An Overview on Domestic Building Contracts
As the principal Victorian domestic building legislation, the statutory intention of the Domestic Building Contracts Act 1995 (Vic) is to regulate domestic building contracts, domestic building disputes, and insurance requirements expected of builders when carrying out domestic building work. The Act also prescribes standards for the carrying out of domestic building work. This intent to regulate domestic building work is expressly stated in the statute’s objectives:
….to provide for the maintenance of proper standards in the carrying out of domestic building work in a way that is fair to both builders and building owners.
In this article, we address the frequently asked questions amongst owners, builders and property developers, including:
What is a domestic building contract?
What is the difference between a domestic building contract and major domestic building contract?
How is domestic building work related to domestic building contract?
Are there exceptions to domestic building work?
What are the statutory warranties that form part of a domestic building contract?
When is a cost-plus contract permitted as domestic building contract?
What is a prime cost item and provisional sum in a domestic building contract?
What is a domestic building contract?
The Act prescribes a statutory meaning for a domestic building contract, and this is defined as:
A domestic building contract is a contract to carry out, or to arrange or manage the carrying out of, domestic building work other than a contract between a builder and a subcontractor.
Furthermore, common types of domestic building contracts can take various forms, including:
- New Home Contracts
- Alterations & Additions Contracts
- Minor Works Contracts
- Small Works Contracts
- Cost Plus Contracts
- Preliminary Agreements
What is the difference between a domestic building contract and major domestic building contract?
A major domestic building contract is also a domestic building contract. The difference between the two types of contracts is that a major domestic building contract has a stated contract price to be qualified. In summary, a major domestic building contract is a domestic building contract in which the contract price for the carrying out of domestic building work is more than $10,000.
In other topics, we generally describe how variations may be performed and the statutory requirements expected to be complied. Those include:
- “Can an owner change a domestic building contract?”, explores generally how a building owner may vary or make changes to a domestic building contract.
- “Can a builder vary a domestic building contract?”, explores generally how a builder may vary or make changes to a domestic building contract.
How is domestic building work related to domestic building contract?
The statutory meaning of a domestic building contract requires that the contract relates to domestic building work. The Domestic Building Contracts Act 1995 (Vic) regulates and provide meaning to the kind of domestic building work that the Act applies. In summary, domestic building work includes:
| Domestic Building Work | Summary |
|---|---|
| Home | Domestic building work may apply to the erection or construction of a home, including renovation, alteration, extension, or repair. Furthermore, domestic building work may also extend to the demolition or removal of a home. |
| Landscaping and Structures | Domestic building work may include landscaping, paving or erection or construction of retaining structures, driveways, fences, garages, workshops, swimming pools or spas that is to be carried out in conjunction with the renovation, alteration, extension, improvement or repair of a home. |
| Residential | Any work associated with the construction or erection of a building on a land zoned for residential purposes under Victoria’s planning schemes and a building permit is required. |
| Site Work | Certain kinds of site work that are within the ambit of the statutory definition of domestic building work. |
| Preparations | Certain kinds of preparation with plans or specifications for the carrying out of work within the ambit of the statutory definition of domestic building work. |
| Regulations | Any work that regulations state is domestic building work for the purposes of the Act. |
Read More: “What is domestic building work in Victoria?” provides an overview on the meaning of domestic building work, and when the Domestic Building Act 1995 (Vic) may apply.
Are there exceptions to domestic building work?
There are exceptions that carve-out certain kinds of building work as not being the kind of building work that is regulated by the Domestic Building Contracts Act 1995 (Vic). This may include building work in relation to farm buildings, buildings intended to be used only for business purposes, or buildings intended to be used only to accommodate animals.
Outside of the Act, exceptions to domestic building work are also prescribed in the Domestic Building Contracts Regulations 2017 (Vic). The exceptions in the regulations may include exempting building work that relate to work carried out under a contract for one type of certain building work and work carried out in relation to certain buildings and premises.
Read More: For more information about domestic building regulations, “What is the Domestic Building Contracts Regulations 2017?” provides an introduction to the format and layout of the regulations.
Do you need legal advice? Let’s start a conversation to address your queries. Call us on (03) 5331 1244 to get in touch and arrange an appointment with one of our lawyers.
You can also connect with us by filling out your details and telling us about your information for legal advice below:
What are the statutory warranties that form part of a domestic building contract?
To ensure appropriate standards as to building work, the Domestic Building Contracts Act 1995 (Vic) prescribes implied statutory warranties for building work carried out under a domestic building contract. These statutory warranties form part of every domestic building contract
The statutory warranties are thematically summarised in the table:
| Statutory Warranties | Summary of Statutory Warranties |
|---|---|
| Proper and Workmanlike | Building work should be carried out in a proper and workmanlike manner and performed in accordance with a contract’s plans and specifications. |
| Materials Supplied | All materials to be supplied by the builder for use in the building work should be good and suitable for the purpose that they are used. Unless otherwise stated in the contract, those materials supplied should be new. |
| Compliance | Building work should be carried out in accordance with all laws and legal requirements. |
| Reasonable Care and Skill | Building work should be carried out with reasonable care and skill and should be completed by a date or period specified in the contract. |
| Suitable for Occupation | If building work involves erection or construction of a home, or is building work intended to renovate, alter, extend, improve or repair a home to a stage suitable for occupation, then the home should be suitable for occupation when the building work is complete. |
| Fit for Particular Purpose | If the contract states a particular purpose for the building work required, and there is reliance by the owner on a builder’s skill and judgement, then the building work and any material used in carrying out that building work should be reasonably fit for that purpose or should be of such a nature and quality that the builder might reasonably be expected to achieve that result. |
What are the penalties if a person enters into a major domestic building contract without registration?
