Terminating a domestic building contract

Entering into a domestic building work contract is like getting married – if both parties do not act in good faith the ensuing divorce can be very messy. While Part 5 of the Queensland Building and Construction Commission Act 1991 (Act) establishes a statutory insurance scheme, the purpose of which is in certain situations to provide assistance to consumers of domestic building work, earlier articles by Dundas Lawyers have illustrated the pitfalls associated with trying to get out of a domestic building work marriage.

Requirements for a home warranty insurance claim

Under section 67X of the Act, the purpose of the Queensland Building and Construction Commission (QBCC) home warranty insurance scheme is to provide assistance to consumers of domestic building work for loss associated with work that is defective or incomplete. Before a home warranty insurance claim for incomplete domestic building work will be accepted, the contract must have been validly terminated.

Even if a claim is accepted, an aggrieved builder has a right to have that decision reviewed, at first instance internally by the QBCC and thereafter by the Queensland Civil and Administrative Tribunal (QCAT).

Strict time limits apply in that:

an internal review application must under section 86B of the Act generally be made within 28 days of the reviewable decision having been communicated; and
an external review application to QCAT must generally be made under section 86D of the Act within 28 days of the internal review decision having been communicated.

When considering an external review application in respect of a home warranty insurance claim, QCAT will consider threshold issues, such as whether the domestic building contract was validly terminated, as illustrated in the case of Harper Property Builders Pty Ltd v Queensland Building and Construction Commission [2020] QCAT 56 (Harper Property).

Background to the review application in Harper Property

On 28 June, the homeowners served on the builder a contractual notice of substantial breach referencing an attached supporting expert’s report with photographic evidence. The homeowners asserted the works were defective, in that the screw pile pad footings and their connections to SHS columns they were intended to support had not been installed:

in an appropriate and skilful way;
with reasonable care and skill;
in accordance with plans and specifications;
with reasonable diligence; and
in accordance with all relevant laws and legal requirements.

On 12 July the builder claimed compliance with the notice within the required 10 business days and on 14 July a Form 16 certifying that remedial work in accordance with structural engineering drawings was issued.

On 19 July the homeowners terminated the contract. Subsequent expert reports identified additional defective work. After internal review by the QBCC, the builder was advised the homeowners’ home warranty insurance claim had been accepted.

QCAT’s findings

In its review application to QCAT, the builder submitted it only had to rectify the specific pad footings and their connections to the SHS columns as identified in the notice. Other substantial breaches not identified in the notice but otherwise referred to in the supporting expert’s report did not have to be attended to in order to satisfy the terms of the notice.

QCAT accepted the builder had completed that rectification work by 12 July, but that was based on the builder’s interpretation of what was required under the notice. QCAT held it was fanciful to suggest that defects not identified in the notice but incompetently installed on obvious inspection and evidenced in the report supporting the notice, need not have been rectified in order to satisfy the substantial breach notice. Accordingly, the homeowners were within their contractual rights to terminate the contract.

However, QCAT observed the homeowners were not able to avail themselves of the right to terminate the contract at common law at the time of giving the notice on 28 June. The builder argued the homeowners could not rely upon an undisclosed ground of termination if there was a contractual precondition for notice to be given and an opportunity for it to remedy the default. While there was authority that at common law an innocent party who terminated on one ground may rely upon another unknown available termination ground, this is tempered in that it can only apply in a form adapted to conform to the contractual requirements for a valid avoidance of the contract.

A breach consisting of mere negligent omissions or bad workmanship where the work is substantially completed does not go to the root of the contract. In this instance the contract provided a contractual basis for termination in circumstances where the builder refused to remedy defective work. As the contract expressly provided for termination, the right of termination was one created and defined by the parties contract.

The notice was not in the opinion of the Tribunal sufficient notice to the builder of the wider basis for termination and it required a greater degree of specificity in order to enliven more general common law termination rights.

Takeaways

Homeowners need to take care when drafting notices alleging breaches of a building contract to ensure compliance with the contract terms to be invoked in reliance upon termination rights.

Further references

Further information about termination of building contracts

If you need assistance regarding the termination of building contracts, please telephone me for an obligation free and confidential discussion.

Mitch Brown
Dip.T.,BA.,LL.B.,MQLS.
Legal Practice Director – Dundas Lawyers Gold Coast Pty Ltd
Telephone: 07 5646 9174
Mobile: 0420 205 105
e: mbrown@dundaslawyers.com.au
1300 386 539 | 1300 DUN LAW

Disclaimer

This article contains general commentary only. You should not rely on the commentary as legal advice. Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.