the maximum amount of a deposit for residential building work is 10% of the contract price. A person must not:

• demand or receive payment of a deposit in excess of 10% of the contract price (Section 8(2)(a)), or
• enter into a contract under which the person is entitled to demand or receive payment of a deposit in excess of 10% of the contract price (Section 8(2)(b)).

Contracting companies face a maximum $110,000.00 penalty for demanding or receiving payment of a deposit in excess of the maximum deposit.

In our next article in this series, we will look at the requirements in relation to a cooling-off period and authorised progress payments.

Jason Francis