Legal Insights

Property development in Australia - traps for the unwary

• 17 April 2015 • 8 min read

Before commencing a development project in any Australian jurisdiction it is critical to ensure that you are aware of the potential risks associated with the application of various pieces of Australian legislation.

There are a number of critical legal issues associated with Australian property development which developers must be aware of.

Each Australian jurisdiction has its own security of payment legislation (in a similar vein to Singapore's Building and Construction Industry Security of Payment Act 2004) governing contracts for construction work and related goods and services. In addition, legislation governing the performance of residential building work is in force across the various jurisdictions in Australia.

The legislative regimes differ depending on the particular jurisdiction, however, each legislative regime has wide reaching effects on development projects which should be taken into account before proceeding.

Security of payment legislation

Security of payment legislation will generally apply to contracts for the performance of construction work or related goods and services – concepts which are likely to capture a broad range of activities associated with a development project.

This legislation has the objective of ensuring contractors and subcontractors are paid for the construction work they perform on time and without the need to pursue costly litigation procedures in the case of disputes surrounding payment. The various legislative regimes are framed as 'interim payment' processes. Although the determination of an adjudicated payment dispute under security of payment legislation can be overturned by subsequent litigation or other final and binding dispute resolution processes, the amount for payment which is determined by an adjudicator must be made in the meantime. In many jurisdictions there is no 'cap' in respect of amounts which can be claimed in adjudications, and as a result, the determinations by adjudicators can result in developer liability for significant amounts, especially given the often claimant-friendly nature of the adjudication process. The various security of payment regimes have a number of mandatory procedures and short timeframes which must be complied with by both contractors and developers, with potentially drastic consequences for non-compliances. The relevant pieces of legislation are:

New South Wales: Building and Construction Industry Security of Payment Act 1999 (NSW)
Queensland: Building and Construction Industry Payments Act 2004 (Qld)
Victoria: Building and Construction Industry Security of Payment Act 2002 (Vic)
South Australia: Building and Construction Industry Security of Payment Act 2009 (SA)
Tasmania: Building and Construction Industry Security of Payment Act 2009 (Tas)
Australian Capital Territory: Building and Construction Industry (Security of Payment) Act 2009 (ACT)
Northern Territory: Construction Contracts (Security of Payments) Act (NT)
Western Australia: Construction Contracts Act 2004 (WA).

What are the key provisions of the security of payment legislative regimes to be aware of?

Although security of payment regimes differ across most Australian jurisdictions, there are a number of common elements that you should be aware of (with the exception of Western Australia, which only imposes requirements where a construction contract does not deal with a particular issue). Most importantly, in most cases it is not possible to contract out of these regimes – so security of payment legislation will apply in most cases, regardless of what your contract may say. A summary of some of the main features of most security of payment regimes is set out below.

Payment claim – contractors or subcontractors can make a payment claim under the relevant security of payment legislation provided that the payment claim meets certain requirements of that legislation. In NSW, there is no longer any requirement that the payment claim is stated to be a payment claim made under the relevant legislation, so the reach of what is considered to be a payment claim is potentially very broad in NSW.
Payment schedule – in response to a payment claim, developers (as 'respondents' under the security of payment legislation) must issue a payment schedule within a particular timeframe (usually within 10 business days after a payment claim is served), which meets prescribed requirements, including by (in general terms):
- identifying the payment claim to which it relates
- indicating the amount of payment (if any) that the respondent proposes to make
- detailing the reasons for withholding payment (if any).

In many jurisdictions, if a developer fails to issue a compliant payment schedule within the required timeframe, the full amount claimed in the payment claim will become a debt due and payable – regardless of how inflated or unjustifiable the amount claimed may be.

Adjudication applications – if the claimant is dissatisfied with the amount set out in the payment schedule as the amount which is owing to the claimant or if the respondent fails to pay the scheduled amount, the claimant may apply for an adjudication of the payment claim.
Adjudication responses – if a claimant has issued an adjudication application, a respondent must lodge an adjudication response generally within five business days after receiving a copy of the application. For most jurisdictions, the respondent cannot include in the adjudication response any reasons for withholding payment unless those reasons have already been included in the payment schedule provided to the claimant – so it is crucial that the payment schedule captures the relevant reasons for withholding payment. In Queensland, a respondent may raise new reasons in an adjudication response in respect of 'complex payment claims' which are payment claims for amounts of more than $750,000 (excluding GST).
Adjudication determinations – an adjudicator must determine the adjudication application generally within 10 business days after the date on which the adjudicator notified the parties as to his or her acceptance of the application or within such further time as the claimant and respondent may agree. The scope for challenging adjudication determinations is limited, and generally, the next steps after a claimant has obtained an adjudication determination are for the claimant to file the determination in court as a judgment. As noted above, the adjudication process under the security of payment legislation is an interim payment process subject to the relevant final and binding dispute resolution process.
Due date for payment – in New South Wales, Queensland and Western Australia, the security of payment legislation prescribes a mandatory due date for payment.

Residential building legislation

Where a residential development is to be undertaken, you also need to be mindful of the various pieces of legislation that govern residential development projects.

Across the various Australian States and Territories, there is more stringent regulation associated with the residential building sector when compared with other building work. Although the provisions of the legislative regimes are generally aimed at builders carrying out the work, many provisions also apply to developers.

To take New South Wales as an example, key provisions of the Home Building Act 1989 (NSW) (Home Building Act) could impose significant and ongoing liability of a developer to subsequent purchasers of residential dwellings. Some of the key provisions of the Home Building Act include:

Statutory warranties – particular warranties are implied in every contract to do residential building work, including a warranty that the work will be done with due care and skill. Persons who are successors in title to a developer are entitled to the benefit of the statutory warranties as if the developer had done the work under a contract with that successor in title. The statutory warranties cannot be excluded from contracts.
Duties of statutory warranty holders – in order to preserve entitlements against builders, developers need to ensure that they comply with particular 'duties', including a duty to mitigate the loss, a duty to notify the builder of a breach of a statutory warranty within six months after the breach becomes apparent, and a duty not to unreasonably refuse a person who is in breach of a statutory warranty access for the purposes of rectification.
Home warranty insurance and purchaser contracts – a developer must not enter into a contract for the sale of land on which residential building work has been done, or is to be done, on the developer's behalf, unless a certificate of insurance evidencing the relevant builder's contract of insurance is attached to the contract of sale.
Timeframes for proceedings for breach of statutory warranties – proceedings for a breach of a statutory warranty must be commenced:
- within six years of completion of the work to which that breach relates in the case of 'major defects'
- within two years of completion of the work to which that breach relates in any other case.

Relevant legislation to be aware of across Australian jurisdictions includes: