Deconstructing SoP Legislation in Residential Contracts

Security of payment provisions now apply to residential building Contracts – requiring both builders and homeowners to ensure they are familiar with strict legislative provisions.

Schedule 2 of the Building and Construction Industry Security of Payment Regulation 2020 (NSW) (“the Regulation”) came into force from 1 March 2021.

The introduction of the Regulation means that Owner Occupier Contracts (“OOCs”) (or contracts entered by homeowners and builders) will no longer be excluded from the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Act”).

The Act has previously only applied to commercial building projects and the amendments will have significant impacts on the residential building process.

What does this mean for my existing OOC?

The Regulation will not apply retrospectively meaning, it will only affect new OCCs that are entered into after 1 March 2021.

Implications for the Homeowner

Builders carrying out residential building work are now entitled to issue ‘Payment Claims’ to homeowners under the Act.  Similarly, builders will be able to rely on the adjudication process to enforce payments outstanding by homeowners.

If homeowners are not familiar with the process, or fail to pay within the strict time provisions of the Act, the builder may be entitled to commence an adjudication application or commence proceedings in a Court or Tribunal to enforce payment– which can be costly and timely for all parties.

What is a Payment Claim?

Although issued in the same manner as an invoice, a Payment Claim will only be a valid payment claim if it includes a number of mandatory provisions. 

Valid Payment Claims

To issue a valid Payment Claim, a builder must:

• issue (or ‘serve’) the Payment Claim on or after the Reference Date;

• detail the amount due and payable and describe the works to which the Payment Claim relates (including any goods and services used);

• include a statement to the effect of: "This is a payment claim made under the Building and Construction Industry Security of Payment Act 1999 NSW.";

• in certain circumstances, include a supporting statement in the prescribed form; and

• generally, issue the Claim within 12 months of performing the work.

What should homeowners be aware of after a Payment Claim is issued?

After a Payment Claim is issued a homeowner must either:

1.         Pay the amount strictly in accordance with the time provided; or

 2.       Within 10 days issue a ‘Payment Schedule’.

A Payment Schedule details the amount the homeowner is willing to pay and the reasons why the homeowner considers a reduced amount (or nil amount) is payable.

When issuing a Payment Schedule, homeowners must ensure that they:

• provide valid and justified supporting statements that comply with both their Contract and the Act; and

•  promptly pay any amount the Payment Schedule indicates is payable.

If the builder does not agree with the homeowner’s position (and Payment Schedule), the builder may apply for adjudication under the Act.

The adjudication process is intended to be a quick and cheap method to resolve disputes and the adjudicator must make a determination within 10 days business days.

It is important to note that during this time, work under the Contract continues and Progress Payments can still be claimed and enforced against the client.

KEY TAKEAWAYS

Builders

In light of the new changes, builders completing residential building work should:

• Review and amend their building contracts to reflect the new changes;

• Review and amend their invoices and billing procedures to ensure valid Payment Claims are issued throughout the Contract period;

• Ensure they are familiar with their rights under the Act, including to respond to Payment Schedules and pursue homeowners who fail to make payments; and

• Seek advice, when necessary.

Homeowners

Homeowners entering contracts for residential building work should:

• Ensure Payment Claims are paid, or responded to (by way of a Payment Schedule), strictly in accordance with the Act and Contract;

• Ensure they understand the ramifications of not complying with the Act and the Regulation; and

• Seek appropriate advice, where necessary.