Small Builder Issues - Cost Plus Contract

Hi all, this is in relation to my previous post:

https://www.ozbargain.com.au/node/685736#comment-11822591

This is an update in which i'm looking for advice.

We signed a cost-plus contract with a 'family friend' owner-builder to build our new home. The original contract was signed December 2020, so we are technically eligible for the federal and state building grants totalling $45k. Due to delays on obtaining the title for the vacant lot, obtaining building and engineering drawings, we had an agreement to build a cost-plus contract home with the builder. One year later, in December 2021, we met with the builder and he quoted us $300k+ for a 3x2x2 (150sqm) home… When originally we were quoted $230k. We understood this was due to labour and material increases. We decided and agreed with the price, as we were still eligible for the builder's grant's.

At this stage, the original contract (2020) was blank with only the original date of the contract written, along with some personal addresses and details for us and the builder, and the original commission of 15% for the builder. In December 2021, the builder wrote two clauses - #1 A deposit of $20k before the beginning of any works to be undertaken and #2 That all invoices are to be paid within 7 days. We signed to these conditions as we didn't know there going to be any issues. These were the builders terms he wrote down and we naively agreed.

I contacted the bank to obtain financing for the build, and they requested numerous documents, which the builder has never provided, nor did he agree to provide them when asked as he didn't have them. He has only ever gotten quotes from tradies for labour and some materials throughout the whole 15 months in contact with him. And these quotes were provided to us verbally, no official quotations were shown to us. I asked him for documents such as the building addenda and cost breakdown, which he said he cannot provide. I then used a template addenda and cost break-down from another builder which a finance broker sent me of which he showed from one of his clients (client information blanked out). I had to myself put together the building addenda and price breakdown for the builder myself. He agreed and signed what I had put together.

The bank then requested a staged-payment summary (e.g. 20% of total contract price to be paid after slab down, 25% after bricks up etc.). The builder refused to provide this as he stated the contract says 'invoices to be paid within 7 days", the bank stated this finance is ONLY for owner-builders and is not available to us, and only their construction loans available are staged payments.

As we are unable to finance this build any longer with the builder putting this clause, in which he never mentioned would be almost impossible to finance through a loan… We requested to cancel the contract with the builder. His response is he will have to charge us a Termination of Contract fee in addition to his "time spent" on the contract and quotes etc. He said this will be approximately $7,000 and he is 'doing us a favour' as most other builders are charging $15k+ for this termination. When we signed the contract we agreed that we would pay him for his time (quotations etc) if we ended up not going ahead. We verbally agreed and he never mentioned a contract termination fee. No fees or hourly rates were ever stated or noted or anything provided from the builder.

As you can imagine we are furious at the lack of professionalism from this builder, and that he is essentially taking advantage of us trying to take money for literally no work, in which other big builders we have approached have provided free quotations for everything. Now we will additionally lose the building grants as well, and the builder is making it seem like it is our fault overall and is taking no responsibility for his actions.

My issue currently, is whether the contract as it stands is valid? The dates and timelines for construction etc. are all blank, and no deposit was ever paid. We are wondering if we have to pay a contract termination fee if this contract isn't currently valid? We can come to terms with losing the grants, although the builder trying to charge us $7,000 for questionably minimal work is ridiculous.

Any advice or suggestions would be greatly appreciated.

Thank you!

Comments

  • +1

    I'm afraid this has really been an accident waiting to happen from the get go.

    I'm not going to go through the litany of issues here, but it looks like you're down to either paying old mate $7k or having some sort of drawn out battle. Where that battle might go in terms of tribunals/courts is anyone's guess, but it seems like that's where you're at.

    Old mate is clearly not running anything like a genuine show, otherwise he'd be all over the banks' requirements. It's not even clear if he holds any building qualifications/certifications at all.

    I think it's certainly time to start managing your expectations about what is going to happen with the build though. From what I can see, you are not going to be able to do the build with old mate, and most likely the 30 June deadline is gone.

    Is the contract valid? Very hard to say in the absence of viewing all documentation and hearing from both sides, but per above that may get tested by a tribunal/court. Be conscious of the additional costs that may bring to you.

    Unfortunately this is often what happens when you "haven't done your homework" on financing requirements and try to get a "mate' rates" deal done.

