Important Legal Considerations when Buying or Selling Residential Property during the COVID-19 Pandemic

Buying or Selling Residential Property during the COVID-19

There is currently a great deal of uncertainty as to just how great of an impact the COVID-19 pandemic will have on the residential property market. With the real possibility of a second wave of the pandemic reaching QLD, there are also contractual issues which those who are currently engaged in the buying/selling process need to consider.

One of the most common questions we are receiving at the moment is ‘what happens if a party is unable to complete a Contract of Sale due to the impact of COVID-19?’ The answer will always depend on the individual Contract however given the vast majority of residential property sales are conducted using the standard form REIQ Contract, it is prudent to be aware of how this particular contract deals with the issue.

The REIQ Contract specifies that time is of the essence. This key concept means that by not completing the Contract (i.e. settling) on the due date, you may find yourself in breach of an essential Contract term, entitling the other party to terminate the Contract and sue you for damages.

The Contract does however contain a provision that will, in certain circumstances, suspend the parties’ obligation to complete the Contract and make time no longer of the essence. In order for these obligations to be suspended, a Delay Event must have occurred. A Delay Event is defined in the Contract as the following circumstances:

1. A tsunami, flood, cyclone, earthquake, bushfire or other act of nature;
2. Riot, civil commotion, war, invasion or a terrorist act;
3. An imminent threat of an event described in the above two paragraphs; or
4. Compliance with any lawful direction or order made by a Government Agency.

Whilst there may be a possibility in very limited circumstances for a COVID-19 related delay to fall within the scope of paragraph 4 above, in most instances the types of delays encountered as a result of COVID-19 are very unlikely to be classified as a Delay Event. Therefore, in most cases, a failure to settle on the due date as a result of COVID-19 will not prevent you from breaching an essential condition of the REIQ Contract and exposing yourself to considerable legal risk.

The simplest solution to avoid any unnecessary risk is to negotiate the insertion of a special condition into your contract prior to signing. An appropriately drafted special condition will ensure that the common COVID related delays will suspend your settlement obligations until such time as completion of the contract becomes possible.

Please note that the advice contained in this article is general in nature. If you are considering buying or selling residential property in these uncertain times, contact Rostron Carlyle Rojas Lawyers prior to signing a contract of sale. Our team will be able to review your contract, provide legal advice tailored to your individual circumstances and ensure you are adequately protected against the uncertainty posed by COVID-19.

Guide For Buying Or Building A New Home

Purchasing a new home, building a new home, or renovating a home? Here is the ultimate guide to all grants and concessions available in Queensland.

What is available?
Grants
• HomeBuilder grant: $25,000.00
• Queensland First Home Owners’ Grant: $15,000.00
• Regional home building boost grant: $5,000.00
Stamp duty Concessions
• First home concession
• Home concession
• First home vacant land concession
Scheme
• First home loan deposit scheme

Queensland Government Financial Grants

Grants and eligibilities below are only available for Queensland property purchases

Guide For Buying Or Building A New Home Table

*if you buy an off the plan dwelling after 4 June 2020, and the construction of the home commenced before 4 June 2020, then the home does not qualify for HomeBuilder.

Queensland Stamp duty Concessions

Queensland Stamp duty Concessions

You might not lose the concession because of an intervening event. We can apply on your behalf in writing to the Commissioner of State Revenue explaining these reasons.

First home loan deposit scheme

The scheme and eligibilities apply throughout Australia. It is important to note that an application for this scheme can only be made by banks who the Government have selected can participate in the scheme. The banks are listed in the link: https://www.nhfic.gov.au/what-we-do/fhlds/how-to-apply/#FHLDSlenders
First home buyers with less than 20% of deposit will need to pay lenders mortgage insurance. With the scheme eligible first home buyers can purchase a home with 5% deposit. This is subject to lenders criteria.

To be eligible you must satisfy the below: –
– Australian Citizen;
– At least 18 years of age;
– You and your spouse never owned a residential property before;
– Purchase as an individual (not company or trust);
– Must be purchasing a residential property in Australia;
– Must live in the property as your principal place of residence;
– Taxable income must be below $125,000.00 for individual or $200,000.00 as a couple for the preceding financial year;
– Must purchase within the price threshold; and
– You must demonstrate savings equivalent to at least 5% but not more than 20% of the residential property you intend to buy.

To determine whether a buyer is eligible to any of the grants, concessions and schemes it is important to assess each situation on a case by case basis. Whether you are eligible will be determined by your individual circumstances.

Rostron Carlyle Rojas Lawyers can explore your options with you ensuring that you gain the most out of the government Grants and Concessions available. If you have any questions or would like more information regarding the above please contact any of our property experts below.

NameEmailDirect number
Gerard Thorpe (Special Counsel)[email protected](07) 3009 8476
Ying Ying Tay (Senior Associate)[email protected](07) 3009 8451
Jessica Lee (Lawyer)[email protected](07) 3009 8422

Build-to-Rent: NSW Government’s new scheme aimed at tackling affordability

In a continued effort to support COVID-19 recovery and boost a struggling construction industry, the NSW Government will half land tax for developers of build-to-rent housing for the next twenty years.

