The excitement of building your home quickly fades away when you realise its partially completed and your builder has turned into a ghost that can’t be contacted by a seance, let alone telephone.
The Landscape
The number of construction companies going into external administration is currently higher than it has been in 9 years, according to the Australian Financial Review. During the aftermath of the pandemic, builders faced pressure from supply chain issues and sub-contractors taking advantage of low labour supply to increase their prices.
The agreements that builders make are for the medium term, so their pricing of materials and labour must be static for them to maintain profit. Unfortunately, the current market means that builders have agreed to build houses for a certain price, and the cost of building that house is now more than the agreed price.
The result is that it is more economical for the builder to ‘ghost’ their client, rather than complete the build. If your builder has passed on to the other side and no longer contacts you, there are some things you can do to get back on track.
Take A Long-Term View
Much of the market problems have come from a lack of supply. This means that although in the short-term there will be turmoil, in the long term the value of homes will increase because of the reduced supply.
Also, while many builders fail, those that are left will be stronger companies that can provide you with more comfort around completing your project in a reasonable time and on the right budget.
Take Action Now
This situation can be incredibly frustrating and stressful, but it’s crucial to understand that you’re not alone. In Australia, there are mechanisms in place to protect homeowners in such unfortunate scenarios.
Understand Your Rights – As a homeowner, it’s essential to be aware of your rights and entitlements when your builder becomes insolvent. Get to know the relevant legislation and regulations in your state or territory. In Australia, each state has its own building and construction laws, so it’s vital to consult the specific legislation applicable to your situation. In NSW, protections and support for this situation are provided by iCare.
Contact the Insolvency Practitioner – When a builder becomes insolvent, an insolvency practitioner is usually appointed to handle the process. Once you become aware of the builder’s insolvency, make contact with the appointed practitioner to understand the situation better. The insolvency practitioner can provide you with information regarding your rights, the status of the project, and the steps being taken to resolve the issue.
Check Your Contract and Insurance – Review the construction contract you signed with the builder and assess the provisions related to insolvency. Some contracts may include clauses that outline procedures to be followed in the event of the builder’s insolvency. Additionally, check whether you have any relevant insurance coverage, such as Home Warranty Insurance or Deposit Insurance, that may offer financial protection in such situations.
Lodge a Claim – If your builder is insolvent, you may be eligible to lodge a claim with a relevant statutory authority or an insurance scheme. In Australia, there are various schemes in place to protect homeowners against builder insolvency, such as Home Warranty Insurance and Residential Building Compensation Fund (RBCF). These schemes vary by state and territory, so consult the appropriate authority to understand the claim process, documentation requirements, and deadlines.
Seek Legal Advice – When dealing with an insolvent builder, it’s wise to consult a qualified construction lawyer who specializes in building and construction disputes. A legal professional can provide tailored advice based on your specific circumstances, review your contracts, and help navigate through the legal processes involved in making a claim or seeking compensation.
Communicate with Other Stakeholders – If you’re part of a larger development or community project, it’s essential to communicate with other affected homeowners. Sharing information, experiences, and resources can be invaluable during this challenging time.
Consider Alternative Options – In some cases, it may be necessary to engage a new builder to complete the construction of your home. If this is the path you choose, exercise caution when selecting a replacement builder. Conduct thorough research, check references, and ensure they have the necessary licenses and insurances to undertake the project. Seek guidance from professionals, such as architects or building consultants, who can assess the current state of the construction and provide advice on the best way forward.
