WHAT TO LOOK OUT FOR WHEN ASKED TO PAY A DEPOSIT FOR DOMESTIC BUILDING WORKS
Article by Luke Karapetsas, Law Clerk
Background
When contracting with a builder for domestic building works such as building a new home, home renovations, or installation of a pool, it is commonplace for a builder to request payment of a deposit. Most people are unaware however of how much a builder is allowed to request.
Holdstock Law has recently had matters where clients had paid deposits of 40% and 80% of the contract price for a domestic building project. No works were completed for this project and the company since placed itself under liquidation being unable to repay the deposits. The clients in this matter may be unable to reclaim the entirety of the deposit because of the liquidation. As such, consumers need to be aware of the risks associated when contracting for domestic building projects and their rights when contracting to avoid such an outcome.
This article will explain a consumer’s rights when asked to pay a deposit and the risks of paying above the legally allowed deposit. It will provide broad guidance for what a consumer should do when contracting for domestic building works.
Domestic Building Contracts Act (1995) Vic
Under section 11 of the Domestic Building Contracts Act, a builder must not demand a deposit of more than 5%, if the contract price is more than $20,000 or 10% of the contract price if it is less than $20,000. A builder in breach of this section is liable for a fine of 100 penalty units (in Victoria, one penalty unit is $184.92).
This protection exists such that if a builder becomes unable to complete the works, then in the event the company cannot repay the deposit then the risk to the consumer is low, only between 5-10% of the total contract price.
When contracting with a builder, the builder may insist upon a larger deposit often citing a reason such as needing to pay for materials prior to works commencing. They may also request additional payments before works commence even once a lawful deposit has been made. This is unlawful, because it heightens the risk to the consumer.
What consumers should look out for when contracting for domestic building works
A consumer should not be paying more than 5-10% of the contract price as a deposit depending on the value of the contract. If a builder insists upon additional payments, then the contract should be avoided as the consumer will take on additional risks in the event the company cannot pay the deposit back.
Consumers should also take care to ensure the contract is complete with a clearly defined timeframe for when works are to commence and conclude. This will ensure that in the event of postponement, the consumer will have a right to seek damages for breach of contract and repayment of the deposit. The consumer should also take care to ensure they are contracting with the correct party. It is commonplace for a builder to subcontract works to others to excuse their own liability.
Consumer Affairs Victoria has also provided a checklist for when entering into a building contract. It is recommended that clients consider this list before entering into a contract: https://www.consumer.vic.gov.au/housing/building-and-renovating/checklists/building-contracts
If you have any questions or require any assistance in relation to domestic building works and the Domestic Building Contracts Act, please do not hesitate to contact us.