Timothy Wright, Commercial Litigation Lawyer at Attwood Marshall Lawyers, examines homeowner rights amid the growing number of builders terminating residential contracts under the pretext of a purported breach of contract by a customer, and then threatening to abandon the project unless the customer pays more money.
The construction industry is facing several challenges affecting homeowners and builders alike. One emerging trend is builders terminating fixed-price contracts and forcing their customers to pay more to enter a new deal so that their house can be built. In this blog, we explore why builders are terminating contracts, how this impacts homeowners and the industry, and what steps a homeowner can take to protect their interests.
The trend is a concern for homeowners as it can lead to delays, cost overruns, and even the abandonment of projects. It is also a concern for the construction industry as a whole, as it is damaging the reputation of builders generally and making it difficult for homeowners to find reliable contractors.
Some experts have suggested that builders are terminating contracts to reduce their workload, having taken on too many projects and now fearing they cannot complete them.
Supply chain delays and a growing gap between the price of the initial deal and soaring costs for materials and labour are both strong contributors. Indeed, tough trading conditions have forced many building and construction companies to go under.
Metricon is one prominent building company that continues to make the headlines over its decision to cancel dozens of fixed-priced contracts.
In one case, Metricon terminated a retired couple’s fixed-price contract for the construction of their ‘forever home,’ saying they would need to pay an extra $266,000 in fees for a new contract – more than 50 per cent higher than the original contract ‘fixed’ price. The same report also alleged that Metricon has been withholding agency commission fees.
Many homeowners have said that building companies have terminated their contracts unfairly or not given them enough time to rectify the alleged breach before terminating.
According to the NSW Fair Trading Complaints Register, 85 complaints have been filed against Metricon since March 2023. Seventy-four of them relate to “quality of service.” In the 12 months before that, there were only 14 complaints recorded against the company. NSW Fair Trading also launched an investigation into the builder last year.
The financial and emotional strain of dealing with such a dispute is vast, and homeowners in similar situations should know they have rights.
Termination techniques
According to reports, Metricon has been terminating contracts by claiming that the homebuyer has breached various contract clauses, such as not providing finance details from a lender.
The building company has also refused to return deposits unless the customer agrees to a new, more expensive contract.
Building companies have increasingly applied pressure tactics, creating urgency and providing customers with insufficient time or resources to assess their situations. Many customers seem aware they may have valid claims or could contest contract terminations, but they often hesitate due to the perceived effort and cost required for a resolution. This pressure and urgency can overwhelm customers when considering their rights.
The way contracts are being terminated varies. Generally speaking, the process is as follows:
- A party is in breach of a contract, or is alleged to be in breach of the contract;
- The non-breaching party issues a notice to remedy the breach, setting out the breach and how to remedy it;
- The breaching party fails to remedy within the specified timeframe, and
- The non-breaching party issues a termination notice.
Ideally, anybody who is issued with a notice to remedy a breach and is trying to understand what it means, what the effect of it will be, or what the breach relates to should seek advice from an experienced lawyer specialising in contract disputes before taking further action.
Real-life case example
We recently acted for a homeowner who had to delay the commencement date of their project due to another third party’s breach of contract and negligence.
There was a clause in the building contract stating that if a delay from the homeowner resulted in a missed commencement date, the builder had the right to issue a variation notice (i.e., a price increase), which must be signed, failing which the builder had a right to terminate.
The client received two variation notices. The client did not sign the variation notices as the client could not afford the additional amount. So, the builder issued a notice to remedy. The client failed to comply, so the builder terminated the contract and is now suing the client for the costs incurred up to the termination date.
In addition, the builder had already ordered the trusses and frames for the project and put them in storage. The cost for those items also formed part of the claim, notwithstanding the builder had possession of them.
Ultimately, each dispute will turn on the facts of the case. If a homeowner receives a termination notice or a notice to remedy breach, the homeowner should immediately seek trusted legal advice.
Know your rights
What do you do when a builder terminates? Is there recourse to compensation?
The contract’s terms and conditions will often determine the answer to these questions.
If the builder has wrongly issued a breach notice or enacted a termination, the homeowner may:
- Accept the termination as a repudiation of the contract and sue the builder for damages – all monetary losses incurred by the homeowner resulting from builder repudiating the contract, or
- Commence proceedings for specific performance – i.e., seeking a court order to hold the builder to the contract.
Note that with point 1, the builder can usually offset unpaid labour and material at the time of termination; but it depends on each contract. Some fixed-price contracts may prevent contractors from demanding payment for increased labour and material.
Builders cancelling contracts or asking the homebuyer to pay tens or hundreds of thousands of dollars on top of the agreed price is not an entirely new practice. In 2022, the Queensland Building and Construction Commission warned homeowners to seek legal advice when faced with demands from their builders for extra funds, reminding them that laws are in place to protect homeowners in disputes with struggling builders.
The regulator made the statement after several Queensland builders went under, and there were increased reports of companies asking for an extra $50,000 to finish homes.
QBCC’s Home Warranty Scheme protects homeowners in Queensland, offering payouts of up to $200,000 if a new home is not finished due to contract termination or builder insolvency.
Other states and territories have similar compensation schemes, such as Home Building Compensation Cover in New South Wales or Domestic Building Insurance in Victoria.
Attwood Marshall Lawyers – experts in the building and construction sector
Homeowners shouldn’t sign a building contract without having a comprehensive understanding of their rights and responsibilities. It’s best to get legal advice from a qualified construction lawyer before signing the dotted line to protect your interests. This will help you understand the contract, identify potential risks, and negotiate necessary changes.
Don’t let a dispute with your builder ruin your dream home.
With a team of specialist construction litigation lawyers and a strong understanding of the legal options available to its clients, Attwood Marshall Lawyers is well-versed in assisting homeowners and builders in resolving disputes that arise throughout construction.
If you are involved in a building and construction dispute, please get in touch with our Department Manager, Amanda Heather, on (07) 5506 8245, email aheather@attwoodmarshall.com.au or free call 1800 621 071 to find out where you stand.
Our team is available at any of our conveniently located offices at Robina Town Centre, Coolangatta, Southport, Kingscliff, Brisbane, Sydney, and Melbourne.
