Nothing is more satisfying than seeing Building Works coming together as a project nears practical completion. Sometimes though, Builders prematurely issue the final invoice and attempt to arrange handover with the Owner. By doing so, and most of the time without knowing, they have not followed the Contract and taken the necessary steps required after completion of the Building Works, which could potentially put them in the firing line.
So, you may ask, what do Builders need to do before they can issue the invoice and notify the Owner that the Building Works are complete? Before we discuss the necessary steps, it is important to briefly discuss first and foremost, what ‘practical completion’ is?
There is no universal definition of ‘practical completion.’ Each building project varies in nature, and each building project has its own specific requirements under the contract to reach ‘practical completion.’ However, generally speaking a building project has reached ‘practical completion’ when all the works have been completed in accordance with the plans and specifications under the contract to the agreed standard and major defects (ie, those prohibiting occupation) have been rectified.
To avoid unnecessary disputes, it is important that from the onset that each party understands the nature of the particular building project and the specific requirements under the contract to reach ‘practical completion.’ Sometimes construction contracts outline what is required to satisfy ‘practical completion.’ If not, you should ensure it does. Things you should check include:
– What is the definition of practical completion? For example, should it be as broad as ‘in accordance with plans and specifications’ or should it be ‘upon the issue of the occupancy permit’ or ‘when the home is fit for occupation’?
– What ‘defects’ are required to be fixed before completion can be achieved?
– When does your building period end at the final inspection (before defects are identified) or after those defects are rectified?
So, what’s next? Two important inspections are required to satisfy this key milestone:
1. A practical completion inspection is required to be undertaken by your building surveyor to ensure that the home is technically fit and suitable to occupy. The building surveyor will issue an Occupancy Permit (or a Final Certificate), sometimes referred to as a Certificate of Occupancy. It’s important to remember that just because an Occupancy Certificate has been issued, it does not mean the home now belongs to the Owners and they can move in. The home remains the responsibility of the Builder until final handover takes place. To issue the final payment invoice without the Occupancy Certificate is premature, and Builders are not entitled to demand payment from the Owners.
2. A final inspection/pre-handover inspection is set out in the building contract, and is usually carried out by the Builder and the Owners (or its agent, for example an independent building consultant). From this inspection, if there are incomplete or faulty works found it is the responsibility of the Owner to put the Builder on notice. It is important that the parties produce a list of any incomplete and/or defective items. The building contract will define whose responsibility it is to prepare the list.
It is then the responsibility of the Builder to fix the incomplete and/or defective work. Again, your building contract should clearly identify what happens if there is a dispute between what the owner claims is defective and what the builder states is defective (ie, no right of set-off). After all it is called practical completion and not absolute completion.
Only then, can a Builder demand the final invoice. As stated above, whether a party is entitled to liquidated damages for any delay to the complete the works, will depend on how the contract defines ‘completion’.
It is important that all parties are aware of their obligations when entering into the contract. The more clarity each party has on their responsibilities to execute the Contract from start to end – the seamless the experience would be.
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