LEGAL

Completing another builder’s work

Tony Bujega Policy and Technical Manager Preeti Gaur Junior Legal Counsel

Our industry continues to be impacted by supply and trade shortages, insolvencies, and building disputes.

If the original builder cannot complete the works, owners may request a new builder to complete the remaining work.

If you seek to take over another builder’s work, you will need to obtain relevant information and consider key risks before entering a contract.

Original building works

Builders should first clarify why an owner has chosen to engage a new builder to take over a job. This should give you further insight into the client-builder relationship, the client’s capacity to pay, the building stage and any underlying issues with the building or property.

We recommend obtaining written confirmation that your client does not have an ongoing dispute and they have legally terminated their contract with the previous builder.

This will allow you to mitigate risks, including risks regarding interference with your scope of work or payment claims.

If the owner has not terminated their contract or has an ongoing dispute with the previous builder, you should obtain legal advice before proceeding with the contract.

Builders are strongly advised not to provide legal advice to owners or clients.

Obtaining an expert report

To determine the condition of the existing works and ensure they comply with the relevant standards, you may obtain a condition report through a suitably qualified and experienced consultant. The report can also be used to determine any rectification and building works required to bring the project to completion.

This will also assist in determining an accurate contract price before entering a building contract.

While builders may prefer to complete their own condition report, it can be more beneficial to arrange an independent assessment to ensure that the report is unbiased, comprehensive and reliable in a dispute.

As an example, the report may be used to distinguish between building works completed by the original and a new builder in a defect claim.

Insurance companies sometimes have their own requirements regarding condition reports, and it may be beneficial to speak with your insurer before assessing the works.

Depending on the circumstances, the expert report may be payable by owners, builders, insurers or even liquidators.

Ultimately, parties will need to negotiate a reasonable approach after consideration of all factors.

Defects and liabilities

MBV recommends obtaining compliance certificates from subcontractors for all works completed to date under the existing building permit. You may discuss certificate requirements with the relevant building surveyor.

It may also be beneficial to request a legal practitioner to draft a particular condition in your contract regarding the original builder’s works and any defects identified in the report.

Suppose you are a builder undertaking domestic building works. In that case, you must also consider your obligations under section 8 of the Domestic Building Contracts Act 1995, which outlines implied warranties concerning all domestic building work.

These warranties run with the land, and any owner or subsequent owner may bring a claim for defects.

It is important to note that the original builder maintains their obligations under the implied builders’ warranties.

Under section 134 of the Building Act 1993, the limitation on time when building action may be brought is 10 years, subject to some exceptions.

When responding to defects claims, it can sometimes be challenging to ascertain whether the defect was caused by your works, the original builder or both.

Entering a new building contract

Builders entering commercial or residential contracts for taking over works are advised to have a strictly defined scope of works under their building contract.

This may include references to the original building works, and any rectification works required.

The contract price, including any rectification costs, should be accurately defined, and a suitable payment structure should be selected.

Builders may decide to increase their profit margin for the works upon consideration of the risks associated with potential rectification works and defects.

Domestic Building Insurance requirements

Builders undertaking domestic building work for more than $16,000 are required to obtain Domestic Building Insurance (DBI).

will only provide cover for works that they have completed.

Building permits

Upon termination of a building contract, the building surveyor’s involvement or the effect of a building permit does not automatically cease.

The owner or the original builder is responsible for notifying the building surveyor to request suspension of the building permit.

If you agree to take over building works, the building surveyor may request additional information before amending the building permit.

You should not start any building work that requires a permit until the suspension has been lifted and the building permits amended.

Intellectual property and copyright

Before entering a building contract to take over works, builders should clarify who owns the construction plans or drawings - the owner, the original builder or, if applicable, the liquidator.

Builders must ensure they have a copyright licence to use the plans and drawings and may need to obtain consent before proceeding with the contract.

It is recommended that builders obtain legal advice to review or draft a copyright clause in their contracts.

For example, for instances where the owner supplies designs, clause 25.6 of MBAV’s New Homes Contract provides for an indemnity by the owner to the builder for breach of copyright. Disclaimer

This article provides general guidance for builders seeking to take over building works.

Builders should not rely upon this article as legal advice. If you seek to take over building works, we recommend obtaining legal advice for your specific circumstances.

MBV members can contact the legal department on (03) 9411 4555 to request legal advice.

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