Before a major domestic building contract is entered between a builder and an owner, there are obligations that the person carrying out the building works must comply. For example, the person carrying out domestic building work must not enter into a major domestic building contract unless:
- the person is a registered building practitioner; and
- the person’s registration authorises the person to carry out the work.
There are significant penalties involved for contravention when entering into a major domestic building contract without proper accreditation or registration. This involves penalties comprising 500 units for a natural person and 2500 penalty units for body corporate. Furthermore, a person in contravention is at risk of not being entitled to payment under the contract unless they meet certain exceptional circumstances.
Read More: “What is a major domestic building contract in Victoria” explores the contents contained in those kinds of contracts.
When is a cost-plus contract permitted as a domestic building contract?
While fixed price or lump sum contracts are common, generally, at law, builders may not enter into a cost-plus building contract for domestic building work. In summary, a cost-plus contract is a contract based on work carried out on the net cost, plus a margin. A builder may be permitted to enter into a cost-plus contract for domestic building works if they meet exceptions requirements.
Examples of the exceptions when a cost-plus contract may be permitted is illustrated in the table below:
| Periods | Summary |
|---|---|
| Before 1 August 2017 | Cost-plus contracts for work entered into before 1 August 2017 that is reasonable estimated to cost $500,000 or more. |
| On or after 1 August 2017 | Cost-plus contracts entered into on or after 1 August 2017 that are reasonably estimated to cost $1,000,000 or more. |
| Public construction | Domestic building contracts, as cost plus contracts, for public construction where the Crown or a public entity is a party to the Contract. |
Further, cost-plus contracts may be permitted if there is a contract involving renovation, restoration or refurbishment of an existing building and it is not possible to calculate the cost of a substantial part of the work without carrying out some domestic building work.
- “When is an agreement legally binding in Australia?”, introduces the legal elements that constitutes a legally binding agreement.
- “How is a contract frustrated in Australia?”, explores the legal concept relating to frustration, and how frustration may affect a contract.
- “What is an enforceable contract in Australia?” provides an overview of a contract, the content of a contract, and how a contract may be affected.
- “What is an express term in a contract?”, explores the general legal principles relating to express term and its relationship with contracts.
- “What are implied terms in Australia?” explores the general legal principles relating to implied term and its relationship with contracts.
- “What is termination of contract in Australia?” provides an overview on the legal concepts involving termination of contract.
- “What is Consideration in Australian contract law?” provides an overview on the legal meaning of consideration.
- “What is an intention to create legal relations?” introduces the legal concept of intention, as an essential part in the formation of contract.
- “What is Certainty in Australian contract law?” explores the meaning of completeness and certainty, and their relevance to contract law.
- “What is Repudiation in Australian contract law?” summarises the legal concept of repudiation and how it applies to contracts.
- “What is Privity of Contract in Australia?” introduces the concept of enforceability of contracts between relevant parties.
- “What is the Classification of Terms in a Contract?” provides an overview on the different types of contractual terms.
- “What is Causation in Australian Contract Law?” explores the principles of causation in contract law.
What is a prime cost item and provisional sum in a domestic building contract?
Prime costs items and provisional sum may be incorporated into the contents of a domestic building contract. The terms, prime cost items and provisional sum, are given statutory meaning, and the terms are summarised in the table below:
| Types | Summary |
|---|---|
| Prime Cost Item | In summary, prime cost items are items that either has not been selected, or whose price is not known, at the time a domestic building contract is entered into. However, the cost of the supply and delivery of prime cost items must be made with reasonable allowance in the contract. |
| Provisional Sum | In summary, a provisional sum is an estimate of the cost of carrying out particular works (including labour and materials). After making all reasonable inquiries, this estimate sum is made when a builder cannot give a definite amount at the time the contract is entered. |
Notes and Further Information
On other discussions relating to issues on domestic building work and construction, our topics include:
- What is the Domestic Building Contracts Act 1995?” provides an overview to the format and layout of the Act.
- “What is domestic building work in Victoria?” explores what is domestic building work and the kind of statutory warranties that may apply to domestic building works.
- “What is the National Construction Code (NCC)?” provides an introductory overview as to the application of the Code.
- “What is the Building Code of Australia (BCA)?” explores as an overview the relevance of the Building Code of Australia in Victoria.
- “What is the National Construction Code used for?” provides a general overview on the technical requirements regarding construction and built form.
- “What are building classes?” introduces the different classes of buildings as classed in the National Construction Code.
- “What are performance requirements in construction?” provides an introduction to the concept of performance requirements in the National Construction Code.
Related Entries
Domestic Building Work | Domestic Building Contracts Act 1995 | Domestic Building Contracts Regulations 2017 | Major Domestic Building Contract | Variation (Owner) | Variation (Builder) | Domestic Building Insurance | Progress Payments | Variations (General) | Termination | Repudiation | Causation | Damages | Liquidated Damages and Penalties |
Questions
If you are looking for legal expertise and have any questions, connect with an author or a member of our building and construction team.
Do you need legal advice? Call us on (03) 5331 1244 to get in touch and arrange an appointment with one of our lawyers.
You can also connect with us by filling out your details and telling us about your information for legal advice below:
Authored by:
Ben Franklin, Managing Partner (LIV Accredited Specialist – Property Law), & Matthew Tran, Lawyer.
