Does a Conditional Occupancy Permit Mean You Have Not Achieved Completion?

Business Analysis of Troise v Blue Key Properties Pty Ltd (Building and Property) [2025] VCAT 9

On 2 January 2025, Senior Member Edquist delivered a significant ruling in Troise v Blue Key Properties Pty Ltd, with implications for the construction and property sectors. The case centred on a contractual dispute regarding three two-storey residential units in Werribee and whether the builder had completed the works as per the contract. A key issue was the validity of the Occupancy Permit issued on 9 September 2020 and whether it signified contractual completion.

The owners refused to pay the final invoice, citing defects. During the dispute, Unit 3 was vandalised. The owners subsequently terminated the contract on 30 April 2021, arguing the builder had repudiated it. The Tribunal’s decision, which found the Occupancy Permit invalid due to its conditional nature, reaffirmed critical principles regarding contract completion, site security, and damages assessment.

Invalid Occupancy Permit and Non-Completion of Works

A central issue was whether the works were complete when the builder issued the final invoice. The Tribunal determined that completion had not been achieved and invalidated the Occupancy Permit issued by Acme Building Consultants on 9 September 2020. As a result, the builder’s demand for final payment was deemed unjustified.

Key findings included:

The Occupancy Permit was conditional, requiring all appliances and services to be fitted off and commissioned before occupation.

The Building Act 1993 (Vic) does not distinguish between conditional and unconditional permits (Barbour v Australian Elegant Homes Pty Ltd [2018] VCAT 1242; Cardona v Brown [2012] VSCA 174).

Works were incomplete, as confirmed by a pre-handover inspection conducted by an independent building consultant.

A building surveyor’s approval does not equate to contractual completion, which remains a matter of contractual interpretation.

Termination and Special Condition 6’s Legal Deficiency

The owners issued a notice of intention to terminate under clause 43.1 of the contract. The builder argued the owners had repudiated the contract by failing to pay within 14 days of the Occupancy Permit, as required by Special Condition 6. The Tribunal found:

Special Condition 6 contravened s132(1)(a) of the Domestic Building Contracts Act 1995 (Vic) and was unenforceable.

The builder’s notice of completion was invalid, meaning procedural steps under clause 36 had not been triggered.

Without a valid notice of completion, the builder’s final claim was not payable.

Builder’s Liability for Vandalism and Risk Management

During the payment dispute, Unit 3 was vandalised. The Tribunal ruled that:

The builder retained legal responsibility for the works until possession passed to the owners.

Under clause 20 of the contract, the builder bore the risk for site damage.

As the contract had not yet been terminated at the time of vandalism, the builder was liable for rectifying the damage.

This decision reinforces the need for builders to implement site security and risk management measures during disputes.

Damages Assessment and Financial Implications

The owners sought compensation for defective works, vandalism, variation credits, and delays. The Tribunal applied the principles from Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 83 ALJR 390, ensuring damages restored the owners to the position they would have been in had the contract been properly performed.

Key financial takeaways:

Rectification Costs: Awarded based on actual costs rather than estimates (Hyder Consulting (Australia) P/L v Wilh Wilhelmsen Agency P/L & Anor [2001] NSWCA 313).

Inflation Adjustment: A 3% increase was applied to reflect rising costs.

Rectification Margin: A 30% margin on rectification costs was deemed reasonable.

Loss of Rental Income: The Tribunal left open whether consequential losses were recoverable beyond liquidated damages.

Interest on Damages: The owners were given 60 days to apply for interest on awarded damages.

Key Lessons for the Industry

This case highlights the importance of strict adherence to contractual and statutory requirements. Key takeaways include:

Occupancy Permits Must Be Unconditional – Builders cannot rely on conditional permits to justify final payment claims.

Contractual Completion Must Align with Contract Terms – A building surveyor’s approval does not automatically mean completion under the contract.

Risk Management and Security Measures Are Critical – Builders remain responsible for site security until legal possession transfers.

Defective Work Claims Require Strong Expert Evidence – Expert reports must be well-prepared and defensible.

Special Conditions Must Comply with Legislation – Progress payment clauses must align with the Domestic Building Contracts Act 1995 (Vic).

Damages Reflect Actual Costs – The Tribunal favours real incurred costs over estimates.

The Troise decision serves as a cautionary tale for builders and developers, underscoring the importance of contract management and regulatory compliance to avoid costly litigation and financial liability. Chat to us if you’d like to learn more on this topic.