In the recent case of Perera v Bold Properties (QLD) Pty Ltd [2023] QDC 99, the Queensland District Court has ruled against the enforceability of special conditions in new home building contracts which allow builders to unilaterally increase a fixed contract price.  

Summary

On 11 August 2022, Mr and Mrs Perera entered into a fixed New Home Domestic Building Contract with Bold Property Group (“the Contract“). The Contract was in the standard form produced by the Housing Industry Association. The Contract price was $645,370. 

The build did not start on the anticipated date.  On 13 October 2022, the Pereras were informed that due to delays with materials as well as increased costs of materials connected to the COVID-19 pandemic, that the Contract price was to increase by $51,324. The builder indicated this increase was a compromise, because the actual increased costs totalled $82,683.

The Pereras refused to pay the additional amount, arguing that the Contract was a fixed price contract.  

Bold Property relied on a special condition in the Contract, which stated:  

7. In the event that commencement has not taken place by the anticipated start date (as noted in item 14) the builder reserves the right, at the builder’s sole discretion, to increase the contract price to the current base price of the house type, which is the subject of this contract and identified in the Contract Tender, to the builder’s current base price for that house type. 

The builder offered to terminate the Contract by agreement. However, the Pereras wanted the builder to perform the Contract as agreed and build their house.   

Justice Barlow KC found that Special Condition 7 was wholly void at law for the following reasons: 

1. Special Condition 7 was uncertain and there was no reference as to what a price increase could be;  
2. The Contract failed to provide sufficient price change warnings as required by the Queensland Building and Construction Commission Act 1991 (this was despite a warning clause existing in the contract); and 
3. Special Condition 7 was an unfair contract term under the Australian Consumer Law because (amongst other things) it did not give guidance as to how a higher price base was determined and resulted in a significant power imbalance in the builder’s favour.  

The Pereras succeeded and the Contract remains on foot. The builder was ordered to pay the Perera’s legal costs.  

Implications for builders  

Builders should beware of inserting terms and special conditions which allow provision to increase a contract price. Depending on the construction of the term and the remainder of the contract, the term could be void at law and potentially found to breach the Australian Consumer Law. Builders should obtain legal advice before adding special conditions to contracts to protect themselves, particularly given the present volatile industry climate. Consideration should also be given to the appropriate wording of the warning statements included within building contracts.

Implications for homeowners 

Homeowners can take some comfort in that there is further certainty in a fixed price contract. However, this will depend on the specific contract. In the event your builder notifies you of increases to your contract price, homeowners should seek legal advice before taking action, to avoid circumstances such as these and the associated cost and delay of bringing proceedings.