A ‘build-to-rent’ model, which is well established in the United States and Britain, refers to a residential development scheme where the developer retains rather than sells off units and acts as the property manager. In the Government’s recent media release, NSW Treasurer Dominic Perrottet said that “Build-to-rent is popular overseas but still in its infancy in Australia, and we want to remove barriers and allow this segment of the market to grow”.

To be eligible for the land tax reduction, build-to-rent developments in metropolitan areas must be at least 50 units, unified under single ownership and include options for long tenancies. Construction of the development must also have commenced on or after 1 July 2020. It is expected that the Government will release the full eligibility criteria, as well as confirm the requirements for regional areas, in the coming weeks.

The NSW Government hopes that the build-to-rent scheme will offer renters greater choice and affordability as well as help boost certainty and jobs in the construction industry as Australia recovers from the economic impacts of COVID-19.

In addition to land tax cuts, the NSW Government is also exhibiting a new streamlined Housing
Diversity State Environmental Planning Policy to help support investment in diverse and affordable housing types, including co-living, short and long-term rentals, and social and student housing. The policy also encourages build-to-rent developments as a means of meeting NSW’s future housing needs. The Housing Diversity policy is on exhibition and inviting feedback until 9 September 2020.

The NSW Government’s full ministerial release can be viewed here.

What is the Government’s New COVID-19 Grant HomeBuilder?

What Is The Government’s New COVID-19 Grant HomeBuilder

Since its much-anticipated announcement in early June, we have received an influx of questions from our clients regarding the Australian Government’s new HomeBuilder grant.

This brief note sets out all you need to know about the HomeBuilder grant.

Why HomeBuilder?

Homebuilder is a government led initiative to cushion and stimulate the residential construction industry from the effects of the COVID-19 pandemic. HomeBuilder aims to encourage the commencement of new home builds and substantial renovations.

How much is the HomeBuilder Grant?

Eligible owner-occupiers (including first home buyers) may be entitled to a grant of $25,000 to either build a new home or substantially renovate an existing home.

Am I Eligible for the HomeBuilder Grant?

To be eligible for the HomeBuilder grant, you must:
• be an Australian Citizen (you must be a natural person; the grant is not available to a company or trust);
• be aged 18 years or older;
• if applying as an individual, have a taxable income of not more than $125,000;
• if applying as a couple, have a combined taxable income of not more than $200,000;
• if you are building a new home that will serve as your principal place of residence, the value of your property must be less than $750,000;
• if you renovating your principal place of residence, the value of your home (prior to the renovation works) must not exceed $1,500,000 and the contract for the renovation works must be between $150,000 and $750,000; and
• sign a contract between 4 June 2020 and 31 December 2020, with construction required to commence on or after 4 June 2020 and within 3 months of the contract date.

Implementation

HomeBuilder will be implemented by respective State and Territory Governments via a National Partnership Agreement with the Commonwealth Government. The relevant State or Territory revenue offices are expected to release information on when and how you will be able to access HomeBuilder.
An imminent release of information by State and Territory revenue offices, on when and how you will be able to access HomeBuilder, is expected. This briefing note will be updated once further information has been made available.

As always, Rostron Carlyle Rojas Lawyers are dedicated to keeping you updated on the continuously evolving COVID-19 situation. If you would like more information on this briefing note, please contact us today on (07) 3009 8444 or email us at [email protected]

Building and Construction Reform Package set to Raise Standards for Residential Developments in NSW

Building and Construction Reform Package set to Raise Standards-Residential Developments in NSW

The NSW Government passed two new pieces of legislation in June 2020, designed to ensure greater standards of construction for residential developments. The Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) (“RAB Act”) and the Design and Building Practitioners Act 2020 (NSW) (“DBP Act”) both attained royal assent on the 10th of June and will commence in stages throughout the next 12 months.

The legislation places a greater onus on the developers and design practitioners by apportioning responsibility to them where a building defect is discovered. The Government hopes the implementation of these Acts will regain public confidence in residential developments after substantial defects in new developments around Sydney made headlines in 2018. The RAB Act is focussed on procedures and bestows powers to the regulator through the development process. While the DPB Act sets out to register and regulate design practitioners; assigning a duty of care and accountability around building defects. We detail the key takeaways of each act below.

The Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) Key Takeaways:

– The RAB Act is the first of its kind in Australia; establishing a requirement for developers to notify the Secretary of the Department of Customer Service (“the DCS”) at least six months, but no more than 12 months, of the intended completion of building work. This is intended to afford the Secretary time to make regular inspections prior to completion. Where a defect is discovered the DCS can withhold a buildings occupational certificate until rectifications are made by the developer.

– The RAB Act allows for a grace period of 60 days if expected completion is advanced or delayed. If the expected completion is moved beyond the grace period, the developer must submit a notice of change to the secretary within one week of his knowledge of the change.

– A failure to correctly file an expected completion notice with the Secretary may result in a maximum penalty of $210,000 for a body corporate or $42,000 in any other case.

– The definition of a “developer” for the purposes of the RAB Act includes “the person who contracted or arranged for, or facilitated or otherwise caused, the building work to be carried out”. If the building work is the erection or construction of a building or part of a building, the owner of the land is also taken to be a developer.

