The terms
"practical completion" and "handover" are commonly used in domestic
building contracts. They are intended to mean the time at which the
builder receives the final progress payment under the contract and
hands to the owner the keys and paperwork for the newly built
house.
However, building disputes occasionally arise between builder
and homeowner as to whether a building is in fact practically
complete as asserted by the builder. Such disputes are generally
related to two distinct issues, namely construction defects or
contractual failings.
Construction Defect
A construction defect may be minor,
such as incomplete painting or fixtures, or major, such as an
engineering fault causing structural weakness to the frame or slab
of the house.
Contractual Defect
A contractual defect may be an
unlawful substitution of materials, such as using inferior windows
or bricks. It could also be a purely legal matter; for instance, a
failure to comply with an aspect of development approval or to
obtain the necessary insurance.
The Courts gives consideration to building dispute matters, most
frequently in applications to the Court by dis-satisfied homeowners
pursuant to theBuilding Work Contractors Act 1995.
The Court when assessing building dispute matters places weight
on whether, notwithstanding the defects alleged, the house is
reasonably fit for use and whether it is substantially
complete.
If the Court finds that the house is both reasonably fit for use
and substantially complete, the finding will be that practical
completion has occurred and handover is appropriate.
Most building contracts have provisions for a "defects period",
which is commonly three months after practical completion and
handover. In that time, the home owner notifies the builder of any
defects and the builder is obligated to return to the building and
fix the highlighted building defects.
In the event that a contractual breach (as opposed to a
construction breach) has occurred, the Court can order the builder
to remedy that breach where possible, or alternatively to
financially compensate the homeowner for the breach. It is
noteworthy, however, that a contractual breach does not
automatically result in practical completion not having been
reached.
Major construction defects invariably result in a finding that
practical completion has not been achieved. If rectifying a defect
involves the homeowner being unable to take possession and reside
or sell premises which are reasonably fit for use, handover should
not be accepted and the final progress payment should not be
made.
In the event that you are a party to a construction contract,
either as builder or homeowner, and a building dispute has arisen
as to whether the final progress payment is due or the
premises are practically complete, at Andersons, we strongly recommend you seek
experienced legal advice. Would you like to more or get some
advice? You can get in touch directly with today's blog
writer, Partner in Commercial Litigation, Felix
Hoelscher.
Please note, this Blog is posted in Adelaide, South
Australia. It relates to South Australian legislation.