04/10/2016, 12:21:PM
04/10/2016, 12:21:PM
Can you withhold payment due to building defects?
Building disputes usually occur as a result of misunderstandings, miscommunication, and lack of documented correspondence confirming changes to details.
So as example, if Party A has contracted with Party B to carryout building works, and these works are defective, can payment be withheld by Party A to Party B?
Withholding of payments by Party A will be dependent on the contract that was signed between the parties. Then if the contract is silent on this point or there is no contract, and the building works are substantially completed, then Party A must pay the contract price even though there are defects that need to be rectified.
However, this is the key point! If Party A has communicated to Party B about the defects, and Party B refuses to rectify the defects that are present, Party A should obtain a quote from another builder immediately to determine the cost of the rectification of the defects, and then as a result of that information, Party A may withhold payment, which is a reasonable dollar amount to rectify the defects that are present.
If Party A is not an experienced trades person in the area of rectification works required, such as plumbing, and if Party A withholds an unreasonable dollar amount from Party B, then Party B will be able to seek a reasonable damages claim against Party A for the payment outstanding under the contract, or verbal agreement.
The important point of withholding payment from a builder for defective work, is what is a reasonable amount to withhold, and this will depend on the facts of the situation in question.
Generally, the owner of building works may only withhold a payment amount, which is the reasonable costs to have the defects rectified.
So as an example, if the contract says the kitchen is to have a gas stove installed, and the builder has failed to install the gas pipe into the correct position per the building drawings, the owner in this circumstance should obtain a quote from another builder or plumber for the cost to install the gas connection in the correct location in the kitchen. If the defective repair quote comes in at $5,800 then this is the amount that may be withheld from the payment to the builder. However, the owner as a courtesy should issue a copy of the quote and a request for the builder to rectify the works at the earliest possible time to the builder. Then if the builder refuses to rectify or communicate on the matter for rectification, the owner then may withhold reasonable payment.
When there are substantial defects in building works, it is important for the owner to commence communication with the builder early to raise the issues and request for rectification of the defects. This communication should be in writing, detailing the issues, and not be in a threatening manner towards the builder. If the builder fails to communicate within a reasonable time on the issues raised, then legal assistance should be obtained to help in the communication with the builder.
If the defects are minor, which are cosmetic, most builders will rectify these issues after the completion of the major works and during the defect notice period. However, if the minor defects are many, then before the last payment is made to the builder, rectification quotes should be obtained from another builder or relevant trades to rectify the defects, and a copy of these quotes then given to the builder that has caused the defects, and a request made for the builder to rectify the same. Then if the builder refuses to rectify the defects, and if the quotes are reasonable on the facts the owner may withhold that payment amount.
The important point is what is a reasonable dollar amount on the circumstance to withhold payment, and this will all depend on the facts of the matter.
When building works are not proceeding in the manner that you expect, you should commence communication with the builder both in verbal and written format early, and if the builder refuses to assist then obtain legal help.
There are various legal arguments that an owner or builder may put forward in a claim and defence. The owner may raise that the building contract is an entire contract and that the builder is not entitled to payment until the works are completed; or the builder has repudiated the contract and the owner is entitled to damages. The builder in their claim may raise that they are entitled to the full contract price and the owner has repudiated the contract; or they owner has not deducted a reasonable estimate for rectifying the defects and the owner has repudiated the contract. Where this situation occurs, in either case each party may pursue damages against each other.
Building defect disputes occur and the best solution is to communicate with the parties of concern at the earliest possible time. Don’t let the problems drag out as that makes the situation worse and costlier in the long term. So take a proactive step when building issues occur, call me, and get that legal advice to protect your legal rights and interests.
The comments in the aforementioned do not constitute legal advice and are general in nature, and if legal advice is required please contact: John Melis at Legal AU Pty Ltd (03) 9999 7799
Legal AU Pty Ltd Lawyers are “Liability limited by a Scheme approved under Professional Standards Legislation.”