– The RAB Act was assented on 10 June and will commence on 1 September 2020. However, it should be noted that it will retroactively apply to buildings completed within the last six years. The date of the occupational certificate is the relevant consideration.

– If work is, or likely to be in contravention to the Act, the Secretary may issue a stop work order. The RAB Act also sets out the process required to appeal against a stop work order. Proceedings for offences will be taken before the Local Court or before Land and Environment Court. (This applies for the DPB Act as well).

The Design and Building Practitioners Act 2020 (NSW) Key Takeaways:

– The DBP Act introduces a statutory duty of care for the benefit of land owners and places accountability for new and existing defective construction work. Any person who carries out construction work has a duty of care to avoid economic loss caused by defects relating to building or construction work.

– Construction work includes the construction of a building, making alterations or additions to a building, renovations, applying protective treatment, preparations of design, and building products used for the development of residential buildings.

– The DBP Act states that any design practitioner who makes a compliance declaration must be registered and qualified to do so. Major variations to designs must be declared as compliant before being provided to the builder. Registered building practitioners must build in accordance with these declared designs and issue a compliance declaration stating that the final building complies with the Building Code of Australia.

– Design practitioners will have responsibility for their designs that are ultimately relied upon for building work. A registered design practitioner must provide a compliance declaration if they prepare a regulated design for a person and that design is in connection with building work.

– Penalties of up to $420,000, two years imprisonment, or both may apply for breaches of the DBP Act.

– The DBP has been written to comply and cooperate with other established legislations such as the Home Building Act, Civil Liability Act, Strata Schemes Management Act, Building Products Management Act etc. Relatively, the DBP Act and RAB Act does not limit the rights and obligations set out in these acts.

– The DBP Act was assented on the 10 June, commencing partly on the same date and partly on 1 July 2021.

Who Does this affect?

The purpose of this reform package was to limit the risk of building defects from going unnoticed in through the design and certification processes. It does this by placing a heavier burden of responsibility onto the design professionals for building defects. It is important if your business is involved in the development of residential dwellings that you are complying with the new regulations. This includes:
– understanding if you meet the registration and qualification requirements;
– consider how this may affect current and ongoing projects;
– be prepared for inspections and possible investigations; and
– form an action plan around the process of stop work orders.
These changes also affect land owners within residential buildings that have experienced calamity as a result of a building defect. If you have experienced economic loss as a result of a building defect within the last 6 years you may be entitled to reasonable compensation.

Rostron Carlyle Rojas is here to help
Understanding how new legislation may affect you can be difficult. We are committed to keeping you updated with relevant updates on legislation that may effect you and your business. Should you require further advice on this current matter or others, we would be delighted to assist.

Cntact us today at:
Email [email protected]
Telephone 9307 8900
Address: Rostron Carlyle Rojas Lawyers
13.05, 88 Phillip Street
Sydney NSW 2000

Adjudication 101

Adjudication 101

As specialist construction lawyers, we act for a number of clients in adjudication proceedings. This guide sets out the adjudication process in a succinct and easy to understand manner.

What is adjudication?

The Building Industry Fairness (Security of Payment) Act 2017 (BIF Act) commenced on 17 December 2018. The Act provides for adjudication, which is a streamlined dispute resolution process that allows a party that has executed construction work or provided related goods and services to recover a disputed or unpaid progress payment.
Adjudication is a statutory based, alternative dispute resolution process where a qualified person, known as an adjudicator, is tasked with making a determination with respect to a payment dispute between parties. As adjudication is an alternative dispute resolution process, it falls outside of the court system and is relatively cheaper than litigation

When can an adjudication application be made?

Adjudication is run on very strict timelines. Clause 79 of the Act sets out the timeframes that determine when an adjudication application can be lodged. The table below sets out how and when an adjudication application can be made.Adjudication 101 Table

It is crucial that you adhere to the timeframes within which an adjudication application is to be filed. If you do not comply with the deadlines within which you must file an adjudication application, your adjudication application may be dismissed. Furthermore, it must be lodged on a business day, before 5:00 pm (AEST). It is important to note that any applications lodged after 5:00 pm (AEST) on a business day will be taken to be lodged the next business day.

Where can an adjudication application be made?

An adjudication application is lodged with the Registrar of the Queensland Building Construction Commission (QBCC).

What is usually contained in an adjudication application?

The Claimant (i.e. the person making the application) must complete the QBCC adjudication application form which is usually accompanied by the following:
• written submissions,
• a copy of the payment claim;
• a copy of the construction contract;
• a copy of the payment schedule (if there is one); and
• other supporting documents that may be relevant to the adjudication application.
You must also serve a copy of the adjudication application on the Respondent.

What happens once an adjudication application has been lodged?

After the adjudication application has been lodged, the QBCC must, within 4 business days of receipt of the adjudication application, refer the adjudication application to an accredited Adjudicator. If the accredited Adjudicator accepts the appointment as Adjudicator, he must serve the parties with a notice of acceptance within 4 business days after receiving the referral.

What happens once an Adjudicator has been appointed?

