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My Builder is insolvent and in liquiditation… HELP!

Things haven’t gone to plan and my builder has gone into liquidation. HELP!

After all the effort, decision making, waiting, emotions and hard-earned dollars that goes into building a new home in Geelong, your builder becoming insolvent is almost an unthinkable situation.

It doesn’t matter if your new home build is yet to commence, or you’re almost at completion, this situation is stressful beyond words. Initially, it can be difficult to know what to do. You most likely have many questions and concerns with not a lot of clarity.

There are many steps involved in recommencing the construction of your home if your builder dies, disappears or is declared insolvent. As all situations are different, they may require different approaches therefore it is critical that specialised legal advice is obtained prior to making any decisions.

The below are some general suggestions for homeowners on where to start if the unfortunate was to happen – they are by no means legal advice;

  1. Stop making payments immediately.
    • Do not make any further payments with respect to building contract as this will most likely be lost.
  2. Obtain your own independent legal advice.
    • It is important that you protect yourself and seek your own advice as others building with the same builder may be in a completely different position depending on their situation, what stage of construction the build is at, the building contract etc.
    • Advice on what the notice of “repudiation” means.
    • Any advice on how to secure the house? You have an obligation under the Domestic Building Insurance policy to protect the house but changing locks, padlocking gates or even entering the property could be construed as ‘taking possession’ – they can advise the best way to do this.
    • How do you formally issue a notice to the builder/liquidator to obtain access so works can be assessed/inspected and you don’t become in breach?
    • Insurance required – What type? How much?
    • Will liquidators be requesting payment for works completed? If so the best way to mitigate any claims – get on the front foot with inspections and quotes etc.
    • Some options/scenarios can include;
      • Other builders may take over a collective group of builds?
      • Terminating contract and engaging another builder. What are the risks?
      • Insurance claim – inevitable? Risks?
      • Other avenues?
  3. Read through your building contract.
    • Familiarise yourself with clauses such as stage payments (when due/definitions), Notices (when is a notice considered issued), Liquidation breach’s – this will be important to determine where your job is at, what is considered incomplete/claimable etc.
  4. Contact the Administrator/Liquidator of the company that has gone into liquidation.
    • Make sure you are listed as an interested party – they should provide information and assistance, along with outline what intentions are held for your building contract and an explanation of the process.
  5. Find out who the Domestic Building Insurance provider is.
    • Go through your building documents and search for “Domestic Building Insurance” or “Home Warranty Insurance”. The two companies that builders typically use are “VMIA” (Victorian Managed Insurance Authority) or “Assetinsure”.
    • Ensure ALL details of both you and the builder are on the certificate – All must exactly match the building contract.
    • Read through the Product Disclosure Statement (PDS) and make any clarifications you require.
    • Reach out to them and ask for their guidance and assistance on the best steps moving forward.
    • Clarify if it does go down the insurance path what the process is and when you can access site to complete an inspection/s.
    • Also clarify future scenarios; what happens 1 year down the track if a defect is noticed? What happens 5 years down the track? Can multiple claims be had?
    • If the house is damaged/vandalised/someone hurts themselves is this covered under VMIA insurance? If not who’s insurance? Do they have advice on how to ensure the house is insured?
    • Always get written confirmation of their answers – or ask where it states this in the PDS.
  6. Ensure your site is safe and secure* (*only if you have received legal advice that you won’t be in breach of your contract).
    • It may be tempting to change the locks, move in etc., especially if your home is close to being complete. However, this should be done with great caution. The insurer will be looking for any reason to not compensate you so be sure you do not breach your contract.
    • Remove the original builder’s advertising material to prevent it from being a target from anyone who is financially injured in the situation.
    • Contact the site fencing company and take over the hire fees or engage your own temporary fence company.
    • Change door and window locks and ensure no one can access property.
    • Some people also choose to set up fog machines and camera surveillance of the site.
    • Turn off and padlock your water meter.
  7. Contact your Building Surveyor – their details will be listed in your contract.
    • Request the status of what your house is up to i.e., how many mandatory inspections have been completed and more importantly, approved?
