Contract - Charge on Land

Duminda · Jun 17, 2008 1:41 pm

My contract booklet has a document called Charge on Land, which apparently gives the builder a sort of mortgage on my block until their invoices/ progress claims are paid. The charge specifically says it’s not part of the building contract.

Has anyone come across this situation when signing their contracts?

If you did, did you sign the charge?

My main concern here is the separation of the charge from the contract ... can this give the builder leverage to demand payment, even if an invoice/ progress claim is subject to a dispute (e.g. when some of the work is defective/ incomplete)?

Polo · Jun 18, 2008 1:12 am

Hi Duminda,

We are also building with JG and we had the Charge in our contract as well. We signed the contract last month. We tried to get the Charge removed but wasn't allowed due to company policy.

Reading the wording in the charge it would seem that it will give the builder greater leverage to demand money as they won't discharge their holding on your land if they don't receive all monies which includes interest, legal costs etc. So basically they will hold your land until you pay all monies due.

Reasons why we signed the contract is that we loved the house design and also we asked people who had built with JG whether they are happy with the workmanship, and all replied yes. But I am still worried about the extra power given to the builder though.

As for defective works, not sure if this is relevant or what it will do but in the MBAV HC6 contract under Appendix on page 34 sub section 6 Specification states the following ' The Standards and Tolerances Guide produced by the Building Commission as applicable at the date of this Contract forms part of the Specifications'. Not sure if this clause will put some pressure on the builder to fix up any defective works according to the standard & tolerance, if they don't fix the defects whether they breached the contract? But then the Charge does not form part of the Domestic Building Contract so it could be irrelevant.

Maybe before you sign the contract seek advice from a contract lawyer or a lawyer who is experience in domestic building contract for advice. We did ask but the lawyer we had seems to specialise in conveyncing and Section 32 stuff and didn't seem to know much about Domestic Building Contracts, so it wasn't much use.

Duminda · Jun 18, 2008 8:57 am

Hi Belgrave,

Thanks for the reply ... I will write to them about the charge and see it goes.

BTW did you include any special conditions in the contract yourself?

Newbuilder · Jun 18, 2008 9:37 am

Duminda

My main concern here is the separation of the charge from the contract ... can this give the builder leverage to demand payment, even if an invoice/ progress claim is subject to a dispute (e.g. when some of the work is defective/ incomplete)?

That's exactly what the Charge on Land is. It's a mortgage in favour of the builder merely for the purpose of securing payment of debt.

No doubt it will be used against you to obtain payment, even if you're not happy with the level of completion.

I would never sign a building contract which includes a charge on land.

Adrian B · Jun 18, 2008 10:32 am

Agreed CM, I would never ever sign away my land and equity to be held randsom by a builder who may or may not build a suitable quality home.

Garn · Jun 18, 2008 11:32 am

It would be worth checking the legislation in your state regarding the legality of a builder lodging a claim over your land. The legislation in Queensland is the Domestic Building Contracts Act (2000). Section 85 of this Act states that "A domestic building contract does not give the building contractor an interest in land of a resident owner..." and "A building contractor who lodges a caveat claiming an interest in land ... of a resident owner commits an offence." I guess in Queensland this would mean that they have broken the law. Perhaps other states have similar legislation?

Garn

_Al_ · Jun 18, 2008 11:44 am

Garn

It would be worth checking the legislation in your state regarding the legality of a builder lodging a claim over your land. The legislation in Queensland is the Domestic Building Contracts Act (2000). Section 85 of this Act states that "A domestic building contract does not give the building contractor an interest in land of a resident owner..." and "A building contractor who lodges a caveat claiming an interest in land ... of a resident owner commits an offence." I guess in Queensland this would mean that they have broken the law. Perhaps other states have similar legislation?

Garn

Read what it says, a building contract doesn't give the builder an interest....blah blah, to me, that is a building contract in general. i.e. the builder owns what he puts on your site, not the sitte itself until you pay for it.

And lodging a caveat, again, is a different matter and process.

If you are dumb enough to sign a contract that gives the builder these rights, then more the fool you.

