New NSW Security of Payment Regulation extends Adjudication scheme to owner occupier construction contracts

On 1 September 2020, the Building and Construction Industry Security of Payment Regulation 2020 (NSW) (Regulation) entered in force and repealed the existing Building and Construction Industry Security of Payment Regulation 2008 (NSW).

The Regulation follows recent amendments introduced by the Building and Construction Industry Security of Payment Act 1999 (the Act) and aims to provide legislative support and administrative detail for the operation of the Act.

Currently, owner occupier construction contracts are exempt from the NSW Adjudication scheme under clause 4.1 of the Regulation and section 7(5) of the Act which specifically provide that the Act does not apply to these contracts.

However, from 1 March 2021, Schedule 2 of the Regulations will omit the current clause 4 of the Regulations and include owner occupier construction contacts within the definition of exempt residential construction contracts. This means that from 1 March 2021, owner occupier construction contracts will be subject to the NSW Security of Payment legislation and therefore, builders will be able to serve a statutory payment claim on owner occupiers and apply for Adjudication.

Under the Act, an owner occupier construction contract means a construction contract for the carrying out of residential building work (within the meaning of the Home Building Act 1989 (NSW)) on such part of any premises as the party for whom the work is carried out resides or proposes to reside in.

The consequences of these amendments are significant:

  • For builders: the costs and timeframes to recover any disputed amounts owed by owner occupiers will be significantly reduced in circumstances where builders will no longer have to enforce disputed amounts before the NSW Civil & Administrative Tribunal (up to $500,000) or the Courts. If builders are successful, they will be able to enforce their Adjudication determination against the owner occupiers.
  • For owner occupiers: homeowners looking to enter into building contracts to undertake residential building work at their premises or intended premises from 1 March 2021 should become familiar with the Security of Payment legislation including the consequences of failing to respond to a payment claim within the prescribed timeframes. In this regard, if owner occupiers wish to dispute the amounts claimed by a builder in a payment claim, they should ensure that a payment schedule is served within 10 business days after the payment claim is served.
  • For both parties: owner occupier construction contracts will have different requirements in relation to the due date for payment of progress payment claims as they will fall within the category of exempt residential construction contracts. This means that progress payments will become due on and payable:
    • on the date on which the payment becomes due and payable in accordance with the terms of the contract; or
    • if the contract is silent, within 10 business days after a payment claim is made.

If you have any queries about the Security of Payment legislation generally or need specialist legal assistance, feel free to contact Doron Rivlin or a member of the Addisons construction team.

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