Once an Adjudicator has been appointed, the Respondent must file an Adjudication response within the later of the following periods:
(i) for standard claims (i.e. claims that are less than $750,000.00), 10 business days after being served with an adjudication application or 7 business days after being served with a notice of acceptance by the adjudicator; and

(ii) for complex claims (i.e. claims that are greater than $750,000.00), 15 business days after being served with an adjudication application or 12 business days after being served with a notice of acceptance by the adjudicator.
If an adjudication response is filed out of time, the Adjudicator will not consider it.

The adjudication response must be in writing and must identify the adjudication application to which it relates and may include written submissions.

It is important to note that the Act prohibits a Respondent from filing an adjudication response if the Respondent has not submitted a payment schedule. Furthermore, an adjudication response must not contain reasons that were not recorded in the payment schedule.

What happens after an adjudication response is filed?

The Adjudicator must now consider the adjudication application and the adjudication response and must then decide on the matter. The Adjudicator would ordinarily determine whether the Respondent owes the Claimant any monies, the date on which such monies became due and any interest.

The Adjudicator is required to hand down a decision within strict time frames. An Adjudicator must make a decision no later than:
(i) for standard payment claims, 10 business days after the adjudicator is given the adjudication response and where no adjudication response has been given, the last day on which the adjudicator receives the response; or

(ii) for complex payment claims, 15 business days after the adjudicator is given the adjudication response and where no adjudication response has been given, the last day on which the adjudicator receives the response.

What happens after an Adjudicator makes a decision?

The answer to this question depends on whether or not the Adjudicator awards an amount to be paid.

If the Adjudicator decides that an amount is to be paid by the Respondent, the Respondent is required to pay the amount to the Claimant on or before the day that is 5 business days after the day on which a copy of the Adjudicator’s decision is given to the Respondent by the Adjudicator or if the Adjudicator decides a later date for payment, then by such later date.

What is an adjudication certificate?

An adjudication certificate is usually only issued where the Respondent is required to pay an amount.

As soon as practicable after being given a copy of the decision by the Adjudicator, but no later than 5 business days after being given the decision, the QBCC must give the Claimant an adjudication certificate of the decision which sets out the following details:

(i) the name of the Claimant;

(ii) the name of the Respondent;

(iii) the adjudicated amount;

(iv) the date on which payment of the adjudicated amount is required to be paid;

(v) the rate of interest that is applicable; and

(vi) the costs that the Respondent is required to pay.

What happens if payment of an adjudicated amount is not made?

If the Respondent fails to make payment in whole or in part, the Claimant may:
(i) give the Respondent written notice of the Claimant’s intention to suspend works or supplying related goods and services; and/or
(ii) file the adjudication Certificate as a judgment for a debt.

As the above suggests, adjudication is a quick, cost effective method of getting paid for construction works or supplying related goods and services.

However, in order to ensure that your rights are protected and preserved, it is imperative that the provisions of the Act, in particular the strict time frames, are complied with.

Rostron Carlyle Rojas have an expert team of specialist building and construction lawyers.

If you have a question or you’d like more information on the content of this article, contact us today on (07) 3009 8444 or email us at [email protected]

Top Questions We Get Asked as Building and Construction Lawyers: Part 1

construction FAQs payment claims

My building contract does not provide for due dates for progress payments – am I still entitled to progress payments? I’ve been served with a payment claim under my building contract – now what? I need construction law advice – I’ve not been paid the amount the adjudicator has awarded me.

As building and construction law experts, these are examples of the type of questions we routinely get asked by some of our clients. We’ve compiled a list of some of the common questions we get asked. In this article, we explore the answers to some of these common questions.

 

My building contract does not provide for a due date for progress payments – am I still entitled to progress payments?

Yes, you are still entitled to progress payments.


One of the objectives of the Building Industry Fairness (Security of Payment) Act 2017 (BIF Act) is to ensure that those individuals that carry out building and construction work or provide related goods and services get paid. This object is achieved, in part, by granting builders a statutory entitlement to progress payments, regardless of whether or not the construction contract makes provision for progress payments.

Accordingly, if your building contract is silent on due dates for progress payments, you can rely on clause 73 (b) of the BIF Act. Pursuant to clause 73 (b) of the BIF Act, if a construction contract does not provide for due dates for progress payments, the time for payment will be 10 business days from the date a payment claim was received. The BIF Act defines a business day from 12:00 am – 11:59 pm and does not include weekends, public holidays, the date the notice was given or the period from 22 December to 10 January. It is important to note that in order to enjoy the statutory entitlement to progress payments afforded by the BIF Act, you must issue a valid payment claim.

For further information, please see our answer to the question below, “What is a payment claim?”.

What is a payment claim?

A payment claim is a written document that requests payment for construction work or related goods or services. Prior to the enactment of the BIF Act a payment claim had to include an endorsement that it was made pursuant to legislation. This is no longer the case – under the BIF Act a claim for payment is considered a valid payment claim if it is in writing and:
• identifies the construction work or related goods and services;
• specifies the amount claimed;
• requests that the claimed amount be paid (a tax invoice satisfies this condition); and
• be the only payment claim served for the relevant reference date.

You must also ensure that your payment claim is properly served upon the correct entity or individual in accordance with the terms of the building contract.

It is important to note that if your tax invoice meets the requirements set out above, it will be considered as a payment claim. Accordingly, it is good practice to have a standard template tax invoice that complies with the payment claim requirements of the BIF Act. By doing this, each tax invoice you issue will be considered a payment claim – the advantage of this is that you will be entitled to rely on the BIF Act to enforce your right to payment.

