Fixed Business Contract, the builder is asking for nearly 100k more what can I do?

Hi,

We have just been caught up in a scenario, where a fixed building contract was signed last February 2021.

The build is for a development and we budgeted for both the land and development, we used a third party agent to assist us with finding the right land and build. At that stage we were reassured that there will be no price changes, the building contract even included "Special Conditions", that take priority.

In the Special Conditions section, under the Included Costs & Fixed Price Contract section, is states that the contract is fixed and not subject to increase, review or variation and the owner shall not be liable for any additional amounts for any matter whatsoever.

The land registration has been continuously been pushed out, originally it was expected to be October 2021, with December/January at the latest. We are now hoping that the land is able to register by early March.

The builder has now advised that they require us to pay another 92k for them to honour the contract.

Has anyone been in a similar situation?
Any recommended course of action?
Are we able to claim compensation if they do not honour the building contract at the agreed fixed price?

Any guidance would be much appreciated.

 

Interesting - what are you building? Is it one home?

Perhaps try and negotiate a middle ground with the builder?

 

I would refer back to the lawyer who wrote the special condition presumably for you.

You will need advice on:
- is there other clauses that allow the builder to increase the price (in WA there is)
- under what provisions has the builder requested the increase (generally they have to notify and say what clauses which seeks your formal approval)
- does the builder have the ability to terminate the contract if you don't agree to the increase due to the excessive time taken, ie builder might be able to terminate if xx days between contract being executed and going to site or obtaining building permit
- if the builder does terminate the contract will a new builder be even more expensive than the $92k
- is there any negotiable items

There has legitimately been increases in labour and materials since you signed the contract. The builder quoted the price 12mths ago and may now be in a position where they would lose money if they constructed your project.

 

Thanks for your input, we have had a special clause included stating that the price will not increase whats so ever, we may have to look to legal avenues to move forward with this as they are asking for a substantial additional payment of 92k that was not budgeted for.

 

Not at this stage.

 

As others pointed out 12 month delay (where's the fault or cause), what is the variation process, dispute resolution mechanism & 'how fixed' is the price or for how long?

Why don't you have a contingency? Your property value has probably increased substantially over the period of the delay as well possibly allowing additional drawing or greater borrowings.

 

Contract delays not forseen in the original contract would likely be suitable grounds. It doesnt take 12mths to commence to construct. Your land is not available and is a matter not within the scope of the contract basis. Fixed prices dont mean "fixed". It means based on the contract starting it was fixed. You may now have the opportunity to walk away. The builder is giving you notice they would walk away at the former price. Contracts arent open ended forever. Surely your legal advice when you signed explained that.

Seek legal advice. The builder may merely be allowing you to walk if you dont agree to the revised pricing. That could involve losses and delays and further costs not contemplated in the contract also if you do walk.

Yes the land and val on the completed build may have appreciated and may mean the lender will need to reconsider approval in any event. Ask for more $$ ? This is presently very common in Sydney. Many buyers have 20%+ equity now and borrowing the extra is easier. Broker guidance on which lenders will value the completed build would help. They may expect the site is also costed with landscape etc to do that.

 

Common at the moment unfortunately, build costs (materials) have increased significantly since the start of last year, lots of builders crashing contracts here in QLD if clients cannot find more money to put in to the deals.

Builders can't afford to build houses at a loss, and I would be very surprised if they were forced to do so, legally, they would be bankrupt very quickly.

 

Who wrote that clause and does it trump other clauses in the contract.
Is your contract even still valid? If you haven't paid anything on it then you may find that it can be terminated by the builder due to various reasons, ie time to obtain finance is probably long expired, time to commence works is probably long expired,

You need legal advice based on your contract and what clauses the builder is seeking to change the price.

 

People often misinterpret the term "fixed price" Contract. The price is fixed subject to the conditions of the Contract.. generally one of those conditions is an anticipated start or price review date. In my experience, it is generally 60 days from the date of the Contract. In that 60 days the following must be reached - Finance to the Builder's Satisfaction, Building Approval and Possession of site. If your land is not registered then they can not reach these milestones and therefore have the opportunity to review the price.

 

Surely this is straight to an appropriately qualified lawyer - when we're talking about this sort of issue and the amount of money involved.

 

Why pay for professional advice when all you want is the vibe?

 

PRIOR to signing

 

Yes just go and seek legal advice. No one can advise you with first knowing what you agreed to

 

leaving aside whether the builder is going to bankrupt doing the job,
and assuming there is no legal get out clause

the point of a fixed contract is so its fixed, piece of mind , and it goes the other way too, if the price of materials/labour dropped, it wouldnt change, just like fixed home loans

i dont have a solution but at the least the builder should be doing the job, the buyers have planned, financed and possibly made significant changes to their lives to accomodate

oops, i the builder made a boo boo, just doesnt cut it

 

Contracts have performance both ways. If land was meant to be registered by Oct 21 then it might have been fixed until this date but if the land isn't ready yet how is that the builders fault? If you waited two years would you still expect someone to hold their price?
What about the builder? They might have turned away work because they were scheduled to start this job in Oct 21, now waiting for 5 months, do you want to cover their potential loss of income etc?

 

Yikes its a very tricky position. They are calling it the profitless boom in construction.

I've met a few builders recently for catch ups, clients, networks etc. Their reputations are shot in some cases like this for reasons that they have no control over. With some I've met, I am genuinely concerned about their mental health from the stresses they are under. Some are good people that genuinely enjoy their craft and have spent years building solid reputations and businesses.

From their perspective, their having their own clients considering legal action against them because they want them to build their home for free based on contracts an eternity ago in cost terms (there's been close to a decades worth of inflation in build costs in 12 months!) that make no commercial sense to do.

On one hand you are seriously disappointing your clients and your reputation, and on the other you are putting your family's dinner at risk. Both scenarios are horrible.

 

Mmm 2 lawyers and a property developer say seek professional legal advice. Free advice too. Interesting.

 

When I ask a question, it's usually because I already have the answer however, there may be something left of field that I hadn't considered. At other times I have NFI