PhoenixStar · Jun 18, 2008 12:17 pm

I agree with the majority, i would NEVER sign away my land to a builder....it will ALWAYS give them the upper hand....no matter what- you will have NO LEVEREDGE afterwards if/when you need it. They will hold all the cards!!

I suppose Duminda, if you really love the house you could???......but it's up to you at the end of the day.....

Would they let you walk away and risk losing the sale, if you didn't sign it?
Or would they come up with a compromise?

Good Luck with your choice.....

Newbuilder · Jun 18, 2008 12:25 pm

Is it just me or did this thread dissappear and then come back?

Michelle · Jun 18, 2008 12:28 pm

Newbuilder

Is it just me or did this thread dissappear and then come back?

Sounds familiar……………

Duminda · Jun 18, 2008 1:03 pm

Thanks for the advice everyone,

Just checked the VIC building act ...

18 Contract does not entitle builder to put caveat on the title of building site land
A domestic building contract does not give a builder an estate or interest in any land for the purposes of section 89 of the Transfer of Land Act 1958.

I will write to them quoting the Act and see whether they'll back down.

**Phoenix**

Would they let you walk away and risk losing the sale, if you didn't sign it?
Or would they come up with a compromise?

That's the $240,000 question; so far they have been quite flexible.

Let's see how this one goes ...

Peter_OZ · Jun 18, 2008 1:22 pm

talk to your solicitor and do not sign anything untill you have legal advice and know what your rights and options are.

Personally I would walk if a builder tried to put that clause in. You are effectively signing away your right of complaint & redress if the builder does not meet his obigations. Just my personal view.

talk to your solictors.

_Al_ · Jun 18, 2008 1:28 pm

It doesn't appear to read like a caveat. Caveats are there so you can't sell it twice etc.

http://www.lawyersconveyancing.com.au/caveat.asp

But it would bend you over a barrel should there be any disputes later on.

Peter_OZ · Jun 18, 2008 1:46 pm

order of higher precedence would dicatate which over ruled what.

I would suggest that State Building act will have a higher order of precedence then any clauses, caveats etc that a builder may insert.

My personal view is that the state Gov acts would render any builders clauses as null and void but I would suggest you need to obtain legal advice on that so as to not expose yourself to any risk in that area.

Duminda · Jun 18, 2008 1:51 pm

_Al_

It doesn't appear to read like a caveat. Caveats are there so you can't sell it twice etc.

Charge is not the caveat itself, but rather the instrument that gives them the authority to lodge the caveat.

If I sign the charge, they will be free to lodge a caveat on my land ... and I am sure they will do it soon enough!!

Peter_OZ · Jun 18, 2008 2:05 pm

Duminda

_Al_

It doesn't appear to read like a caveat. Caveats are there so you can't sell it twice etc.

Charge is not the caveat itself, but rather the instrument that gives them the authority to lodge the caveat.

If I sign the charge, they will be free to lodge a caveat on my land ... and I am sure they will do it soon enough!!

don't sign itis my view! Have you obtained independant legal advice from an expert in the field?

Duminda · Jun 18, 2008 10:42 pm

Peter_OZ

Have you obtained independant legal advice from an expert in the field?

DW is going to talk to a solicitor tomorrow ... will see how it goes

to_do_list · Jun 18, 2008 10:46 pm

Duminda

Peter_OZ

Have you obtained independant legal advice from an expert in the field?

DW is going to talk to a solicitor tomorrow ... will see how it goes

Good move....sounds too complicated and too risky for us mere mortals....

Polo · Jun 20, 2008 12:51 am

Hi Duminda,

Unfortunately we weren't allowed to put any special conditions on the contract, it was pretty much take it or leave it.

How did you go with your enquiries? I am interested to know what they said?

Duminda · Jun 20, 2008 9:21 am

Everyone we have spoken to, including the solicitors and my bank manager have advised us not to sign the charge, as it gives the builder quite a lot of bargaining power in the event of a dispute.

The builder's sales rep is going to call me today to discuss all the issues we have raised (the charge, the special conditions, site costs etc) ... I'll let you know the outcome.