I’ve been served with a payment claim – now what?

You cannot simply ignore a payment claim. If you’ve been served with a payment claim, the law requires that you respond appropriately to the payment claim. You have two options:

• where you agree with the amounts being claimed, you must pay the claimed amount in full by the due dates; or
• where you disagree with the amounts being claimed, you must respond to the payment claim by properly serving a payment schedule.

If you fail to issue a payment schedule, you will become liable to pay the amount claimed under the payment claim. Furthermore, if you hold a license issued by the Queensland Building and Construction Commission, you may also be subject to disciplinary action under the Queensland Building and Construction Commission Act 1991 QLD.

If you do not pay the amount owed on or before the due date, the builder can take steps to recover the unpaid amounts as a debt in Court or apply for adjudication. In addition, the builder may serve you with written notice of intention to suspend works.

For further information, please see our answer to the question below, “What is a payment schedule?”.

What is a payment schedule?

A payment schedule is a response to a payment claim, in which you are stating the amount you intend or are willing to pay and providing reasons why you are paying that amount, instead of the full amount.


If you receive a payment claim you must, either:
• pay the claimed amount in full by the due date; or
• respond to the payment claim by properly serving a payment schedule.

As the above suggests, you are only required to issue and serve a payment schedule if you do not intend to pay the full amount claimed.

Here’s some important points to bear in mind – a payment schedule must:
• identify the specific payment claim you are responding to;
• state the amount that is to be paid – if you intend to pay an amount that is less than the claimed amount it is essential that you clearly state the reasons for doing so. This is because you will not be allowed to put forward any reasons for withholding payment if the matter proceeds to adjudication; and
• be served within 15 business days of the date you are served with a payment claim of a shorter period if your construction contract provides for one.

I have not been paid the amount the adjudicator has awarded me, what can I do?

If you have not been paid the amount you were rewarded by the adjudicator you can give written notice of intention to suspend construction work. In addition to that you can institute legal proceedings in court to have adjudicator’s decision recognised as a judgement debt.


It is important to note that an adjudicated amount is to be paid within 5 business days of receiving a copy of the adjudicator’s decision or by a later date that the adjudicator may have set. If the party ordered to pay the adjudicated amount fails to do so within the prescribed period, you can:
• give written notice of intention to suspend carrying out construction work;
• institute proceedings in Court to have the adjudicator’s decision recognised as a judgment debt.

Are pay when paid clauses in a construction contract legal?

No. Pay when paid clauses are void – clause 74 of the BIF Act provides that pay when paid clauses have no effect in relation to any payment for construction work carried out or related goods or services supplied under a building contract.


Pay when paid clauses have traditionally been used by head contractors to reduce their payment risk. By using a pay when paid clause, the head contractor is informing a subcontractor that they will pay them after they receive payment from the principal.

 

Do I Need to Conduct Searches on the Party I am Entering into a Contract With?

We would strongly recommend that you conduct searches on the party you are entering into a contract with. Verifying the identity of the other party to a contract is critical – it ensures that you are adequately protected in the event of a dispute. There are a number of searches that you can conduct to ensure that the other party’s details are recorded correctly or to verify that the other party holds valid licenses, for example:
· a free license check on the Queensland Building and Construction Commission (QBCC) website to check that the builder’s name as it is listed on the construction contract matches the builder’s name on construction contract;
· ensure that the director(s) name on the QBCC license search and the address match;
· ensure that QBCC license is valid;
· an Australian Business Number (ABN) search; or
· if the other party has an Australian Company Number (ACN), you can do a free search on the Australian Securities and Investment Commission’s (ASIC) website to verify that the name and the ACN is correct.

Rostron Carlyle Rojas have an expert team of building and construction lawyers. If you have a question or you’d like more information on the content of this article, contact us today on (07) 3009 8444 or email us at [email protected].

New Legislation Brings Major Changes To The Building And Construction Industry

On 5 February 2020, the Queensland Government introduced the Building Industry Fairness (Security of Payment) and Other Legislation Amendment Bill 2020 (Qld) (“Bill”) that will bring major changes to the building and construction industry.

The Bill proposes extensive changes to the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (“BIF Act”) that will ensure effective, efficient and fair payment procedures for those who work in the building and construction industry.

These changes will be rolled out in 4 phases; the commencement dates of each phase are outlined below.

Background to the new Building Industry Fairness Legislation

On 14 May 2018, the Minister for Housing and Public Works, Minister for Digital Technology and Minister for Sport established the Building Industry Fairness Reforms Implementation and Evaluation Panel (“the Panel”). The goal of the panel was to review the implementation and effectiveness of the building industry fairness reforms introduced by the BIF Act and provide recommendations accordingly.

The panel’s recommendations were provided in the Building Industry Fairness Reforms Implementation and Evaluation Panel Report (“the Report”).

The Bill was issued as a direct response to the Report, which proposed 20 recommendations to the BIF Act. These recommendations have been grouped into three major themes:

  • Managing the financial transition – to enable minimum financial stress following implementation;
  • Simplifying the framework – to reduce administrative costs while providing for transparency; and
  • Improving protections – by obligating all contractors and private principals in the contractual chain to hold retentions on trust and providing new mechanisms for securing funds in dispute to all claimants.

