There is a spate of insolvency activity in Victoria at the moment, where some house hold name builders have gone into administration.
This is leaving a large number of incomplete projects in the construction sector at various stages of completion.
So what to do?
Firstly, consideration needs to be had to the terms of the building contract with respect to an insolvency intervention and the contractual consequences of insolvency.
Insolvency in many contracts is one of the grounds for contractual termination ‘but the devil will always been in the detail’ and one is best advised to ‘lawyer up’ from the get go and take advice on the contractual mechanisms that apply to insolvency events.
Termination notices need to be drafted with great care to ensure that, that which is stated in the termination notice is on point and clear. Further, a wrongful termination at law can be found to be repudiatory.
Get in touch with the Relevant Building Surveyor
The building surveyor should be notified as they need to be informed of the stage of the building work. In certain instances, the RBS may issue a building notice on the building site if per chance there is a palpable risk to life and limb.
The site should also be secured and resort to an insurance broker is prudent to ensure that all insurances that may have been in play are operational and if not, reinstated.
Home warranty cover entitlement
In Victoria, residential building work valued at $16,000 or more must be insured.
Insolvency or the disappearance of the builder is an indemnity trigger event, so the home owner should be able to claim indemnity from the insurer.
In this regard, it is prudent to speak to your lawyers to get advice on the indemnity provisions of the insurance policy.
What is the cover?
Term of cover
The warranty cover provides 6 years worth of cover up to an amount of $300,000.
But note the scope of the warranty indemnity and the time limits.
- There is 2 years of cover for non-structural work.
- And an additional 4 years of warranty cover for building work of the structural derivation [1].
- In addition, the home owner can claim up to 20 per cent of the contract price for incomplete building work.
So get in touch with the insurer without delay, get hold of the policy if you haven’t already been given a copy. You are best advised to take legal advice on it’s import and coverage. A claim should then be lodged with alacrity and in accordance with the terms of the policy.
Secure the site
Arrange for appropriately skilled personnel to cordon off the site and to make safe any part of the site that could pose risk to life or limb. Get advice from a building consultant on to how best to protect that which is exposed to and could be affected by inclement whether mindful of the fact that winter is imminent and exposure to the elements can have a deleterious impact on incomplete building work.
Some considerations down the line
If the contract has been correctly terminated at some stage, a new building contract will need to be entered into. Of course if the work is for more than $16,000 it must be a compliant building contract.
Further the RBS will need to be notified of the new building company and the building practitioner.
Be Mindful of section 16 of the Building Act
It is illegal to carry out work without a building permit and it is likewise illegal to carry out work that is at odds with a building permit. Although a building permit will have been issued any subsequent building work carried out must be in accordance with the strictures of the building.
Advice should also be sought with regards to those practitioners that are registered to do the building work and moreover depending on the quantum of work involved, if it is more than $16,000 there will need to a compliant building contract entered into.
It would be prudent to engage a reputable building consultant early on
If the budget allows it, it is wise to engage a building consultant to
- Inspect the site
- Get a snap shot of the stage of the site
- Take photos of same
- Give advice on any immediate work that may need to be done to alleviate risk
- Quantify completion costs
Finally if budget permits ‘lawyer up’ as much is at stake and one is best advised to avail oneself of a construction lawyer well versed in the law on point.
This is a Lovegrove and Cotton publication.
Disclaimer
This article is not legal advice and discusses it’s topic in only general terms. Should you be in need of legal advice, please contact a construction law firm. The experienced team at Lovegrove & Cotton can help property owners and building practitioners resolve any type of building dispute.
References:
[1] Consumer Affairs Victoria, ‘Implied warranties and domestic building insurance – checklist‘