Our builder has issued formal Notice under Clause 7.1 of the NSW HIA Residential Building Contract, which requires us to establish a joint names/joint signatory security account for the balance of contract price i.e. the final retention amount. The contract states our builder is not entitled to receive this final payment until: "All identified defects are resolved". Unfortunately, we have quite a few serious and proven defects, but our builder is refusing to accept responsibility or is trying to fix with a bandaid.
We have already isolated the retention funds into a separate bank account that the builder can check at any time - he has accepted we have "ability to pay", but still wants this joint security account. If we don't establish this within 10 Days, the builder can terminate the Contract. Our bank is not familiar with these requests and says our money could be locked up indefinitely!
Q/ Has anybody had to establish a joint security account, if so, who with?
Q/ How do you terminate a security account and access the funds to complete the works, should the builder refuse to do anything?
Security Deposit Clause 7.1 HIA Contract (NSW)
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What kind of defects are you talking about specifically?
Waterproofing problems (needs large area of external stone paving removed and replaced), internal wood floor exploded due to water ingress (needs 10sqm section replaced and whole floor resurfaced), garage concrete floor has widespread delamination (has to be cut back, repaied and layered with epoxy), mould problems and more
Do you have licensed building inspector reports which say that those defects present and builder must rectify those?
Have you already received Occupational Certificate for your house?
Can you transfer this money back to your account and keep them there?
Do not pay the builder until the defects are rectified.
Have you already received Occupational Certificate for your house?
Can you transfer this money back to your account and keep them there?
Do not pay the builder until the defects are rectified.
Yep, we've paid over $5k on expert reports including ATFA (wood floor) report, Building Defects Report and infrared waterproofing diagnostic - all provided to the Builder but he seems to have different opinion on everything and claiming others at fault. He is accepting some defect but only if he can farm these out to his sub-contractors. We haven't requested OC as yet, because of these issues. Certifier is aware.
Haven't put the money into a security account yet (it's in a separate bank account that builder can check, but he is not a signatory). However, HIA Contract says we MUST deposit funds into joint bank account with joint signatory within 10 days OR/ builder can terminate the Contract. Builder can then claim for "cost of works done or market value or works ... or damages"! We have already paid 95% fo Contract value to the builder (plus big variation charges) so not sure what this means.
If we are entitled to terminate Contract, we can use these retention funds to complete the works and pay balance to builder.
Haven't put the money into a security account yet (it's in a separate bank account that builder can check, but he is not a signatory). However, HIA Contract says we MUST deposit funds into joint bank account with joint signatory within 10 days OR/ builder can terminate the Contract. Builder can then claim for "cost of works done or market value or works ... or damages"! We have already paid 95% fo Contract value to the builder (plus big variation charges) so not sure what this means.
If we are entitled to terminate Contract, we can use these retention funds to complete the works and pay balance to builder.
HIA contracts are evil indeed.
What does your contract say regarding defects which needs to be rectified before handover?
You builder is responsible for all the rectification no matter what his sub-contractors decide (this is not part of the contract), even if ultimately he would have to build this house at loss.
I guess it makes sense to ask a user SajaeD, he can probably PM you details of his lawyers as he managed to terminate his contract at much earlier stage.
What does your contract say regarding defects which needs to be rectified before handover?
You builder is responsible for all the rectification no matter what his sub-contractors decide (this is not part of the contract), even if ultimately he would have to build this house at loss.
I guess it makes sense to ask a user SajaeD, he can probably PM you details of his lawyers as he managed to terminate his contract at much earlier stage.
Thanks for your advice. I will query SajaeD
You should seek professional advice from a lawyer if you're being threatened with termination.
As an example, your lawyer might refer you to clause 7.1 of the HIA contract which states that:
"The owner, when requested by the builder at any time, must deposit that part of the contract price not being supplied by a lending body into an account at a bank, building society or a similarly recognised financial institution (to be known as a security account)."