The Queensland Government has accepted, or accepted in-principle, all 20 recommendations.

Key changes

Major changes have been proposed by the Bill, including reform of project bank accounts (“PBAs”), improvements to the security of payment regime and imposing liability for executive officers.

Project Bank Accounts

The PBA framework will be simplified by removing the requirement for each contract retention to have a separate trust account. This will mean less administration for head contractors and ensure payments that subcontractors are entitled to are protected until they are due to be paid.

Previously, PBAs were only required by government building contracts between $1 million and $10 million. Head contractors were required to have a set of 3 trust accounts (known as PBAs) for each qualifying project that operated to secure funds, under a building contract, until they are paid to a subcontractor:

  1. progress payments;
  2. disputed funds; and
  3. retention money.

The new framework will remove the disputed funds account and rename PBAs “Project and Retention Trusts” accordingly. The new approach to dealing with disputed funds is outlined below under ‘Security of Payment’.

Following implementation of the Bill, head contractors will be required to establish a Project Trust for each project and a Retention Trust for all cash retentions held. This framework will eventually be expanded to all building and construction contractors (including subcontractors) and the private sector through the aforementioned phased approach.

The Queensland Government has acknowledged that the “removal of project and retention funds from operating capital is an intended consequence of the reforms and some businesses may need to change their financial management practices and find other sources of working capital from savings, by increasing debt, or liquidating assets”[1]. In an attempt to overcome this, it has been put forward that the roll out approach will leave “plenty of time for the industry to prepare and have new administrative procedures in place, minimising financial stress”[2].

Security of Payment

The Bill introduces many changes that will improve the security of payment regime by increasing protection for contractors (including head contractors) and subcontractors from a failure to pay by principals. The following examples are some of the major changes presented by the Bill.

Based on New South Wales’ model, head contractor’s payment claims will be required to be accompanied by a supporting statement. Payment claims are requests for payment given to an individual or company from a contractor progressively for construction work (or related goods and services) completed under a construction contract to a certain point in time. The supporting statement must declare that all subcontractors have been paid as at the date of the payment claim or identify any subcontractors which have not been paid and the outstanding amounts.

Further, it will be an offence to pay less that what is stated in a payment schedule. A payment schedule, as required by the BIF Act, is a document that identifies a specific payment claim, states the amount that will be paid and provides reasons if the amount that will be paid is less than the payment claim.

The Bill also introduces additional measures to secure payment. Claimants will be able to make payment withholding requests against the principal over amounts in dispute in adjudication. Payment withholdings requests will enable a claimant to require a higher party [3] to retain the adjudicated amount [4]. Additionally, head contractors can register a security interest over a property for an unpaid adjudicated amount if the respondent is the registered owner of the property [5].

Liability for Executive Officers

Executive officers will be personally liable for certain trust offences by the company if all reasonable steps in ensuring the corporation did not engage in the offending conduct are not taken [6].

An executive officer (of a corporation) is a “person who is concerned with, or takes part in, the corporation’s management, whether or not the person is a director or the person’s position is given the name of executive officer” [7].

Offences that will attract executive liability include withdrawing money from a Project Trust account for an inappropriate purpose, which has a maximum penalty of 300 penalty units ($40,035 at the time of writing) or 2 year’s imprisonment [8], and dissolving a Project Trust without authorisation, which has a maximum penalty of 500 penalty units ($66,725 at the time of writing) or 1 year’s imprisonment [9].

When will the changes be rolled out?

The enhanced PBA program will be rolled out in 4 phases. The phased approach aims to ensure that those most capable to cope with the changes will be affected first.

It is anticipated that Phase 1 will commence on 1 July 2020, extending to government building projects, including Health and Hospital Services, above $1 million.

Phase 2 will commence on 1 July 2021 and will apply to all building projects above $10 million.

Phase 3 will commence on 1 January 2022 and will apply to all building projects above $3 million.

Phase 4 will commence on 1 July 2022 and will apply to all building projects above $1 million.

What this means for you?

Implementation of the Bill will affect every stakeholder in the Queensland building and construction industry.

Participants should familiarise themselves with the Bill to ensure compliance with these forthcoming amendments. In particular, those who will be affected by the replacement of the previous PBA framework with Project and Retention Trusts should consider any financial impacts well in advance of commencement.

How can we help?

If you would like to know more on how the Bill will affect you, please contact our Building & Construction Lawyers on (07) 3009 8444 or email us at [email protected]

 

References:

[1] https://www.hpw.qld.gov.au/__data/assets/pdf_file/0028/9199/panelgovernmentresponse.pdf.

[2] http://statements.qld.gov.au/Statement/2019/11/28/palaszczuk-government-delivers-confidence-for-queensland-tradies-and-business.

[3] If the claimant for the amount is a subcontractor—the person from whom an amount is or becomes payable to the respondent under an arrangement with the respondent for related work or services; if the claimant for the amount is a head contractor—the person who is the financier for the related work or services.

[4] Building Industry Fairness (Security of Payment) and Other Legislation Amendment Bill 2020 (Qld) s 97B(2).

