Australia: Security of payment changes from 1 March 2021, make life easier for NSW residential builders

From 1 March 2021, residential builders will be able to use the Security of Payment regime to more easily resolve disputes and recover progress payments from owner occupier homeowners.

Residential home building work carried out by a home builder for an owner occupier homeowner has always been exempt from the Security of Payment laws in NSW.

This has meant that the residential home builder carrying out construction work on an owner occupier's new or existing home:

• cannot utilise the quick and efficient Security of Payment adjudication process to resolve a dispute with the homeowner; and
• does not get the benefit of the statutory rights to payment if the homeowner does not provide a payment schedule indicating the reasons why the homeowner is withholding all or part of the builder's progress claim.

Yet on the same site, a subcontractor such as a bricklayer, roofer, tiler or demolition contractor engaged by the home builder, can use the Security of Payment process to resolve disputes with and recover progress claims from the residential builder.

From 1 March 2021, this will all change with the Security of Payment laws to apply to all residential building contracts, including those entered into with the homeowner.

This change will also apply to all residential building contracts that were made before 1 March 2021.

How will this change assist residential home builders?

Residential building projects can and do often lead to disputes with the homeowners.

These disputes can often involve significant amounts of money and involve multiple complex issues relating to, for example, what is and what is not truly a building defect or a variation.

Presently, the majority of complex disputes under $500,000 end up in the NSW Civil & Administrative Tribunal ("NCAT") for resolution.

But the reality is that by the time the parties are at NCAT for the resolution of a dispute, the project has invariably drawn to a halt, the building contract may have been terminated by one of the parties, the relationship has broken down and the parties are faced with a frustrating time consuming legal stoush which will inflict further financial pain.

The changes to the Security of Payment law effective from 1 March 2021, mean that if a home builder's progress claim is disputed by the homeowner, the builder can apply for an independent adjudication of the disputed payment claim instead of having to go to NCAT.

The main benefit of adjudication is that, if successful, the builder can then obtain an enforceable determination for the amount, usually within 21 days of lodging the adjudication application.

In addition to the ability to seek adjudication, a residential builder will now also acquire a statutory right to payment if the homeowner does not provide the builder with a payment schedule setting out the reasons why the progress claim is being disputed and payment is being withheld.

This change significantly improves the time, cost and ability of a home builder to have a dispute resolved more efficiently and quickly and a progress claim paid.

Residential builders should see an improvement to their business' cash flow, improved by their new entitlement to enforce a statutory right to payment on the homeowner or apply for adjudication of a disputed payment claim. A flow on benefit of these rights, is that legal costs and financial hardship flowing from withheld payments or NCAT proceeding, will also be significantly reduced.

How residential builders should prepare for 1 March 2021

There are great benefits, as set out above, to a home builder in being able to use the Security of Payment regime to resolve disputes and secure payment.

But to enjoy those benefits, the home builder must comply with the strict requirements of the Security of Payment laws, particularly in relation to the form of the builder's progress claim and the timeframes in which certain steps including the issuing of payment claim, must be taken.

The entitlements provided by the Security of Payment law only exist where a valid payment claim has been served.

This includes noting on each progress claim that:

In preparation for the regulation which comes into effect on 1 March 2021, residential builders should understand how and when to serve a valid progress claim.

Residential builders are encouraged to review our recent article - Making a claim for a progress payment under the SOP Act.

Alternatively, you should seek legal advice from construction lawyers, such as Bartier Perry, experienced in the workings of the Security of Payment law to assist with:

• identifying when and how often a progress claim can be served on a homeowner
• ensuring that the progress claim is in the form and contains the details required by the Security of Payment laws including the required Supporting Statement
• ensuring that the progress claim is validly served
• understanding the date by when the homeowner must respond to the progress claim by issuing a payment schedule if he or she does not intend to pay the amount claimed
• being able to recognise a payment schedule and determine if it has been issued by the homeowner within the strict timeframe provided for in the Security of Payment law
• understating how and by when an adjudication application should be made
• understanding the adjudication process. Home builders may wish to refer to our recent article - Next steps under the SOP Act if payment is not received - which outlines the adjudication process.

Conclusion

If you are a builder operating in the residential building market, it is to your very real advantage to understand and be able to take advantage of this Security of Payment law change which benefits the home builder and the way builders and homeowners resolve disputes about progress payments after 1 March 2021.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.