Checking a Builder Before You Sign a Renovation Contract

A renovation usually starts with the fun part. You pick a layout, look at finishes and get a few quotes. The paperwork comes later, and that is where many problems begin. A little checking before you sign can save a great deal of stress once the work starts.

This post covers the basic checks to make on a builder before you sign a renovation contract in Australia. It looks at licences, written contracts, deposits, progress payments and insurance. Each state and territory has its own building laws and its own regulator. The rules also change over time, so check the current position where you live.

Start with the builder’s licence or registration

Every state runs a licensing or registration system for people who do residential building work. In New South Wales the contract must show the licence holder’s name exactly as it appears on the licence, along with the licence number. That gives you something firm to check against the public register. In Victoria the consumer regulator points owners to a Find a practitioner search run by the Building and Plumbing Commission.

Check that the name on the quote matches the name on the licence. A company name and a personal name are not the same thing. Look at the class of work the licence covers as well. A licence for one trade does not always cover a whole renovation.

Get the job in writing

A handshake deal can feel friendly, but it gives you little to rely on later. In New South Wales a written contract is required for residential building work priced over $5,000 including GST. The same applies if the price is unknown but the fair market cost of labour and materials is over $5,000. The contract value includes both labour and materials.

The New South Wales rules split jobs into two types. Work from $5,000 to $20,000 needs a small works contract. Work over $20,000 needs a larger home building contract with more detail. The NSW Government sets out what each type must contain in its guide to home building contracts.

What a good contract covers

A clear contract describes the work and attaches the plans and specifications. It states the price and warns you if that price could change. It explains how variations are agreed and how the job can be ended. For larger New South Wales jobs, variations must be in writing and signed by both parties.

• The builder’s name and licence number exactly as licensed
• A full description of the work with plans and specifications
• The contract price and any conditions that could change it
• A progress payment schedule linked to stages or completed work
• How variations are agreed and recorded in writing
• The cost of any home building insurance that applies

Read the inclusions closely. Items like tiles, tapware and timber are often listed as provisional sums or allowances. If the allowance is low, the final bill can climb. Ask what brand and grade each allowance is based on before you sign.

Keep the deposit within the legal limit

Deposit limits are set by law, and they differ between states. In New South Wales a deposit cannot exceed 10 per cent for small works or larger jobs. In Victoria the cap is 10 per cent where the total contract price is under $20,000. The cap drops to 5 per cent where the price is $20,000 or more.

A builder who asks for more than the legal limit is a warning sign. Paying a large amount up front also leaves you exposed if the business fails before work begins. Keep receipts for every payment you make. Pay by a method that leaves a clear record.

Pay for work as it is completed

Progress payments should follow the work, not run ahead of it. Consumer Affairs Victoria advises owners to pay only by the schedule in the contract and only for stages that are complete. Its checklist for paying for building work also says not to pay in advance. Domestic building insurance may not cover work you paid for early.

In New South Wales the progress schedule for a larger job can only use fixed stage payments, payments as work is done or a mix of both. Payments as work is done should be backed by invoices or receipts. In Victoria the final payment for an extension or renovation is due once a Certificate of Final Inspection has been issued. Consumer Affairs Victoria says the builder is not entitled to the final payment until then.

Defects are a separate matter from the payment schedule. Consumer Affairs Victoria warns owners not to hold back a progress payment over defects once a stage is complete. It recommends getting legal advice before withholding any payment. Talk to the builder first and keep a written record of what was agreed.

Check the insurance before you pay

Most states require some form of home warranty or domestic building insurance once a job passes a set value. The thresholds are not the same everywhere. In New South Wales the builder must provide a certificate under the Home Building Compensation Scheme for contracts over $20,000. In Victoria the threshold for this advice is work over $16,000.

For Victorian jobs over $16,000, Consumer Affairs Victoria says not to pay a deposit until you have three things. You need evidence of the builder’s domestic building insurance policy. You also need a current certificate of insurance for your address. Finally, check the builder’s registration number.

Use the cooling off period and plan the outdoor work too

Larger New South Wales contracts must state a cooling off period of 5 clear business days. You are also entitled to a signed copy of the contract within 5 days of signing. Use that time to read every page again. If something does not match what you discussed, raise it before the period ends.

Many renovations spill outside the house. A new deck, paving or a garden makeover often follows the building work. If you are adding a deck, our look at the pros and cons of composite decking may help you choose the boards before the builder prices them. It also pays to think about taking your time with landscaping rather than rushing the garden once the builder leaves.

Garden work can be part of the same contract or handled separately. If screening is planned along a new extension, look at the best hedges for landscaping early. Lawns damaged by machinery and skip bins can be brought back with some care, as covered in our piece on keeping your grass greener. Write any outdoor work into the scope so nobody argues about it later.

Frequently asked questions

Do I need a written contract for a small job?

It depends on the price and your state. In New South Wales a written contract is required for residential building work over $5,000 including GST. A written agreement is a sensible idea for smaller jobs too.

How much deposit can a builder ask for?

In New South Wales the cap is 10 per cent. In Victoria it is 10 per cent for contracts under $20,000 and 5 per cent for $20,000 or more. Other states set their own limits.

When is home building insurance needed?

It applies once a job passes a value set by each state. In New South Wales that is contracts over $20,000. In Victoria the consumer regulator advises checking cover for work over $16,000 before paying a deposit.

Can I hold back a payment because of defects?

Consumer Affairs Victoria advises against withholding a progress payment over defects once a stage is complete. Get legal advice before holding back any payment. Raise the defect with the builder in writing first.

This post is general information only and is not legal advice. Building laws differ between states and territories and they change over time. Speak with a qualified lawyer or your state building regulator about your own contract.