A building contract can look straightforward. It often isn’t.
If you are building or renovating a home, you might be presented with a “standard” building contract.
It is tempting to think: “The builder uses this standard contract all the time. How bad can it be, especially if it’s based on those issued by an industry association?”
That can be an expensive assumption for what is likely to be one of your biggest financial commitments.
I know this because, before joining Benson Legal, I spent years as General Counsel for a large project builder. I saw first-hand what happens when a building contract goes wrong.
The lesson for me was simple:
The best time to deal with a building contract problem is before you sign the contract — not after the problem has started.
Two key issues I have seen are:
1. Unlicensed and uninsured contractors
The law requires builders to have appropriate licence and a Home Building Compensation Insurance. However, when an owner checked (before they signed the building contract) and saw that the builder didn’t have the appropriate licence, they asked the builder about it and confirmed the insurance requirement. The builder gave a non-committal response. Trusting that the matter was sufficiently addressed, the owners signed the contract.
However, after the works had commenced, the owners found out that the builder was incapable of taking out the insurance at the time, and the builder was not licensed to carry out the works to build their multi-million dollar home.
However, the builder was able to keep the deposit that they received, and could be entitled to be paid additional money for the value of the works done to date , despite the fact that the builder was not even allowed to build their home.
This is a now huge worry for the home owners, given that the home will now rest on foundations laid by an unlicensed builder.
2. Not so ‘fixed’ fixed price contracts
Even if the building contract is a fixed price contract, and even if you have reviewed the provisional sum items and the prime cost items, what can often surprise the owners is the price escalation clauses that compensates the builder for the increase in building costs between when the contract was signed and when the development approval is obtained.
Although this period is typically under a year, I have seen contracts that took multiple years to get construction-ready.
What can be an expensive surprise for a lot of owners is that, not only are they not compensated for this period of delay (e.g. having to pay rent at an alternate accommodation, and not entitled to any liquidated damages for delay), but they could also be liable to pay additional funds to compensate the builder for the increase in building costs.
Reviewing these price escalation clauses is critical, because this amount can be substantial (in the hundreds of thousands of dollars). And, if the bank chooses to not increase the building loan amount by the additional amount, the owner is left at a very difficult position.
So, when should you get your building contract reviewed?
My answer is simple:
Before you sign it.
That sounds obvious, but many people only seek legal advice once something has gone wrong and emails and meetings fall on deaf ears.
But what if the builder states that no changes to their standard contract will be accepted?
Often builders do accept some changes, despite initially stating that they would not accept any changes to their contract.
But even if the builder absolutely refuses to make any changes to their contract, knowing the risks beforehand gives you the chance to go elsewhere, or an opportunity for you to proactively manage the situation to minimise the risks (for example, by simplifying the build, building in stages, or by choosing to perform some of the works as ‘owner works’).
What should your lawyer actually look for?
If you are considering entering into a building contract, you should have it reviewed by a construction lawyer, preferably from someone who has sat on both sides of the fence.
This is general information and should not be considered to be legal advice. You should obtain legal advice specific to your individual situation.
A similar case can be found at Olympia Homes Pty Ltd v Tian [2026] NSWCATAP 257
Author: Chris KIm