Basics of Stage Payments and Deposits under Domestic Building Contracts

Introduction

Payments under domestic building contracts can easily cause disputes between builders and homeowners, for obvious reasons. We see so many disputes over payments that it’s worthwhile explaining the baseline requirements so that there’s no confusion.

In Victoria, domestic building payments are governed by a combination of statutory obligations and contractual processes. The Domestic Building Contracts Act 1995 (Vic) (“DBC Act”) sets out how deposits, progress payments and contract price changes must be handled, while the Australian Consumer Law and Fair Trading Act 2012 (Vic) requires contracts to be clear, fair and not misleading.

Domestic Building Insurance (previously known as Builder’s Warranty Insurance) requirements also play an essential role, but these will be discussed in a later article.

Deposits for Domestic Building Work

If a deposit is required under a domestic building contract, it’s important to know the amount is capped by law. The DBC Act limits the deposit to:


• 10% of the contract price for contracts under $20,000; and
• 5% of the contract price for contracts of $20,000 or more.

Progress Payments and Stage Completion

Domestic building contracts must specify a clear schedule of stage payments, and these stages are defined by the DBC Act. A builder can only claim payment once a stage is fully completed.

The base stage is completed when the footings are poured and, depending on the construction method, base brickwork is constructed to floor level or the stumps, piers or columns are in place. For concrete slabs, the stage is complete once the slab itself is finished.

The frame stage requires the completion of the frame and approval by a building surveyor.

The lock-up stage is achieved when external wall cladding and roof covering are fixed, the flooring is laid, and external doors and windows (including temporary ones) are installed.

The fixing stage requires all internal cladding, skirting, architraves, internal doors, cabinetry, sinks, baths and similar components to be fitted and fixed in position.

The DBC Act allocates a percentage of the contract price to each stage as the standard way in which a major domestic building contract must be paid. For a full build, this is structured as 10% at base, 15% at frame, 35% at lock-up, and 25% at fixing, with the balance due at completion. Noting that the deposit will likely be limited to 5%, the final payment will usually be 10%.

The point is that the builder is limited to the amounts in the DBC Act (unless otherwise agreed), and cannot claim a stage payment unless the stage is actually finished. Once the stage is certified as complete, the homeowner must pay the amount allocated for that stage.