Building & Construction

This page provides an overview of Building and Construction law in NSW. This information should not be relied upon for the purposes of legal advice and we strongly suggest that you speak to one of our lawyers to discuss your rights.
Types of disputes
Building Defects
Defects often arise in building work because of poor workmanship, failing to comply with the contract’s specifications or failing to adhere to Australian building standards. Common defects include cracks in ceilings and walls, pealing paint, moisture leaks and uneven flooring. When defects arise building contracts usually require the builder to rectify the problem as soon as possible. After building works are complete, the builder will remain liable for any defects for the period specified by the contract, usually 12 – 24 months. Most building contracts also require the owner to notify the builder of any defects and provide them with an opportunity to rectify any defects. This means the owner of a building can be in breach of the contract if they hire another tradesperson to fix a defect without first asking the builder to fix the problem.

Incomplete Works
When a builder doesn’t complete their work most people react by terminating their contract with their builder. Before terminating any building contract, however, it’s important to get some legal advice to determine how and if you’re able to terminate the contract so you don’t become liable for the outstanding amount of the contract. If a contract is found to be terminated by the builder, then in most cases the owner will be able to seek damages for any costs associated with completing the building works. If the contract is terminated by the owner, however, it is unlikely that the costs will be able to be recovered from the builder and instead, the owner will be required to compensate the builder for the work they lost as a result of the owner terminating the contract.
Strata Schemes
A Strata Scheme is a building that has been divided into lots. Lots are individual pieces of property within a development such as units, townhouses, apartments or houses. When a lot is purchased, the owner also receives shares in the common property with other owners of the lots such as driveways and gardens. Common property is managed through a legal entity called the owners corporation which is made up of the lot owners. The owners corporation is responsible for maintaining and repairing common property and managing the finances of the strata scheme. Building work in Strata Schemes is often initiated by the owners corporation, whereas individuals may require the approval of the owners corporation before commencing construction. State lawyers can assist developers by helping to draft strata schemes. We can also advise owners corporations and individuals on their rights and obligations. Finally, we can assist builders to better understand your position when dealing with owners corporations.
Breach of Contract
Building contracts usually consist of a number of components that specify what work will be carried out and how this work will be carried out. Contracts often require consultation with engineers, surveyors, architects and other construction professionals. Disputes in contracts can arise in relation to the materials used, time taken, and compliance with architectural or engineering plans. A party alleging a breach in contract will need to prove the duty where the breach has occurred and then submit evidence in support of this breach. If a party is successful they may be entitled to compensation, damages, require rectification of the building works or require specific performance of a certain part of the contract.
Building Negligence
The tort of negligence involves a wrongful act, and does not involve a breach of contract. Suing in negligence for defective building work requires the person who suffered loss to establish that the defendant owed a duty of care, that there was a breach of that duty, that the defendants actions caused this breach. In determining causation, the court will ask whether the loss would have occurred “but for” the breach of obligation. If these elements can be established then the claimant will be entitled to recover damages from the negligent party.
Non-payment
 Disputes often arise between building contractors and owners in relation to payment. Builders can seek specific performance for failure to make progress payments if they are not paid on time. If you are involved in one of these disputes it is recommended that you speak to one of our lawyers as there are strict time limitations that apply under the Building and Construction Industry Security of Payment Act (1999) (NSW).

BUILDING AND CONSTRUCTION LAW IN NEW SOUTH WALES
DamagesExpert EvidenceCourt ProcedureHome Owner FAQ'sBuilder FAQ'sCosts
Damages
General Principles
Damages are awarded to compensate a party that has suffered a loss. The aim of damages is to put the plaintiff in the same position if the breach would not have occurred. Damages are awarded on a once and for all basis, which means that once an amount is settled it cannot be revisited at a later time. There are a number of areas in building and construction law that a person may suffer loss which will be discussed further below.
Delay Costs
A delay to a building project causes an increase in the costs incurred by the owner and the contractor. Damages will be awarded to the owner where the delay has been caused by the contractor. Alternatively, damages can also be awarded to the contractor if the delay was caused by the owner.
Overhead Costs
If a breach has been established then in some cases the aggrieved party will be required to hire additional staff, work overtime or engage third party consultants. In this situation the aggrieved party is entitled to be compensated for the additional costs incurred but for the breach. In order for a party to be successfully awarded damages for overhead costs if it is established that the diversion caused a significant disrupt to the business: Aerospace Publishing Ltd v Thames Water Utilities Ltd (2007) 110 Con LR 1. Damages will not be awarded simply because a staff member could have been used more productively elsewhere, or that a staff member was required to work additional hours because of the breach.
Depreciation
When an owner breaches a contract the builder or contractor can claim damages for the equipment that they were unable to use and also for the depreciation of that asset during that time: Suntey (B) & Co Ltd v Cunard White Star Ltd [1940] 1 K.J3 740 at 748-749
Inconvenience and Loss of Amenity
Damages may also be awarded to an owner where the breach of building work has caused a loss of amenity to the residence. To be awarded damages there must be a substantial inconvenience, for example where the owner of the property does not live at the property because of the inconvenience or if the inconvenience disrupts the operations and financially impacts on a business. Damages for inconvenience or loss of amenity will usually only be for a modest sum: Campbelltown City Council v Mackay (1989) 15 NSWLR 501
Wasted Expenditure
Damages can be recovered where the aggrieved party has incurred an expense on the expectation that the other party would perform its obligations, however this did not eventuate and as a result the expense was incurred for no reason. Damages are commonly awarded to home owners to recover the cost of alternative accommodation as a wasted expense in the event that building work to a house is not completed. Wasted expenditure may also be claimed by builders or contractors where they have been supplied with defective machinery or equipment and are unable to use the equipment to its maximum profitable potential.
Interest and Finance Charges
If there has been found to be a breach of duty and the aggrieved party was forced to borrow money or deprived of an opportunity to invest money, the interest can be recovered by the claimant. These damages are assessed on the claimants actual loss and calculated using a simple or compound interest rate depending on the financial position of the claimant.Builders and contractors can recover damages for interest and finance expenses where the owner has breached their contract through non payment or delay of payment: Hadley v Baxendale. Alternatively, home owners will be able to recover damages when a builder, contractor or construction manager fails to perform their obligations which causes the owner to incur additional interest and financial expenses on borrowings to finance the project.
Punitive and Exemplary Damages
Punitive damages or exemplary damages are awarded to punish the wrongdoer. Punitive or exemplary damages are rarely awarded in Building and Construction cases unless there has been an outrageous breach of obligation as damages aim to compensate the party that has suffered loss, rather then punish the party that has caused the loss.
Expert Evidence
When is expert evidence needed?
Expert Evidence and briefing an expert correctly to obtain an opinion on the exact issues in dispute are crucial to obtaining a successful outcome in building and construction law disputes. Due to the complex nature and high degree of speciality of building and construction claims, experts are commonly required.
What makes someone an expert in building and construction?
The court will look at information such as the experts career, years of experience, education, any professional associations, awards or literature published in relation to the industry.
What information will an expert provide?
Experts will often investigate the building site including the materials that were used and the method of construction. After performing this investigation the expert will prepare a written report which states his/her opinion on the building and construction work. This report must adhere to the expert witness code of conduct contained in Schedule 7 of the Uniform Civil Procedure Rules (UCPR). Essentially the code of conduct requires experts to maintain a duty to the court to assist impartially on the matters that relate to their expertise.
Admissible expert evidence
    • For expert evidence to be admissible it must follow six requirements set out in the decision of Makita (Australia) Pty Limited v Sprowles 2001 52 NSWR 705.

      • It must be agreed or demonstrates that there is a field of ‘specialised knowledge’;
      • There must be an identified aspect of that field in which the witness demonstrates that by reason of specified training, study or experience, the witness has become an expert;
      • The opinion preferred must be ‘wholly or substantially based on the witness expert knowledge’;
      • So far as the opinion is based on facts ‘observed’ by the expert, they must be identified and admissibly proved by the expert, and so far as the opinion is based on ‘assumed’ or ‘accepted’ facts, they must be identified and proved in some other way.
      • It must be established that the facts on which the opinion is based form a proper foundation for it; and
      • The opinion of an expert requires demonstration or examination of the scientific or other intellectual bases of the conclusion reached; that is, the expert’s evidence must explain how the field of ‘specialised knowledge’ in which the witness is expert by reason of ‘training, study or expertise’, and on which the opinion is ‘wholly or substantially based’, applies to the facts assumed or observed so as to produce the opinion pronounced.
Court Procedure
Negotiation
Negotiation is the simplest and most cost effective way to resolve a building and construction dispute. Our lawyers after obtaining instructions from our clients often attempt to communicate in good faith with the other party to negotiate a settlement as early as possible.
Mediation
Mediation is another effective method to settle a building and construction dispute. Mediation involves both parties lawyers to meet an independent mediator who assists both parties find a solution to the problem. Most contracts in building works contain a clause which requires parties to mediate the dispute prior to initiating court proceedings.
Adjudication
Adjudication involves an independent expert who considers the arguments of both parties before reaching a final decision. The notion behind adjudication in building and construction law is to resolve disputes as efficiently as possible on a pay now and argue later basis. Section 17 of the Building and Construction Industry Security of Payment Act 1999 (NSW) states that a a party involved in a building and construction dispute can apply for an adjudication of payment claim. The decision by the adjudicator is enforceable, however the losing party can opt to have the claim litigated if they are unhappy with the result.
Office of Fair Trading
The NSW Government has established the Office of Fair Trading to provide a cheap alternative to safeguard consumer rights and advise businesses on ethical practice. A complaint may be made to the Office of Fair Trading if you feel that the other party has breached their obligations. The office of Fair Trading will try to resolve the dispute and may prosecute the party for breach of the relevant legislation.
NSW Civil and Administrative Tribunal
If a party is dissatisfied with the above options they may make an application to NCAT. NCAT will attempt to resolve the dispute by appointing a conciliator who will try to negotiate a settlement. If this fails, a Tribunal Member will decide the case and make a binding order, which may require one party to make a money order to another party. NCAT has broad and flexible powers on claims that do not exceed $500,000.
Going to Court
In some circumstances the above options are exhausted and the parties are still unable to come to an agreement then court proceedings are required to be initiated. Court proceedings in building and construction disputes are often complicated and require a lawyer to file a Statement of Claim, prepare and file evidence in support of this claim, respond to any particulars of this claim, and in some cases require a barrister to attend court.
Home Owner FAQ's
Is my builder licensed?
Builders are required by law to hold a licence through the Office of Fair Trading. To check whether or not your builder holds a licence please click on NSW Public Register and type in the name of your builder to see if they are currently licensed for the type of work that they will be carrying out.
Should I sign the contract my builder supplies?
A number of builders will use contracts supplied by the Housing Industry Association or will encourage you to sign their own contracts. It is important before you enter into any building contract to seek legal advice as there are often certain clauses that can be changed to protect your rights.
What is the difference between a fixed price and a cost plus contract?
Fixed price contracts are where the price is fixed throughout the duration of the contract. Cost plus contracts are where the price is based upon the actual cost of production and any fees that are agreed upon. There are advantages and disadvantages of both form of contracts depending on whether you are a builder or home owner.
Can I terminate my contract with the builder?
Generally speaking you should not terminate a contract with a builder without legal advice. The contract will set out strict requirements of termination and often require a substantial breach before the contract can be terminated. If you wish to terminate your contract a Notice of Default which clearly sets out the grounds of termination should be supplied to the builder.
Can I alter my contract with my builder after work has commenced?
Section 7 of the Home Building Act (1989) (NSW) states that all variations must be in writing and signed by both the owner and the builder. Before the work commences on the variation, the builder should also provide the owner with a written description of any plans and any additional times or costs associated with the variation.
When do I have to make payment for the building work?
Check your contract. The Building and Construction Industry Security of Payment Act 1999 (NSW) requires building contracts over $20,000 to contain information on when progress payments are to be made.
How much deposit can a builder charge?
According to Section 8 of the Home Building Act (1989) (NSW) a maximum deposit of 10% can be charged.
What are statutory warranties and will I be covered by them?
Statutory warranties require construction to be carried out in a certain way and protect consumers from financial loss associated with incomplete or defective building work even if your contract doesn’t protect you. Part 2C of the Home Building Act (1989) (NSW) states that major defects are covered by a 6-year statutory warranty. General defects are also covered by a 2-year statutory warranty.
What is a major defect?
Section 18E of the Home Building Act (1989) (NSW) sets out a two-step process to determine whether or not a defect is classified as major. The first step is to ascertain whether the defect was a major element of the building. A major element of the building is described in the act as a fire safety system, waterproofing or something essential to the building’s stability or structure such as foundations, footings, walls, roofs, beams or columns. The second requirement is for the defect to cause an inability to utilise part of the building for its intended purpose.
Builder FAQ's
Am I required to have a licence?
According to the Part 3 of the Home Building Act (1989) (NSW) where the cost of labour and materials exceed $1,000 then individuals, corporations or partnerships contracting to do residential building work must hold a licence. If an individual does not hold a licence, they must be an employee of a corporation or partnership that holds a contractor licence.
Do I need a contract?
A written contract is required by law for residential building work where the contract price exceeds $1,000.

  • For building work between $1,001 and $5,000 a contract with basic information is required such as the names of the parties and licence details, description of the work, plans, specifications, variations, price, a clause requiring the contractor to ensure that all building work will comply with the Building Code of Australia, and Provide a signed copy of the contract within five business days.
  • For building work between $4,999-$20,000 there are more formal requirements and the contract must expressly set out the statutory warranties, a checklist for consumers to consider and if the contract price can be varied or is unknown, the contract must contain an explanation of how it can be varied.
  • For building work over $20,000 insurance is required along with a statement setting out the cooling off period.
What is Home Warranty Insurance and do I need it?
Home Warranty Insurance (now known as Home Building Compensation Fund) protects consumers from a builder’s failure to rectify incomplete or defective building work. In work exceeding $20,000 the Home Building Act (1989) (NSW) requires builders to take this insurance out prior to work being commenced.
The owner is missing payments, what can I do?
The Building and Construction Industry Security of Payment Act 1999 (NSW) protects those who complete construction work to have an enforceable and statutory right to progress payments.
Generally speaking a builder will be able to stop work and terminate the contract if a party isn’t paying however the provisions of each contract will differ. If there is a payment dispute it’s best to consult a lawyer about your available options.
What do I have to do if there is a delay in building works?
If there is a delay in building works you have a legal requirement to issue a notice seeking an extension of time.
Costs
How much will it cost?
There are a number of factors that will influence the cost of a building and construction dispute. In a number of circumstances we can provide advice or negotiate a settlement for minimal costs. However in some circumstances for more complex disputes which require expert evidence and attendance in court, the costs can be significant. Our lawyers are happy to provide advise to how much your dispute will likely cost and also answer any questions that you have in relation to costs at your initial consultation.