Your lawyer may then suggest that if you have a loan facility with sufficiently available funds (which are at least equal to the balance of the Contract Price), that you ask your Bank for a letter which confirms the amount of finance available to you. This letter could be similar to the form required in clause 4 of the HIA contract.
I presume your lawyer would then suggest you pass that letter on to the Builder along with confirmation that the balance of the contract price is being supplied by the lending body, in lieu of establishing the joint account.
As an example, your lawyer might refer you to clause 7.1 of the HIA contract which states that:
"The owner, when requested by the builder at any time, must deposit that part of the contract price not being supplied by a lending body into an account at a bank, building society or a similarly recognised financial institution (to be known as a security account)."
Your lawyer may then suggest that if you have a loan facility with sufficiently available funds (which are at least equal to the balance of the Contract Price), that you ask your Bank for a letter which confirms the amount of finance available to you. This letter could be similar to the form required in clause 4 of the HIA contract.
I presume your lawyer would then suggest you pass that letter on to the Builder along with confirmation that the balance of the contract price is being supplied by the lending body, in lieu of establishing the joint account.
Thanks and yes, I have submitted enquiry to a lawyer this evening. We would be happy to issue a bank loan for the balance to the builder instead, it will just take time to set up. Note - the funding section in the HIA Contract Schedule did not list a "lending body" so builder is saying the money must be in joint security account. Will update on discussions with lawyer. thanks again
If you have cash on an account with that lender, it shouldn't take them long to set the loan (as they can simply put your cash in a term deposit as security for that loan), alternatively, if you have an existing loan you can deposit your cash into that account and use the redraw.
That said, getting the loan will be of limited benefit if you're operating with an amended HIA Contract which has removed reference to the lending body in clause 7.1. In such a case its likely you will need to deposit the cash into the joint account - the limited comfort is that the Builder wont be able to draw on the account without your consent either.
If the reference to "Lending Body" is just missing from the schedule, it wont be an issue as lending body is defined as "any corporation or institution that lends to the owner part of or the whole of the contract price" (see clause 1).
Good luck with the lawyers - try get fixed rates for the work if possible (i.e. contract review $x, letter to builder $y) so you can budget and control costs where possible.
That said, getting the loan will be of limited benefit if you're operating with an amended HIA Contract which has removed reference to the lending body in clause 7.1. In such a case its likely you will need to deposit the cash into the joint account - the limited comfort is that the Builder wont be able to draw on the account without your consent either.
If the reference to "Lending Body" is just missing from the schedule, it wont be an issue as lending body is defined as "any corporation or institution that lends to the owner part of or the whole of the contract price" (see clause 1).
Good luck with the lawyers - try get fixed rates for the work if possible (i.e. contract review $x, letter to builder $y) so you can budget and control costs where possible.
HIA contracts aren’t evil. It’s the builders/companies who are unfairly and most of the time incorrectly using contracts against owners.
What is the alternative? Master builders contract, same thing. Builder has their own? most likely worse than a standard building contract.
I use these and have never had a problem, threatening to use the contract against the owner is poor form and should only be a last resort. Builders or tradespersons should not be allowed to sign one or be registered if they cannot build or manage a project to a satisfactory standard. Proper dispute resolution is high priority with any building company with integrity, pride and care for their clients and project.
The Vic HIA alterations, additions & renovations contract has descriptions of clauses relating to some parts of your problems. Section E clause 39 & 45. If you are using a new homes contract and the Nsw version could be different but you will find something along the lines of this in the back of your contract.
As everyone has mentioned best to seek legal advice. And don’t pay anything until you do!
Sorry for the rant, best of luck
What is the alternative? Master builders contract, same thing. Builder has their own? most likely worse than a standard building contract.
I use these and have never had a problem, threatening to use the contract against the owner is poor form and should only be a last resort. Builders or tradespersons should not be allowed to sign one or be registered if they cannot build or manage a project to a satisfactory standard. Proper dispute resolution is high priority with any building company with integrity, pride and care for their clients and project.
