On 1 September 2020, the NSW Government introduced the new Building and Construction Industry Security of Payment Regulation 2020, which repeals the existing 2008 Regulation. Currently, owner occupier construction contracts are exempt from the Security of Payment laws. This means that most contractors in the residential space (both on the builder side and the home owner side) are not subject to the Security of Payment regime.
From 1 March 2021, for construction projects within NSW this will change, with owner occupier contracts to be included within the definition of ‘exempt residential construction contracts’, and therefore those contracts will be subject to the Security of Payment Act.
The effect of these changes will be that under Schedule 2 of the Regulation, builders will be able to serve a statutory Payment Claim on the homeowner, apply for Adjudication to resolve disputes, and invoke a statutory right to payment (in addition to their contractual right to payment).
What does this mean for residential builders?
The changes are intended to provide relief for residential builders, who will be able to recover moneys owed by owner occupiers under the Act by applying for Adjudication and obtaining enforceable Determinations. This process typically takes between 6 – 9 weeks to complete, and costs a fraction of the expenses involved in litigation. Currently, builders have to resolve residential construction disputes (where the amount in dispute is less than $500,000.00) through the NSW Civil & Administrative Tribunal. That process typically takes 6 – 9 months to complete, and can be prohibitively expensive.
Additionally, builders will have a statutory right to payment in relation to a Payment Claim and enforce these rights through the courts where the owner does not dispute the amount within the time permitted. That process can be even quicker and less expensive again.
What does this mean for home owners?
Homeowners should be aware that the new Regulation will allow builders to enforce statutory rights under the Security of Payment Act if a Payment Schedule disputing the amount claimed in the Payment Claim is not served within the time permitted. Homeowners should also be aware of the requirements in responding to Adjudication Applications made by builders.
This change is set to come into effect 1 March 2021, with the NSW Government expected to release further information and guidance for builders and owner occupiers prior to this date.
We recommend residential builders speak to our building and construction team for advice on how to best utilise the Security of Payment laws for owner occupier contracts. Homeowners who have or who are intending to contract for construction work after 1 March 2021 should also seek advice on the Security of Payment laws.