Tyranny of the template – standard-form residential construction contracts

By Max Gunawan, Platinum Legal

Lawyers get taught early on in their training that contracts are legally binding documents. If you’ve signed it, or if you’ve expressed agreement to it in some other way, then you’re bound by the small print.

In this day and age, we’re bombarded with so many terms and conditions that we have perhaps developed this notion these terms and conditions are essentially harmless. This certainly isn’t the case for some popular standard-form residential construction agreements going around currently.

You might ask the question if departing from the standard might be that big of a deal, and you might ask whether it’s worthwhile hiring a lawyer to review these types of agreements. You should then consider some of the ‘standard clauses’ that I’ve come across:

· a clause limiting the right to raise a dispute on a payment claim, which under the Construction Contracts Act 2002 is set at 20 working days, to 7 working days instead.

· a clause granting the building a mortgage over your property in relation to any money that you owe to the builder – essentially giving the builder the right to prevent you from selling or refinancing the property until you’ve satisfied the construction debt.

· a clause granting the builder the right to charge more for additional work at their usual rates even if work and/or the price to carry out the work is not agreed upon beforehand.

· a clause granting the builder the right to suspend the building works if they are having difficulty securing subcontractors or materials.

· a clause granting the builder the right to suspend the works if there is a dispute in relation to any part of the work.

To be clear, I don’t have a moral objection to the inclusion of these clauses. After all, any person can negotiate any number of unusual terms in any legal agreement. For example, I can ask you to pay me $1000 every year for the rest of your life. This might sound unreasonable until you ask me, in exchange, to pay you $100,000 in the event of your early death. This is basically life insurance, by the way; but it’s a simplistic example that illustrates what can happen when parties to an agreement openly negotiate with each other.

Standard-template agreements don’t facilitate this open exchange. They have the effect of obscuring the onerous clauses by hiding them among many other clauses. The ordinary person will have a difficult time identifying the onerous clause, let alone understanding how it might affect them. In a residential construction context, this issue is accentuated because builders are often very busy. Many don’t have the time or resources to properly engage with these concerns or issues and often resort to saying that those clauses are standard and are used widely in the industry.

This is an unfortunate situation – for both the owner and for the builder. Owners who encounter issues with their construction too often feel that they’ve had the wool pulled over their eyes when builders enforce these onerous clauses. Builders who legally enforce their rights are touted as oppressive and deceptive for having weaponised a seemingly benign standard-form agreement.

On 16 August 2022, an important part of the Fair Trading Amendment Act 2021 came into effect. Now, a person affected by conduct that is ‘unconscionable’ can seek relief from the Court. What will constitute ‘unconscionable conduct’ will be a topic for a different day. My prediction, however, is that the use of standard-template agreements in construction is going to receive a lot of judicial attention. Particularly in this case where, in my opinion, several standard-template construction agreements contain clauses that are inherently prejudicial to the owner.

If you’re engaging a builder to carry out construction, my message is to get a good lawyer who is able to advise you about the construction agreement that you’re entering, and if possible, negotiate out some of the more onerous clauses. If you’re a builder, my message is to get a good lawyer to review your standard template agreement and your contract workflow to mitigate the risk of any later claim for ‘unconscionable conduct’.

Finally, if you’re the organisation issuing these standard-form contracts, please make the standard-form agreements more balanced. The lopsided nature is inducing an undesirable litigious environment and is doing the construction industry no favours in the long run.

If you have any questions about any matter raised in this post, please get in touch with us.

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