Do you have big renovation plans for your new home, or do you want to make improvements before you sell?
Now is a good time to make sure you protect yourself as building companies hit turbulent financial waters while they absorb increasing material costs.
Leading industry researcher CoreLogic says construction costs jumped 9% in the year to March. In the past five years, prices have leapt 25%. We haven’t seen the building industry under this cost pressure since the GST was introduced in 2001 and prices jumped 10.2%.
Cost rises are evident across the country, says CoreLogic. Queensland (2.2%) recorded the lowest quarterly increase while South Australia (2.5%) was hit hardest. NSW, Victoria and Western Australia each recorded cost increases of 2.4% in line with the national average.
With inflation expected to continue rising, no one predicts this situation will ease soon.
So, as a homeowner planning to renovate, this checklist offers some tips on helping to safeguard your assets.
Seek legal advice
It’s never been more important to talk to your solicitor before signing a builder’s contract. You want the best possible protection from potential insolvency.
Your deposit
Do not pay a deposit before signing the contract. You may be pressured to do so. You wouldn’t be the first.
Insurance
Building companies must have their own state’s version of a Home Owners Warranty Insurance. Each state will apply its rules, and your legal advice will address these. Using the most populous state, NSW, as an example: a builder must supply this warranty for work valued at more than $20,000.
Fine details
Watch for stipulations that govern the ownership and use of the plans (which you may pay for but not own). And you should know the details of your power to terminate the contract. It may be limited and not include an event in which a builder goes into administration.
Ipso facto clause
This is meant to protect a client from a contractor’s insolvency, allowing them to end a contract. However, changes to the Corporations Act give certain protections to companies. So you must ensure your legal advice is clear on what this means if the builder goes into voluntary administration and/or is being re-structured.