The significance of being an investor rather than a homeowner
It is easy to assume when you build, renovate or maintain a house that you don’t live in, the same rules will apply to you as if it was your own home.
However, if you do not live in the house or intend to live in the house within 6 months of the work being completed, the law treats you differently.
This is because according to the law you are no longer a resident owner and:
Commercial security of payment laws apply to you; and
The builder can place a caveat over your property for non-payment.
However, domestic building law still applies to you too.
Commercial security of payment laws
Commercial security of payment laws (BCIPA)[1] encourage the fast payment of people who carry out construction work or supply related goods and services (‘claimants’). It has strict timeframes and dire consequences for payers who do not pay on time.
To trigger BICPA,[2] a claimant needs to send a payment claim.
A payment claim is an invoice or claim for payment that:
States that it is made under the Building and Construction Industry Payments Act 2004 (the ‘endorsement’);
States the claimed amount; and
Identifies the construction work that the claim relates to.
As most residential builders do not use payment claims, this has not been an issue for most residential investors to date.
However on 17 December 2018, the law relating to security of payment is going to change and the Building Industry Fairness (Security of Payment) Act 2017 (the ‘BIF Act’) is going to replace BCIPA.
Under the BIF Act, claimants will no longer need to include the endorsement on their invoice or request for payment. This has the effect of virtually making security of payment mandatory. As a result, residential investors are going to be receiving payment claims and will need to understand how the fast payment system works.
The security of payment parts of the BIF Act are currently being amended and are due to be tabled in Parliament this month. We will keep you up to date with the amendments once they are announced.
Caveats
A caveat is a security (like a mortgage) that can be placed over your property if you do not pay, or the builder alleges you have not paid its invoice. The good news is that for the builder to have the right to secure a caveat over your property you will need to agree in writing to the builder having this right.
The bad news is that the builder’s right to secure a caveat over an investment property (the property of a non-resident owner) is a standard clause in both the HIA and Master Builder standard form domestic building contracts.
Conclusion
As an investor, you are no longer treated as a resident owner and you are assumed to understand commercial construction law. All too often we have seen investors and developers being tripped up by their lack of understanding of construction law. Therefore it always pays to get expert advice on your construction contract before you sign it.
Do you want to know more?
Please call our friendly and experienced team on 07 3128 0120, or email us at developers@arbuildinglaw.com.au.
End Notes
[1] Building and Construction Industry Payments Act 2004
[2] Building and Construction Industry Payments Act 2004, sections 17, 19, 20, 20A
