Homeowners: Do you have this clause in your Building Contract?

In the course of acting for (Homeowners) against BGC Residential Pty Ltd (BGC) and its associated entities, Vogt Legal has become aware of the (Proviso) often included at the end of clause 11(b) of BGC’s building contracts:

In determining whether there is any shortage in the supply of materials or labour for the purpose of this clause, the Builder shall not be under any obligation to pay more for labour and materials than budgeted for by the Builder in determining the Contract Price in order to secure labour and materials.

Clause 11(c) of BGC’s standard (Building Contract) permits the (Builder) to extend the time for completing the Works for any cause specified in clause 11(b).  In turn, clause 11(b)(vii) permits the Builder to extend the time for completing the Works for “any delay in the supply of materials or shortage of labour”.

Effect of Proviso

By reliance on the Proviso, if there are any market price increases whatsoever in the cost of labour and materials between:

1. the contract date; and,
2. any point in the progress of the Works up until practical completion, in which the Builder is required to procure labour or materials,

the Builder may consider there is a “shortage” in the supply of materials and labour, delay acquisition of those materials and labour, and issue a Homeowner with an extension of time.  

Therefore, by reliance on the Proviso, the Builder may indefinitely issue a Homeowner with extensions of time, until market prices for labour and materials have decreased to the prices for which the Builder budgeted when it entered the Building Contract.

The Proviso is unconscionable

Section 15 of the Home Building Contracts Act 1991 (WA) (HBCA) prohibits a builder from entering into a contract that contains a provision that is unconscionable, harsh, or oppressive. 

Under section 41(3)(b) of the Building Services (Complaint Resolution and Administration) Act 2011, if there is a breach of section 15 of the Home Building Contracts Act 1991, the State Administrative Tribunal can make a home building work contract order declaring the unconscionable clause of the contract to be void, unenforceable, and severed from the contract.

A Homeowner enters into a Building Contract for the purposes of obtaining a home, a residence in which they can safely live, provide for their basic needs of shelter, and in many cases, raise children.  Despite these imperative reasons for a Homeowner obtaining the dwelling home for which they contracted, the Proviso enables the Builder to:

1. effectively hold the Homeowner hostage over matters completely outside of a homeowner’s control; and,
2. prioritise the maximisation of profit over the Homeowner’s need for shelter, and need to procure such shelter within a reliable time of entering into a Building Contract.

In our view, the Proviso is unconscionable and contrary to section 15 of the HBCA, where the HBCA applies.  

Decision in Campeanu

In the decision of Carmen Campeanu v BGC Residential Pty Ltd (1 November 2005) (Campeanu) in the former Building Disputes Tribunal, Deputy Chairperson Forrester considered a (Clause 11) that had an identical effect to the Proviso.  At paragraph 2.5 of Campeanu, in reference to Clause 11, Deputy Chairperson Forrester noted:

Further the Builder under the proviso to sub-clause 11(b) has no obligation to pay higher rates or charges for materials or labour, than those assessed in its budget for the house, which budget is not provided to the Proprietor.  Again it is said that there is no requirement on the Builder to compete in the marketplace for labour in particular at a higher rate required by current market forces.  It can wait until there is a downturn in demand or until such individuals as are contracted to the Builder at the predetermined rate become available.  At face value clause 11 could be considered in the light of section 15 of the Home Building Contracts Act referring to clauses that are unconscionable in the circumstances.  However it is not necessary in this case because consideration can be given to the meaning of the sub-clause 11(c) within the context of the clause as a whole (my underlining added for emphasis).

The decision in Campeanu turned on the builder’s failure to give the homeowner notice of extensions of time within a reasonable period of time, rather than the unconscionability of Clause 11.  Nevertheless, the Deputy Chairperson’s comments provide some authority for the proposition that the Proviso is unconscionable and ought to be declared:

1. void;
2. unenforceable; and,
3. severed from the relevant building contract.

Counteracting the Proviso

Homeowners who are considering or have commenced legal proceedings against the Builder for the recovery of damages from a delay in achieving practical completion, subject to the circumstances and available evidence, ought to:

1. put the Builder to proof in respect of each and every of its claims for an extension of time; and,
2. seek a declaration that the Proviso is unconscionable and contrary to section 15 of the HBCA, as a means of undermining the Builder’s capacity to rely on any claimed extensions of time.

For further information, get in touch today for a free initial legal consultation.

This article/post is provided for general information purposes only and does not constitute any Legal Advice. It does not take into account your objectives, instructions or all of the relevant facts and/or circumstances. Will Vogt or Vogt Legal accepts no responsibility to any persons who relies on the information provided on this website.