Final Payment and Retention Release on Residential Builds (AU)

What it is

The final payment on a residential build is the last money owed to the builder. It moves in two parts. The first part is the final claim made when the works reach Practical Completion (PC). The second part is the retention or final hold that releases at the end of the Defects Liability Period (DLP).

These two moments are different events with different legal triggers. Treat them as one and you will either overpay or under-secure.

Practical Completion

Practical Completion is the point at which the works are complete except for minor defects or minor omissions that do not prevent the home from being used for its intended purpose. The standard residential contracts (HIA, Master Builders and the Fair Trading template contracts in each state) all use this language with small variations.

What PC actually triggers

When PC is reached, several clocks start at once.

The builder issues a Notice of Practical Completion. The owner has a short period (commonly 5 to 10 business days) to either accept PC or dispute it and list the items they say must be finished first.

The risk in the works passes from the builder to the owner. The owner takes out their own building insurance from this date.

The Defects Liability Period starts running. This is usually 13 weeks (3 months) under HIA contracts or 6 months under most Master Builders forms, and can be longer for some inclusions like waterproofing.

The final claim becomes due. The contract sets the payment period (typically 5 working days from delivery of the claim plus the keys).

Disputed PC

If the owner disputes PC, the contract usually requires them to give a written list of items. The builder either finishes those items and re-issues the notice, or refers the dispute to the contract's dispute clause. In most state regimes the dispute then runs through the consumer tribunal pathway.

The final claim

The final claim is the last progress claim. It captures the final stage value plus any approved variations not yet claimed. Two things sit between the claim and a clean payment.

Defects notice impact

If the owner serves a defects notice during the PC period, the builder must rectify before the final claim becomes payable. Most contracts allow the owner to withhold an amount reasonably required to fix the listed defects. That amount is not the whole claim. It is a set-off against the cost of rectification.

This is where disputes get sharp. The owner often wants to withhold the full final claim. The contract usually only allows withholding the rectification value plus a reasonable margin.

Set-off and counterclaim

Where the owner has a genuine claim for delay damages, defective work or unfinished items, they can set those amounts off against the final payment. The set-off must be quantified and notified in writing. A general claim that "the work is not good enough" is not a set-off.

Statutory carve-outs

In NSW the Home Building Act 1989 section 8A controls the form of progress payments on residential work, but the final payment mechanism is largely contract-driven. The Security of Payment Act does not apply between builder and owner-occupier, so the final claim does not get adjudicated under SoP. It is resolved through the contract and NCAT.

Retention and the DLP

The retention amount is the portion of the contract price held back to secure rectification of defects that emerge after PC. Two patterns are common in residential work.

Retention pattern

The owner holds 5 per cent of each progress payment, with half released at PC and the balance released at the end of the DLP. Net effect is 2.5 per cent held through the DLP.

Bank guarantee pattern

The builder gives a bank guarantee instead of cash retention. The guarantee is returned at the end of the DLP if no claims are on foot.

In Queensland, the QBCC requirement is that if a contract does not specify a DLP then any retention or security must be released 12 months after Practical Completion, and it is an offence to withhold retention without reasonable excuse.

Release at the end of the DLP

At the end of the DLP, the builder gives a Notice of End of Defects Liability Period. In Queensland this is the QBCC Form S67NC, served at least 10 business days before the DLP ends. The notice tells the owner the amount of retention proposed to be released and gives them a chance to raise any final defects.

If the owner does not respond, the retention is released. If the owner raises defects, the builder either fixes them and then takes the retention, or the dispute heads to the tribunal.

State variations to watch

Final payment mechanisms vary by state in small ways that matter.

NSW

Home Building Act 1989 section 8A controls progress payments. The final claim is governed by the contract. NCAT handles disputes up to its limit.

Victoria

Domestic Building Contracts Act 1995 controls the contract structure. Section 40 limits progress payments to work already carried out. DBDRV runs conciliation before VCAT.

Queensland

The QBCC defects liability framework under the Domestic Building Contracts schedule of the QBCC Act controls residential DLPs. Form S67NC is the trigger document for retention release. Common DLP is 12 months for residential.

WA and SA

Each has its own building services framework. Retention release timing is contract-driven, with the SAT (WA) or SACAT (SA) handling disputes.

How to run a clean final payment

A few practical habits keep this stage out of court.

Walk the site with the owner at PC. List items together. Sign the list.

Photograph the home at PC. The state of finishes at PC sets the baseline for any later defect claim.

Issue the final claim with the PC notice. Attach the variation schedule and any reconciliation against the original contract sum.

Diary the DLP end date. Send the end-of-DLP notice in the time the contract requires.

Get the retention release in writing. A signed release closes the contract.