When Builders Go Into Liquidation: What Can You Do?
It’s no secret we’re in the middle of a construction crisis. The supply chain is choked, material costs have increased, labour costs have increased, and inflation is up. As a result, many building projects have grounds to a halt. In some instances they have stopped completely and permanently. So, what can you do when builders go into liquidation?
Watching the news, it seems that every few weeks another major building company goes into liquidation: That’s not even considering the smaller builders who are in the same dire straits. This is causing significant grief for homeowners across the country. If you’re a home owner in this situation, you’re probably experiencing a high level of both emotional and financial stress as your dream suddenly turns into a nightmare, and your home remains unfinished.
Let’s Look At What Safeguards Are In Place, What Your Options Are, And Next Steps.
By law, if your home building work, is valued at more than $20,000, your builder, must have insurance under the Home Building Compensation Cover, also known as Home Warranty Insurance. This protects you, as the home owner, if the builder is unable to complete the work.
A builder must have this coverage where there are alterations, renovations of residential buildings, building of a house, duplex/triplex, residential multi-unit building up to 3 storeys high, or a home-related structure such as a pool or a garage. The cover must be in place before any payment exchanges hands. This even includes the deposit before the work starts. You should have received a copy of your certificate of cover when your builder gave you your contract.
If you can’t find it, or are unsure if you received one, you can check the state register. Read more about the register and how it works (it also tells you what to do if you can’t find the certificate of cover). You can check the actual register here.
It's important to understand your position and check if you have a valid certificate. If you do recieve a valid certificate, the work on your home won’t be covered and you might not be able to recover your money. (Even if your builder isn’t in liquidation, it might be worth checking the status of your cover for your own peace of mind.)
Payments To The Builder
A couple of words of CAUTION.
- Ensure you haven’t paid more than 10% of the total contract price as a deposit before work commenced. Amounts above the 10% might not be covered under the compensation scheme.
- Don’t enter into a separate agreement or upfront payment scheme with the builder. Again, these might not be recoverable.
Let’s Talk About Progress Payments
Your contract, with the builder, should set out the circumstances in which payment is to be made. These payments are known as ‘progress payments’.
Make progress payments that are authorised only in the following circumstances:
- Your contract sets out each stage of work and the amount or percentage of the overall contract value is payable once each stage has been completed.
- The contract allows fixed payments to be made at specific periods of time or where the payment is made for labour and materials for work that’s already been completed. Of course, invoices and receipts should be provided.
If you make an extra or early payment outside this, you might not be able to recover those payments under the compensation cover.
Stay On Top Of Issues After Completion
Defects may become apparent after a project is completed. Under the Home Building Act 1989, you have a right of action: Within six years for significant issues, and two years for smaller ones. If you see any problems, raise them quickly with your builder, don’t procrastinate. Remember you can get help from NSW Fair Trading if you don’t get the response you need.
How Can CM Law Help You?
If, you receive a call or email, that your builder has gone into liquidation, come and see us as soon as possible. Construction contract disputes can be extremely stressful and particularly where you’re dealing with builders in liquidation.
For you as an owner, this is both a financial and emotional issue as you face the fear of losing a significant amount of money. Legal help is critical. CM Law is here to protect you and your family’s interests. We’ll work through all the steps with you and give you the guidance you need to protect your assets.
If you’re reading this article and hesitating about building your own house, contact us. CM LAW can provide special legal advice for construction contracts. You can rest assured that your dream home will indeed come to life and you can rest easy.