Introduction

In a heightened regulatory environment overseen by the Building Commission NSW, builders and construction managers must do more than just juggle timelines and materials. Strategically navigating disputes with homeowners is now a critical business risk, essential for keeping projects on track, within budget, and compliant with the law. Delving into the six most frequent disputes found in the construction world, it uncovers their causes and offers clever ways to tackle them. With this handy knowledge, professionals can swiftly handle disputes and keep relationships with clients sweet.

Common Building Disputes between Builders and Homeowners 

Domestic building disputes are relatively common in construction projects and can stem from various issues. Here are the six most frequent types of disputes encountered:

Quality of Building Work

A leading cause of disputes arises when homeowners perceive the workmanship of the builder to be subpar or not in alignment with the agreed-upon plans and specifications. This discrepancy can lead to dissatisfaction and the pursuit of remedies to ensure work meets expected standards.

Delays

Construction projects are notorious for extending beyond their anticipated completion dates. Disputes over delays typically emerge when homeowners attribute the prolonged timeline to the builder’s inefficiency, poor planning, or mismanagement, especially if these delays incur additional costs or inconveniences.

Variations

Changes to the initial plans or specifications, known as variations, can also spark disputes. Homeowners might contest the necessity or cost of these changes, especially if they believe the variations were avoidable or were introduced without adequate justification.

Incomplete Work

Another common issue occurs when a builder does not fully complete the project, leaving certain tasks unfinished. This can lead to disagreements over the definition of “completion” and what was encompassed within the project’s scope.

Cost Overruns

Disputes frequently arise when the final cost of a building project surpasses the initial estimate or quote. Homeowners may feel that cost overruns were not properly communicated or justified, leading to conflict over the final bill.

Non-Payment or Underpayment

Conversely, builders can face disputes when homeowners delay payment, underpay, or withhold payment for work they deem unsatisfactory or incomplete. This situation presents a significant challenge, particularly for builders relying on timely payments to cover labor and material costs.

How to Resolve Disputes with Homeowners?

To navigate disputes with homeowners, several resolution avenues are available, including:

• Direct Negotiation: Attempting to resolve the dispute through direct communication between the parties.
• Mediation: Engaging a neutral third party to facilitate a resolution.
• Adjudication: A rapid determination process for payment disputes under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA), though access to this process is now conditional on the builder’s licensing and insurance status.
• Litigation: Taking the dispute to the NSW Civil and Administrative Tribunal (NCAT) or the courts for a legal resolution, which involves specific NCAT proceedings for home building disputes.

Understanding these common disputes and the available resolution paths can help parties involved in home building projects manage conflicts more effectively and work towards a satisfactory resolution.

Remedies Available to Builders in Homeowner Disputes

The remedies available to a builder through the above avenues depends on the nature of the dispute, as well as the end goal they wish to achieve. This typically includes:

(1) Recovering Delay Costs or Increased Material Costs

The capacity of a builder to recuperate additional costs stemming from surges in residential building materials or construction delays is significantly influenced by the contractual agreement with the homeowner. This is not a straightforward matter and hinges on the exact terms outlined in the contract, particularly those related to variations, changes in legislation, or force majeure circumstances.

Variations

Most residential construction contracts incorporate provisions for modifications or variations. If such a clause exists and is properly utilised, builders may be able to claim increased expenses due to rising material costs.

Delays

Compensation for delays is generally determined by the cause of the delay. Should the delay originate from factors within the builder’s control, recovering these costs may not be feasible. Conversely, delays instigated by the homeowner, or unforeseen external events, could potentially allow the builder to request an extension or additional payment, contingent on the contract’s stipulations.

For instance, delays could result from the homeowner’s indecision regarding material or color choices, or unforeseen external events like COVID restrictions or disruptions in material importation.

Rise and Fall Clauses

Though not commonly found in standard residential building contracts, some agreements may contain a “rise and fall” clause. This clause permits adjustments to the contract price in response to fluctuations in labor and material costs. If present, this clause enables builders to pass on the increased material costs to the homeowner. To safeguard against rising costs, builders must seek legal advice to draft specific, transparent, and fair cost escalation clauses. These clauses must be carefully constructed to avoid being deemed void under Unfair Contract Terms laws, which apply to standard form contracts.