  • +1

    It is your fault, you signed a contract without consulting a solicitor, you are legally obligated to stick to the terms of the contract. If you had consulted a solicitor and found out the 7 days clause is bullshit you wouldn't of signed the contract. Ignorance is not a reason to rescind a contract, neither is stupidity.

    However signing a blank contract may be a way to get it voided, contact a solicitor asap is my advice.

  • +1

    Is there a clause though in the original contract about a Contract Termination Fee. Or was it only a verbal agreement?

    • +1

      Never any amounts of any termination or hourly rate mentioned. Termination cost wasn’t even mentioned.

      • mentioned

        are you talking verbally or in the actual written contract you signed…

        only the second one matters…

        • We verbally agreed to pay him for his time if it doesn’t go ahead. Nothing has been written whatsoever regarding hourly rate or termination fee.

          • +2

            @kamac93: Then I'd tell him to go f himself verbally. If he's dodgy I doubt he'd try to take you to court over 7k especially if it's not stipulated in the contract. Otherwise go get a solicitor. I'd prefer to pay a solicitor 7k than that builder POS.

      • In my building contract there is a clear clause that stipluates about the percentage that needs to be paid if the contract is terminated before the completion of the contract. I was made aware of it by the builder and initialed the page and also then signed the contract knowing that was clearly stated in the written contract. If nothing like that exists in the written contract, then I would say that you are liable to pay absolutely nothing.

        • We verbally agreed to pay him for his time if it doesn’t go ahead. Nothing has been written whatsoever regarding hourly rate or termination fee.

          • @kamac93: Yeah, but again if nothing is written down then how can it be verified. In any result, if there was no determination of what that termination fee would be, then I would say that it really is just what you decide you should pay in order for a fair and amicable split. But from a monetary point of view, if you paid $0, I would say he would have a hard chance to get any money from you and that would only be through going to court. I guess my advice would be, to pay him what you think is a fair and reasonable amount for his time. IF he was a further problem with it, tell him to take it to VCAT to chase any further money that he believes he is owed.

  • +5

    Family friend owner-builder?
    How was this going to work? Or is that a typo?

    I'm at a loss at how someone who calls themselves a builder cannot provide the documents needed for the owner to get their finance sorted. I could knock that stuff up in 15 minutes for a 300k build.

    Unfortunately you signed a contract so pay the $7,000 and thank Jebus you don't have this clown building your house.

  • Can owner-builders build for other people? It might be different state to state, but where I am I'm pretty sure they can only build their own house, hence the title owner-builder. I may be wrong though.

    • He’s a registered builder so I think he can.

  • I know you said the builder says 7000 for termination of contract but what does the actual contract say?

    • Nothing other than 20k deposit which we never go to that stage, and commission for builder is 15% as a cost-plus contract.

      • Double check the whole contract where there are fees and costs listed. If none are listed for termination you should be good to leave without penalty.

        Please note, this does NOT constitute legal advice.

  • +1

    Thank the bank for putting a stop to this.

    Costs plus agreements can be messy when you combine a potentially dodgy builder and finance.

    The devil is in the details with the agreement. Post the agreement and someone here will probably be able to pick it apart… or at least give you some bad advice.

    It's too late now but you should have consulted a lawyer before signing… the best piece of advice I can give you is: Instead of compounding the issues further and digging a deeper hole, seek professional legal advice now.

  • Your family 'friend' was a recipe for disaster. The bank was right to request the terms

    Pay them off and leave it at that.

  • Firstly you should honestly consider what you think he has done over 15 months. How much time has he spent getting all of these quotes, talking to people, council, architects, pricing and estimating for you. Working out your $230k and then $300k will have taken a lot of time IF it was done properly.
    Maybe you pay him $7k to get out of it and think it's a bargain because if you continue with him your going to end up paying $375k as this guy is getting 15% commission so it's in his interests to just keep passing you more and more bills that you have to pay within 7 days based on what you signed! Prices are still rising a lot (we got some massive supplier increases this month and that's if you can actually get it. Often you have to use more expensive alternatives as its all you can get) but it's not in his interests to try getting you good prices and it seems like he wouldn't as he can't plan or organise anything.
    Or if he doesn't provide you with any breakdown of his $7k you try offering him $3.5k and see what happens.
    $7k seems really cheap to get out of the mess that you would experience if you had continued with him it seems.

Login or Join to leave a comment