    • Ask for some advice – i.e., what steps would be involved for another builder to finish the build off, do they continue being the RBS etc?
    • Obtain inspection reports undertaken by the Building Surveyor for each stage.
  8. Arrange an independent Building Consultant to complete an inspection of defects and incomplete works:
    • A detailed report that references the contract documentation and relevant Australian Standards for each item identified will help you get the best possible outcome with your Domestic Building Insurance (DBI).
    • It is imperative that the report is completed by a Registered Building Practitioner and all items are captured in the list provided for the insurance claim.
    • Query whether the consultant can provide costings for the rectification/completing the works if required.
    • Keep in mind that insurance companies are a business and will not want to pay out more than they have to. They may even try to say that the construction has progressed further than the previous payment stage, and therefore you owe them.
    • Go back through previous emails and text messages throughout the build for any issues you have flagged, or any things you are concerned about to ensure these are captured in the independent report.
    • Ensure approved site access is obtained prior to the inspection.
    • Check the product disclosure statement (PDS) for your DBI, as it may be possible to claim this consultancy fee in your claim.
    • This report will also help to outline the scope of works that you are entering into with a new builder to take over the project. It draws a line in the sand and will help to avoid any confusion and sets clear expectations for all parties going forward, so the more detail, the better.
    • You get what you pay for… don’t go cheap, go the best as the investment in a thorough inspection and detailed report could add tens of thousands of dollars to your claim.
  9. Obtain confirmation of release of copyright for your existing plans from the liquidator so the new builder can use them without any concern of recourse.
  10. Obtain contract plans and accompanying documents including:
    • Architectural drawings
    • Engineering drawings
    • Energy report
    • Colour and materials specifications
    • Soil report
    • Developer approval
    • BAL report
    • Anything else that was required for the building permit.
    • Any other reports previously completed e.g., independent building inspections.
  11. Obtain Certificates of Compliance
    • These can sometimes be difficult to obtain if the relevant trades haven’t been paid by your builder. The trade may charge an admin fee to release the docs. The certificates available will vary depending on the stage of construction reached can include. Some trades are obligated to provide them so check with the Victorian Building Authority (VBA) on how to best get these documents. Some certificates include:
    • Plumbing;
      • Roof
      • Stormwater
      • Sewer
      • Gas
    • Electrical
    • Waterproofing
    • Insulation
    • Heating and cooling
    • Glazing – internal i.e., mirrors/showers and windows
    • Termite certificates (if applicable)
  1. Obtain Building Permit & associated documents including:
    • Asset protection permit
    • Building permit
    • Design guidelines if in an estate.
    • Any other council approval, e.g., report and consent
  2. Find a new builder to complete your build.
    • Once you have a list of all defects and incomplete works, then you can seek quotes from other builders who are able to take over your project.
    • Before appointing a new builder, obtain termination of existing contract in writing, if not from the builder, the liquidator should be able to provide this.
    • Ensure the new builder has purchased Domestic Building Insurance before paying your deposit.
  3. Arrange amendment to Building Permit to appoint new Builder.
    • Ask your RBS what is required to complete this process e.g. the new builder taking on your project should ensure all certificates are obtained before signing a new contract to ensure they are able to obtain the occupancy permit.
  4. Check the plumbing.
    • Before commencing construction with the new builder, request they arrange for a licenced plumber to complete a CCTV inspection of all plumbing to ensure everything is clear and no issues arise.
  5. What if unforeseen issues or defective works arises?
    • If any unforeseen issues or defective works arise during construction with your new builder, that haven’t been accounted or included in scope of works, you can make a new claim with the VMIA for those defective works, this is separate to warranty insurance payout. Ensure you ask the insurer prior to submitting a claim ‘What if another claim is required?’ ‘How does this process work?’
    • This claim can take time, so to keep things moving along, you may choose to get a variation from new builder, sign and pay for it and seek reimbursement from VMIA when you make the claim.

This is no doubt a confronting, confusing, frustrating, and stressful time. You have some work ahead of you before the construction of your home gets back on track, however we hope this summary gives you some direction and ideas on navigating the process.

 

We are here to offer support wherever possible, don’t hesitate to contact our friendly team.

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