Contract Termination Rights for Builders in Queensland

What it is

A Queensland builder has no statutory right to walk away from a domestic building contract. Schedule 1B of the Queensland Building and Construction Commission Act 1991 (Qld) hands the owner a cooling-off right and a stack of warranties, and gives the builder nothing equivalent. Every exit comes from the contract or the common law, and getting the mechanics wrong costs more than staying on the job.

The contractual route

The QBCC New Home Construction Contract sets the pattern most Queensland domestic contracts follow. Condition 26 requires three steps:

1. The other party is in substantial breach.
2. The terminating party gives a notice identifying and describing the breach and stating its intention to terminate if the breach is not remedied within 10 business days from the giving of the notice.
3. The breach is not remedied, and the terminating party gives a further written notice.

Two notices, not one. Skip the second and the contract keeps running.

Condition 26.3 lists what counts as substantial breach by the owner:

• failing to produce evidence satisfactory to the builder of the owner's capacity to pay the contract price;
• failing to pay money due and owing within 5 business days after the due date;
• substantially or persistently obstructing the builder in performing the work.

The list is inclusive. Condition 26.4 runs the same test against the builder, including failing to hold the current, active and appropriate licence required under the QBCC Act.

Insolvency, and the line you cannot cross

Condition 27 is faster. If the owner is made bankrupt, or being a company goes into liquidation, the builder may terminate forthwith by written notice, remove and retain all unfixed materials, goods, plant and equipment it brought to site and recover its damages.

The contract carries its own warning about the limit. Legislation effective from 1 July 2018 makes it illegal to terminate a contract with a contractor solely because they have encountered financial difficulties short of bankruptcy or liquidation. Distress is not a ground. Actual insolvency is.

Repudiation at common law

QBCC frames the alternative: a party may lawfully terminate where a contract clause gives the right, or where the right exists under the common law or legislation without being stated in the contract. Its examples run the other way, an owner terminating on a builder unwilling to complete, or unable because it has died, disappeared, become insolvent or lost its licence. The doctrine is symmetrical. An owner who makes clear it will not pay, or who locks the builder out, repudiates.

This is the riskier road. QBCC warns that terminating without a lawful ground leaves the terminating party open to legal action and damages, and that a notice which does not accord with the contract or other applicable laws is invalid, so the contract simply continues. A builder who downs tools on an invalid notice has abandoned the job, and abandonment is itself repudiation.

What the builder can recover

Under condition 26.1 the party giving the notice may recover from the party in breach all damages, loss, cost or expense occasioned by the breach or the termination, and may set that claim off against payments otherwise due.

What the builder cannot do is secure it against the house. Schedule 1B section 43 makes it an offence to lodge a caveat over the land of an owner known to be a resident owner, carrying 4 demerit points under Schedule 5 of the QBCC Regulation 2018. The terminated builder is an unsecured creditor chasing a judgment. Arbitration is no shortcut either: Schedule 1B section 32 voids a clause in a regulated contract requiring a dispute to go to arbitration, unless the parties agree to it after the dispute arises.

The warranty scheme and your licence

If the builder walks and the owner terminates lawfully, the Queensland Home Warranty Scheme steps in, then comes back. QBCC states the scheme cannot assist for non-completion unless the consumer has lawfully terminated, that termination must occur within 2 years of entering the contract or of work starting, and that the claim must be made within 3 months of the contract being terminated.

Once QBCC pays, section 71 of the QBCC Act lets it recover the payment as a debt from the building contractor by whom the work was or was to be carried out, or any other person through whose fault the claim arose. Section 71(3) subrogates QBCC to the claimant's rights.

That debt is where the licence goes. Section 67AW(2)(b) allocates 10 demerit points for an unsatisfied judgment debt, and 30 points in a 3 year period means the person cannot hold a licence for 3 years. Three unpaid judgments is the whole exclusion.

Schedule 1B section 29(3) adds a sting. Where the work is not completed and the contract is terminated, the statutory warranty period starts on the date of termination rather than on completion. Walking away starts the clock instead of stopping it.