How to Handle a Building Dispute with a Difficult Homeowner: Tips for Builders

7 min read

For builders and construction managers, navigating the landscape of construction projects involves not just managing timelines and materials, but also effectively handling disputes that may arise with homeowners. Understanding the nature of these disputes is crucial to maintaining project timelines, budget, and client satisfaction. This article delves into the six most common disputes encountered in the construction industry, providing insights into their causes and suggesting proactive strategies for resolution. By being aware of these potential issues, construction professionals can equip themselves with the knowledge needed to address disputes efficiently and maintain positive relationships with their clients.

Table of Contents

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: Utilising the mechanisms provided by the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA) for a formal decision.
  • Litigation: Taking the dispute to the NSW Civil and Administrative Tribunal (NCAT) or the courts for a legal resolution.

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 are advised to consult with their lawyers to draft specific conditions that account for these fluctuations and attach them to their standard contract forms.

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 with 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 to yield results, builders have the option to utilise the Building and Construction Industry Security of Payment Act 1999. This legislation provides a structured process for issuing payment claims, responding to them, and, if necessary, referring the matter to an independent adjudicator for resolution.

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.

For disputes not resolved through the Security of Payment Act, considering legal action is the next step. This typically involves filing an application with the NSW Civil and Administrative Tribunal (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 (HBA), individuals benefitting from statutory warranties have a duty to mitigate loss, especially in scenarios where these warranties are breached due to defective work. It mandates homeowners to report such defects to the builder in writing within six months and prohibits them from unreasonably denying access for defect rectification. A homeowner’s failure to facilitate repair access can influence the Tribunal’s considerations.

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.

As a last resort, taking legal action may be necessary. This could involve seeking assistance from the NSW Civil and Administrative Tribunal (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. Given the serious legal and financial repercussions these actions can entail, it’s crucial to consult with 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

Non-payment by the homeowner, despite contractual obligations and after formal reminders, is a common ground for considering work suspension or contract termination. Builders must meticulously follow the contract’s outlined procedures for these actions to ensure legality and fairness.

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.

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 us today and seek legal advice tailored to the construction industry’s unique needs.

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Picture of Authored By<br>Raea Khan

Authored By
Raea Khan

Director Lawyer, PBL Law Group

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