The importance of terminating your construction contract when your builder becomes insolvent or enters into liquidation
It’s no secret that the construction industry has been experiencing unprecedented disruption caused by labour shortages and supply chain issues over the last few years. As the flow-on effects of such disruption continue to ripple through the industry, we are now seeing an alarming number of builders battling significant cashflow issues. Accordingly, it has never been more important for homeowners to understand their rights and what they should do when their builder becomes insolvent or enters into liquidation.
The most common step homeowners take when their builder becomes insolvent or enters into liquidation is to lodge a claim under the Queensland Building and Construction Commission’s (QBCC) Queensland Home Warranty Scheme (QHWS).
Ordinarily, it is imperative to ensure that a contract is validly terminated prior to making a claim under the QHWS as entitlement to assistance under the QHWS is dependent upon the contract being validly terminated by reason of the builder’s default. However, this pre-requisite to entitlement does not apply where a builder becomes insolvent or enters into liquidation. This is because section 4 of Schedule 6 of the Queensland Building and Construction Commission Regulation 2018 (Qld) provides that a fixed price residential contract ‘ends’ if (among other things):
- the contract is validly terminated on the default of the builder; or
- the builder is bankrupt, insolvent or enters into liquidation and its QBCC licence has been cancelled.
The effect of this is that, where a builder becomes insolvent or enters into liquidation and the QBCC has cancelled the builder’s licence, a homeowner may lodge a claim under the QHWS without taking any formal steps to terminate the contract.
However, what homeowners commonly misunderstand is that the contract is taken to be at an end for the purposes of the QHWS only – it is not otherwise terminated or brought to an end. Essentially, this means that whilst the QBCC will accept a claim under the QHWS where a builder becomes insolvent or enters into liquidation and its QBCC licence has been cancelled without any formal steps to terminate the contract being taken by the homeowner, the contract technically remains on foot and the parties’ obligations under the contract are ongoing.
Therefore, even if a homeowner proceeds to make a claim under the QHWS where their builder is insolvent or enters into liquidation and its QBCC licence has been cancelled, it is important that they still take steps to formally terminate the contract. This will ensure that all obligations under the contract are brought to an end and will protect the homeowner’s right to recover any losses not covered under the QHWS from the builder.
If you need assistance lodging a claim under the QHWS and/or terminating your contract, please do not hesitate to contact our offices on (07) 3139 1874 or email us at info@constructlaw.com.au.
This post is provided for general information and educational purposes only and does not constitute legal advice. Readers should obtain appropriate independent legal advice based on their own specific circumstances.