The critical takeaway is the necessity of a meticulously crafted contract that foresees potential shifts and outlines explicit procedures for addressing these changes. Should you encounter such a scenario, consulting a seasoned construction lawyer is imperative. They can review your contract and offer guidance tailored to your unique situation, ensuring that you are well-prepared to manage any contractual challenges that arise.

(2) Recovering Progress Payment in Building and Construction Disputes

In New South Wales (NSW), builders facing difficulties in obtaining progress payments from homeowners have several avenues to pursue. Here’s a structured approach to addressing such issues:

Consult the Contract

The first step involves reviewing the contract to understand the specific terms related to progress payments. This examination helps clarify the builder’s contractual rights and outlines the appropriate actions to take.

Communicate and Negotiate

Open communication with the homeowner is crucial to identify the reasons behind the non-payment. Often, disputes arise from misunderstandings or minor issues that can be resolved through direct dialogue and negotiation. Addressing any concerns or rectifying small defects promptly can lead to an amicable solution.

Security of Payment Laws

Should discussions fail, builders may be able to use the SOPA. However, a critical amendment effective from 20 August 2024 (Section 8(2) of SOPA) means a builder is only entitled to a progress payment under the Act if they are correctly licensed and have the required Home Building Compensation Fund (HBCF) insurance. If compliant, the Act provides a simplified monthly process for issuing payment claims (the old ‘reference date’ system has been removed) and approaching adjudication under NSW Security of Payment legislation.

Debt Recovery

In instances where the homeowner remains unwilling to settle the outstanding amount, pursuing debt recovery may become necessary. This could entail engaging a debt collection agency or initiating legal steps to enforce payment through court judgments.

Legal Action

For disputes not resolved through SOPA, considering legal action is the next step. This typically involves filing an application with the NCAT. Given the complexity and potential costs associated with legal proceedings, seeking advice from a lawyer specialised in building and construction law is crucial. They can provide expert guidance, ensuring that the builder navigates the legal landscape effectively and makes informed decisions.

By methodically exploring these options, from contract review and negotiation to legal recourse, builders can strategically address payment delays, aiming for a resolution that secures their financial interests while maintaining professional relationships where possible.

(3) Carrying Out Rectification Work by Accessing the Building Project

Under the Home Building Act 1989 (NSW) (HBA), a homeowner has a duty to mitigate their loss, which includes providing written notice of defects and not unreasonably refusing the builder access to rectify the work (Section 18BA). This works in the builder’s favour, as Section 48MA of the HBA states that the NCAT must consider rectification by the original builder as the preferred outcome of a dispute. A formal, reasonable offer to rectify is a powerful strategic tool for builders.

In instances where a homeowner refuses to grant access for repairs, builders have several strategies at their disposal, contingent on contract terms and legal frameworks:

Consult Your Contract

Initially, reviewing the construction contract is crucial since it often specifies the builder’s right to access the site for defect rectification. Following this review, the builder should issue a formal notice to the homeowner, detailing the rectification intent and the necessity for access.

Mediation

Should the homeowner persist in refusal, exploring mediation or other dispute resolution avenues delineated in the contract is advisable. These methods can provide a non-confrontational platform for addressing and resolving access issues.

Legal Action

As a last resort, taking legal action may be necessary. This could involve seeking assistance from the NCAT, which possesses the authority to issue orders compelling homeowners to permit access for necessary repairs.

It’s imperative for builders to seek tailored legal advice specific to their situation, as the appropriate course of action varies based on contractual obligations, defect specifics, the homeowner’s reasons for refusal, and other pertinent factors. Legal counsel can provide guidance on navigating these complexities, ensuring that builders pursue the most effective and legally sound strategy.

(4) Formally Suspending Work or Terminating the Building Contract

Builders might find themselves in situations where suspending work or terminating a residential building contract becomes a necessary consideration, often requiring a guide to successful termination of your building contract. Given the serious legal and financial repercussions these actions can entail, it’s crucial to consult a building and construction lawyer experienced in such matters before proceeding. Here are some circumstances under which a builder may contemplate suspension or termination, always with a focus on contractual compliance and clear communication:

Homeowner’s Failure to Pay

If a homeowner fails to pay a valid claim made under SOPA, the builder has a statutory right to suspend work. To do this legally, the builder must give the homeowner at least two business days’ written notice stating the intention to suspend work under SOPA. Wrongful termination, however, is extremely risky and can be deemed a repudiation of the contract, exposing the builder to significant damages claims.

Unreasonable Changes or Requests

Should a homeowner demand alterations not stipulated in the contract, or if their requests are unreasonable—potentially causing significant extra costs or delays—the builder may think about suspending or ending the contract. It’s essential for such changes or requests to be evaluated against the contract’s terms and the feasibility of their implementation without undue hardship.

Unsafe Work Conditions

The presence of health and safety risks on the construction site, such as significant asbestos, hazardous site conditions, or severe harassment from the homeowner, may justify suspending or terminating the project. The safety of workers and all involved parties is paramount, and continuing work under unsafe conditions is not advisable.

In dealing with these situations, builders should prioritise open and honest communication with the homeowner, offering them the chance to address and rectify the issue wherever possible. Suspension or termination of work should be considered a measure of last resort, undertaken only with comprehensive legal guidance to navigate the complexities involved. This cautious approach ensures that any decision to halt or end a project is legally sound and executed in the best interest of all parties.

Key Legal Rulings Builders Should Know

Builder’s Non-delegable Duty of Care

A landmark 2024 High Court of Australia decision has confirmed a legal principle every builder must understand: your duty of care is non-delegable. In Pafburn Pty Limited v The Owners – Strata Plan No 84674 [2024] HCA 49, the court ruled that the duty of care under Section 37 of the Design and Building Practitioners Act 2020 (NSW) cannot be passed on to others.  

What this means in practice is that under the statutory duty of care under Section 37 of the Design and Building Practitioners Act, you, the builder, are directly and wholly liable for economic loss caused by defects, even if the fault lies with a subcontractor, engineer, or designer you hired. You cannot use the defence that you delegated the work to a supposedly competent third party. This legal shift makes it critical to:

• Conduct rigorous due diligence on all subcontractors and consultants.
• Have strong, legally reviewed subcontractor agreements with robust indemnity clauses.
• Implement strict on-site quality assurance and keep meticulous records of all work performed.

Enforceability of Unsigned Contracts

In Dyjecinska v Step-Up Renovations (NSW) Pty Ltd [2024] NSWSC 159, the NSW Supreme Court confirmed that a builder could enforce a contract that was in writing and clearly described the work, even though it had not been signed by the parties. While failing to sign is a breach of HBA, it does not automatically prevent the builder from getting paid.

Strict Payment Deadlines Cannot Be Extended by Contract

The NSW Court of Appeal ruled in Roberts Co (NSW) Pty Ltd v Sharvain Facades Pty Ltd (Administrators Appointed) [2025] NSWCA 161 that parties cannot use a contract clause to lengthen the strict 10-business-day deadline for a homeowner to respond to a payment claim under SOPA. The law allows for deadlines to be shortened by agreement, but not extended.  

Resolve Building Disputes with Ease: Contact Our Building and Construction Lawyers Today!

Disputes between builders and homeowners can significantly impact the progress and outcome of construction projects. From quality of work disagreements to delays and payment issues, understanding how to navigate these disputes is essential for any construction manager or builder. By recognising the common causes of disputes and exploring all avenues for resolution, from direct negotiation to legal action, construction professionals can mitigate the impact of these disagreements on their projects.

If you’re facing challenges with homeowner disputes or need guidance on your rights and the best course of action, our law firm is here to help. Don’t let legal challenges slow down your projects. Contact our building and construction lawyers today and seek legal advice tailored to the construction industry’s unique needs.

Frequently Asked Questions (FAQ)