Homeowners Beware: Changes to Security of Payment Regime from 1 March 2021
Homeowners in NSW engaging a builder to perform residential building work on their property will be subject to stricter timeframes for either paying or disputing progress payments claimed by their builder.
The Building and Construction Industry Security of Payment Act 1999 (NSW) (‘Act’) is NSW-specific legislation which gives builders who carry out construction work (or those who supply related goods or services) a legal right to recover progress payments. A key aim of the Act is to facilitate cash flow within the industry. While historically the Act has not applied to an ‘owner occupier’ – a person who lives in (or proposes to live in) premises which they own (‘homeowner’) – from 1 March 2021 this will no longer be the case.
Entitlement to Payment
From 1 March 2021, the Act will operate such that builders who carry out construction work (or those who supply related goods or services) will be able to issue what is known as a ‘payment claim’ on a homeowner.
Following receipt of a valid payment claim, the homeowner should consider whether to make payment of the amount claimed in full, or promptly respond by issuing a ‘payment schedule’ which states how much they propose to pay (with the homeowner to actually pay that amount). A payment schedule may propose to pay some of the amount claimed, or none at all - so long as the homeowner provides justification for their position. If a builder disagrees with a homeowner’s payment schedule, they can refer the dispute to an independent adjudicator (‘adjudication application’).
Risks for Homeowners
If a homeowner fails to respond to a valid payment claim within the prescribed time (10 business days) the builder will be entitled to recover the amount claimed as a debt through the courts, and the homeowner will not be able to rely upon any other issues arising under the contract (eg defective work) in defending such a claim.
Similarly, it is important that homeowners respond to an adjudication application in a timely manner. If a homeowner fails to respond to an adjudication application within the prescribed time (5 business days after receiving a copy of the application), there is a risk that the dispute will be determined solely based on the builder’s application.
Risks for Builders
Payment disputes involving homeowners are usually resolved in the NSW Civil & Administrative Tribunal (‘NCAT’), however NCAT proceedings are often time consuming and costly. While the amendments to the Act represent an opportunity for builders (and homeowners) to resolve claims more efficiently, this can only occur when the builder is entitled to and validly makes a payment claim. There are several technical requirements that a builder must satisfy in order to do so (for example, the claim must state it is made under the Act). If a builder fails to comply with those requirements, the benefits provided by the Act will be unavailable to them.
While those in support of the change predict that it will alleviate financial stress for builders, and potentially decrease the occurrence of insolvency within the industry, it may have the opposite effect for homeowners who are unfamiliar with the legislation. Homeowners may require the assistance of a lawyer to deal with payment disputes, including: -
a) in determining whether a builder is entitled to make a payment claim;
b) in determining whether a payment claim has been validly made;
c) by drafting a payment schedule (ie response) to a payment claim; and/or
d) by writing submissions where an adjudication application has been made.