The Home Building Act 1989 (NSW) (Part 2): What are the minimum home building contract requirements?

The Home Building Act 1989 (NSW) (“the Act”) sets out minimum requirements for home building contracts depending on the value of the contract. These minimum requirements are designed to ensure transparency and a level of fairness between contractors and homeowners.

Minimum requirements for home building contracts in excess of $20,000.00

Section 7 of the Act sets out the following minimum requirements for contracts in excess of $20,000.00:

• the contract must be in writing and be dated and signed by or on behalf of each of the parties to it (Section 7(1))

The written contract must include the following:

• the names of the parties, including the name of the holder of the contractor licence (Section 7(2)(a)) and the number of the contractor licence (Section 7(2)(b))
• a sufficient description of the work (Section 7(2)(c)) to which the contract relates and any plans and specifications for the work (Section 7(2)(d))
• the contract price (if known) stated prominently on the first page of the contract (Sections 7(2)(e) and 7(4))
• if the contract price is not known or may be varied under the contract, the contract must contain a warning to that effect and an explanation of the effect of the provision allowing variation of the price. The warning and explanation must be placed next to the contract price if the price is known (Section 7(5))
• any statutory warranties applicable to the work (Section 7(2)(f))
• the cost of home warranty insurance (Section 7(2)(f1))
• a statement setting out the cooling-off period (Section 7(2)(g))
• any progress payments payable under the contract (Section 7(2)(h))
• a statement in relation to the parties’ rights to terminate the contract (Section 7(2)(i))
• a warning in relation to an unknown contract price or a variable contract price (Section 5)

Minimum requirements for home building contracts between $5,000.00 and $20,000.00

There are fewer requirements for contracts where the contract price is greater than $5,000.00 but less than $20,000.00 (referred to, in the Act, as “small jobs”). Section 7AAA sets out the following minimum requirements for ‘small job’ contracts:

• the contract must be in writing and be dated and signed by or on behalf of each of the parties to it (Section 7AAA(2))

The written contract must include the following:

• the names of the parties, including the name of the holder of the contractor licence (Section 7AAA(3)(a)) and the number of the contractor licence (Section 7AAA(3)(b))
• a description of the work (Section 7AAA(3)(c)) to which the contract relates and any plans and specifications for the work (Section 7AAA(3)(d))
• the contract price (if known) (Section 7AAA(e))

Section 10(1)(b) of the Act carries severe consequences for an individual or company who contracts to do residential building work in excess of $20,000.00 under a contract that is not in writing or that does not have sufficient description of the work. In those circumstances, a contractor:

• is not entitled to damages or to enforce any other remedy in respect of a breach of the contract by the customer
• cannot enforce the contract
• is, however, liable for damages and subject to any other remedy in respect of their own breach of the contract

In simple terms, a contractor doing residential building work under a non-compliant contract cannot rely on the contract in any dispute with the customer, including non-payment, but can be sued on the contract by the customer.

The requirement for written contracts is a serious responsibility for builders and other contractors undertaking residential building work in NSW. A failure to comply can have very significant financial consequences, particularly for smaller contracting businesses carrying relatively large material and labour costs in relation to the non-compliant contract.

The provision of consumer information

Beyond the requirements for the content of written contracts, Section 7AA requires contractors to provide a copy of the Consumer Building Guide to persons for whom residential building work is being done where the contract is in excess of $5,000.00. The Consumer Building Guide is a helpful two-page summary of some of the matters addressed in this information and it is recommended that contractors and building services consumers read and understand that guide.

From 26 June 2021, it is mandatory for all construction contracts in excess of $20,000.00 to contain a copy of the Security of Payment Guide in accordance with Clause 8 of the Regulations. After 26 June 2021, a failure to include the Security of Payment Guide in construction contracts with a value of over $20,000.00 will attract an $8,800.00 fine for corporations and a $4,400.00 fine in any other case.

In our next article in this series, we will look at the requirements in relation to contract documents, variations to a contract and the maximum amount payable as a deposit.

Jason Francis