The Vic HIA alterations, additions & renovations contract has descriptions of clauses relating to some parts of your problems. Section E clause 39 & 45. If you are using a new homes contract and the Nsw version could be different but you will find something along the lines of this in the back of your contract.
As everyone has mentioned best to seek legal advice. And don’t pay anything until you do!
Sorry for the rant, best of luck
Thanks again, this has been very helpful. I will check reference to "lending body" as we should be able to establish new loan account quickly.
If you have cash on an account with that lender, it shouldn't take them long to set the loan (as they can simply put your cash in a term deposit as security for that loan), alternatively, if you have an existing loan you can deposit your cash into that account and use the redraw.
That said, getting the loan will be of limited benefit if you're operating with an amended HIA Contract which has removed reference to the lending body in clause 7.1. In such a case its likely you will need to deposit the cash into the joint account - the limited comfort is that the Builder wont be able to draw on the account without your consent either.
If the reference to "Lending Body" is just missing from the schedule, it wont be an issue as lending body is defined as "any corporation or institution that lends to the owner part of or the whole of the contract price" (see clause 1).
Good luck with the lawyers - try get fixed rates for the work if possible (i.e. contract review $x, letter to builder $y) so you can budget and control costs where possible.
That said, getting the loan will be of limited benefit if you're operating with an amended HIA Contract which has removed reference to the lending body in clause 7.1. In such a case its likely you will need to deposit the cash into the joint account - the limited comfort is that the Builder wont be able to draw on the account without your consent either.
If the reference to "Lending Body" is just missing from the schedule, it wont be an issue as lending body is defined as "any corporation or institution that lends to the owner part of or the whole of the contract price" (see clause 1).
Good luck with the lawyers - try get fixed rates for the work if possible (i.e. contract review $x, letter to builder $y) so you can budget and control costs where possible.
Marcs
How have you been?
Just reading this thread, the key question is what would the builder's remedy be if they dont comply? Termination of teh contract?
It could come under the definition of Unfair Contract Term in the ACCC. Have a look and ask your solicitor.
If you have cash on an account with that lender, it shouldn't take them long to set the loan (as they can simply put your cash in a term deposit as security for that loan), alternatively, if you have an existing loan you can deposit your cash into that account and use the redraw.
That said, getting the loan will be of limited benefit if you're operating with an amended HIA Contract which has removed reference to the lending body in clause 7.1. In such a case its likely you will need to deposit the cash into the joint account - the limited comfort is that the Builder wont be able to draw on the account without your consent either.
If the reference to "Lending Body" is just missing from the schedule, it wont be an issue as lending body is defined as "any corporation or institution that lends to the owner part of or the whole of the contract price" (see clause 1).
Good luck with the lawyers - try get fixed rates for the work if possible (i.e. contract review $x, letter to builder $y) so you can budget and control costs where possible.
That said, getting the loan will be of limited benefit if you're operating with an amended HIA Contract which has removed reference to the lending body in clause 7.1. In such a case its likely you will need to deposit the cash into the joint account - the limited comfort is that the Builder wont be able to draw on the account without your consent either.
If the reference to "Lending Body" is just missing from the schedule, it wont be an issue as lending body is defined as "any corporation or institution that lends to the owner part of or the whole of the contract price" (see clause 1).
Good luck with the lawyers - try get fixed rates for the work if possible (i.e. contract review $x, letter to builder $y) so you can budget and control costs where possible.
Marcs
How have you been?
Just reading this thread, the key question is what would the builder's remedy be if they dont comply? Termination of teh contract?
Well thank you, I'm looking forward to your next update on your build.
Conservatively, yes the builder could terminate as clause 27.2 states that the failure to establish a security account would be a substantial breach. The Builder would have to provide the appropriate notices etc.
As noted by SaveH2O it would be interesting to see if this would be considered an unfair term (assuming it is a "standard form consumer contract", which can be a hurdle in itself) - recent case law has been quite favourable for the consumer, but this might fall a bit short.
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