Investors who run their own company could be exploited by a legal technicality when hiring a builder, a Sydney lawyer has warned.
Robert Macaulay from law firm Pryor Tzannes & Wallis told Residential Property Manager’s sister publication Smart Property Investment that he has seen multiple cases where tradespeople have misused legislation to force their clients to pay disputed bills.
“This is a ticking time bomb,” he said.
Generally, disputes between builders and homeowners in New South Wales fall under the Home Building Act.
However, where the owner also runs a company or business, the tradesperson might instead issue their bill under the Building and Construction Industry Security of Payment Act, Mr Macaulay warned.
This legislation was originally designed to facilitate quick payment between contractors, but some builders intentionally use it to take advantage of their clients.
“The great danger here is that this is open to abuse whenever a homeowner is also the operator of the company,” Mr Macaulay said.
Any suggestion that the owner’s company is a party to the construction contract – including minor gestures like giving out a company business card or using a work email – could lead to this law being invoked, according to Mr Macaulay.
If a person receives a bill issued under this act, they have a maximum of 10 days to respond with payment or bring up reasons for non-payment.
“If there's a dispute, this is the time to raise it. If you don't raise it then, you can never raise it,” Mr Macaulay said.
If a person fails to respond within the right timeframe and the builder takes the case to adjudication, the person will not be allowed to argue their case, Mr Macaulay cautioned.
“The law actually bars the adjudicator from considering anything you have to say about the claim. It is extremely harsh,” he said.
In his experience, this is true even if the act should never have applied to the parties in the first place.
“The builder just gets an adjudication for termination in their favour and then they can enforce it and there is no defence,” Mr Macaulay said.
The only way to lift an adjudicator’s order for payment is to apply in the Supreme Court – and that comes at a price.
“If you waltzed into my office and said to me...we have to go to the Supreme Court, my estimate of costs would be no less than $50,000 to start,” Mr Macaulay said.
To protect themselves, renovators should be wary of any action that might imply their company is involved in the contract with the builder.
Moreover, investors should respond immediately to any bills invoking the Security of Payment Act and seek professional legal advice.
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