[5] Ibid s 100B.

[6] Ibid s 58A.

[7] Ibid.

[8] Ibid s 20A.

[9] Ibid s 21A.

The effectiveness of injunctions in relation to claiming security under a construction contract

Performance Bonds

Introduction: performance bonds

A substantial body of jurisprudence has developed with respect to performance bonds provided pursuant to construction contracts and the relevant rights of the parties to such contract. It is clear that this form of security is intended to be the equivalent of cash. Indeed, the High Court of Australia has exclaimed that “instruments of this nature are essential to international commerce and, in the absence of fraud, should be allowed to be honoured free from interference by the courts”. This seems to be the prima facie position that an applicant must displace to succeed in acquiring injunctive relief, preventing recourse to security. Consequently, the contract centrality becomes an underlying theme.

Approach by the courts regarding performance bonds

The authorities have recognised three principal exceptions to the obligation of an issuer of a performance bond, including:

1. In the event of fraud by the party seeking recourse;
2. Unconscionability by the party seeking recourse; or
3. A beneficiary has promised to not have recourse to the performance bond.

In respect of the third instance, the intention of the parties becomes critical and involves contractual interpretation. The case of Clough Engineering Ltd v Oil & Natural Gas Corporation Ltd (Clough) provides insight into this phenomenon and is an invaluable authority in relation to the approach adopted by the courts. Clough establishes the prima facie construction of the contract:

“Insofar as a construction contract may make clear provision for the furnishing of an unconditional guarantee as security for due performance, the normal interpretation…will be that, in response to the stipulated demand, an unqualified transfer of the sums in question is intended, provided only that there is a bona fide dispute or claim on the secured party’s part, and that any further investigation of its merits or extent is not usually intended by the contract.”

Accordingly, the third exception contradicts the presumed position. This occurs as there has been an explicit promise to alter the allocation of risk, creating a contractual impediment to the beneficiary. However, due to the potential injustice, the courts tend to require “clear words” to support an interpretation of a contract which inhibits recourse where a breach is alleged in good faith (without the other two exceptions applying).

Intention of the parties – Performance Bonds As A Risk allocation Device

It seems that if the parties intend that the performance bond is a risk allocation device, this will impact consideration of the primary issues considered at the hearing for an interlocutory injunction, being whether the beneficiary is entitled to call upon the bond and where the balance of convenience lies (a standard consideration in equitable relief). In this circumstance, the entities have agreed as to which of them should bear the financial risk pending final determination. This becomes particularly relevant when a party is relying on the security, pending the outcome of a trial. In the event that there is a risk allocation purpose, failure to resolve issues pertaining to interpretation of the contract at the interlocutory stage may defeat commerciality, depriving the parties of the bargain they have arranged.

If a term of a contract, construed utilising the accepted principles adopted by the courts, shows that the commercial purpose was to allocate the risk of who should be financially impacted notwithstanding that there may be a genuine dispute as to whether a party had failed to comply with their obligations, then the entity benefiting from the security is uninhibited in invoking it. Clear words to the contrary are required to have a condition precedent to recourse. This means that they must be unambiguous and have only one possible meaning.

Granting the injunction

Culminating the above considerations, the courts will intertwine them with their reasoning when determining the required elements for an injunction to be granted. The cases of Saipem Australia Pty Ltd v GLNG Operations Pty Ltd provide background on the principles. The significance of these decisions is that the intention of the parties in respect of the performance bonds as a risk allocation device is relevant to the determination of the balance of convenience in awarding the injunction. The other elements to analyse, being the question of whether there is a serious question to be tried and inadequacy of damages as a remedy, depend on the facts. The typical argument in the commercial discourse is reputational impact in the market and industry.

Conclusion

As can be identified, the effectiveness of injunctions in relation to claiming security under a construction contract depends predominately on the terms of the agreement and their interpretation by the court. These inform the judiciary on the primary issues considered when deciding to exercise discretion when granting the equitable remedy of injunction. This is consistent with the common law philosophies in respect of privity of contract in the context of commercial transactions. Therefore, there needs to be an explicit and unequivocal promise that there will not be a conversion of the bond.

Coinciding with international commerce, the importance of performance bonds as a currency is reflected on several levels in various jurisdictions. Accordingly, the relevant feature of the contract in question regarding injunctions on recourse to security pertains to allocation of risk between the parties. Where the type of security in the construction contract contained other characteristics, such as an interest in property, this would reflect the intention of the parties and the threshold to satisfy the third exception for injunctive relief may decrease. Indeed, the tests may change entirely.

It is evident that seeking, understanding and applying relevant legal principles in construction contract contexts becomes increasingly vital. With the proper advice and drafted terms, recourse to security is a seamless event that occurs without hindrance. The beauty of the law when a party seeks injunctive relief is that the entities involved are ultimately the masters of their destiny. Consequently, it requires a forensic approach and placing value on legal services when creating the written agreement that governs the transaction. Resonating with many doctrines and ideologies of the Australian system, contracts in a commercial space remain dominant.

5 Ways to resolve a building dispute with your contractor in the commercial space

How to resolve a building dispute with your contractor

Positive relationships in the modern transactional climate are an inherent benefit for your enterprise and these include your business relations with contractors. Due to the nature of building ventures, disputes are an inevitable reality. This means that the ideal method of approaching this issue is focusing on minimisation. Consequently, tailored strategies (developed unilaterally or collaboratively) and streamlined mitigation processes are ideal, providing applicable mechanisms for timely resolution of disputes.

The benefits of timely dispute resolution are voluminous. Examples include:

• Fostering long-term relationships with contractors by reducing total time where friction exists, showing efficiencies and pragmatism
• Maintaining effective resource allocation and expenditure on business operations
• Decreasing the possibility of prolonged litigation

This article will guide you through 5 ways that you can resolve building disputes.

  1. Always Check Your Contract

    Reviewing your contract is the first crucial step in resolving any building dispute with a contractor. Ideally, this would constitute a formal written agreement, avoiding uncertainty of terms and ambiguity. Further, it is a legal requirement to have the contract deduced to writing if the value of the works or goods supplied equal a particular value ($3,300 for residential and $10,000 for commercial). In a situation whereby a document is not produced, reviewing documents such as emails and other communications between you and a contractor regarding the work can assist. This can be a component of various elements that constitute an agreement and will provide insight into the terms.
    For example, you may have written or verbal arrangements that set out:
    – scope of work;
    – pricing of the building project;
    – terms of payment;
    – variation mechanisms;
    – extension of time provisions; or
    – project timelines or time frames.
    While reviewing your contract or correspondence focus on the disputed issues. For example, if you are unhappy with the services provided by the contractor, read the wording of any clause relating to their obligations for services to see if they have breached your agreement.
    Further, check if your contract contains a dispute resolution clause that outlines the steps the parties should follow if there is a confrontation. In the event that it is unresolved, demonstrating that you adhered to stipulated procedures to attempt early finalisation will assist the court and ideally, narrow the array of issues that remain.
    how to resolve a building dispute- check your contract

  2. Communicate and Negotiate

    Communication is the first step and should not be underestimated when a dispute arises. Being transparent and willing to participate can significantly improve the possibility of reaching a settlement. This method is the most efficient way to settle a dispute while exerting very little impact on your business. Additionally, it indicates that the parties can collaborate in the future, facilitating trust. A useful tactic is for the parties to consider the opportunity cost in their respective positions. This will result in them considering the potential expense in relation to alternative avenues to reach a compromise. Approach any negotiations calmly and professionally.

    During negotiations, clearly communicate to your contractor:
    – the issues pertaining to the building dispute and where relevant, what service or product they have failed to provide;
    – expectations in relation to the work; and
    – how the contractor can fix the problem, including a specific time frame.

    Allow them a chance to respond. Often, disputes are the result of misunderstandings that can be solved by open communication. This method will most likely retain positive relations between yourself and the contractor.
    communicate and negotiate the building disputes

  3. Mediation

    If initial discussions are unsuccessful or stagnated by lack of participation, you may need a third party to help with more official negotiations. Mediation is a process conducted by an independent person (the ‘mediator’) to facilitate communications between the parties for the purposes of resolving the dispute. Any agreement reached by the parties can be reduced to a written binding document. The contents should consist of:
    – The terms of the dispute resolution; and
    – signatures by the parties.
    Mediation can be a cost-effective option to settle a dispute without relying on court processes.

  4. Arbitration

    Another type of dispute resolution mechanism that you and a contractor can adopt to achieve a settlement is arbitration. In contrast to mediation, it increases formality, structure and finality. This is correlated with cost. However, it remains less involved than the judicial system and there is still an element of control by the parties. Accordingly, it can only occur by mutual consent. An independent ‘arbitrator’ acts as a judge to determine a result. Depending on the type of arbitration, the outcome is potentially binding on the parties and is enforceable, similar to a judgment of the court. Therefore, it is prudent to seek legal advice prior to engaging in this process.

    As explained, unlike court proceedings, the parties retain control over the various features of the mechanism. For example, they may decide that the rules of evidence do not apply.
    How to resolve a dispute through Arbitration

  5. Going to Court

    Litigation or court proceedings should be your last resort. It is a time consuming and expensive endeavour. Additionally, there is a considerable extent of uncertainty in the outcome. This also applies to circumstances whereby prospects of success are high.

    You can potentially represent yourself in court or a tribunal that exercises judicial power such as the Queensland Civil and Administrative Tribunal (QCAT). However, a solicitor can advise you on your case’s merits, collating evidence and presenting the arguments. If the other party has engaged legal services and you are unrepresented, this can pose a disadvantage.

    Depending on the outcome of the proceedings and the conduct of the parties, the court will potentially make an order in relation to costs. This means that one of the entities will be required to pay the legal fees and disbursements incurred in relation to the matter. There are numerous factors that impact the discretion of the magistrate or judge. Therefore, it is critical that professional advice is obtained prior to initiating in this forum to resolve a dispute.

Conclusion

You may be able to resolve many disputes with contractors by clear, calm communication and negotiations. However, in circumstances where this fails, or you feel this method is futile, alternative dispute resolution mechanisms or court proceedings can be utilised. Accordingly,an experienced litigation lawyer can advise you on the best course of action for your business.

If you have any further questions pertaining to dispute resolution and require the services of a lawyer, do not hesitate to contact us.