Implications of Perera v Bold Properties: Void Special Condition in House Construction Contracts

So you’re thinking about repricing the job…

A builder and two owners enter into a contract to build a house. The contract was for a fixed price. It contained a special condition allowing the builder (at the builder’s sole discretion) to increase the ‘fixed’ contract price to the ‘current base price’ for the type of house if work did not commence by a certain date. The work did not commence by the nominated date. The builder seeks to increase the contract price. The owners object to the increase.

That’s what happened in Perera v Bold Properties (QLD) Pty Ltd.[1]

The owners argued, first, the special condition was void for uncertainty; second, the special condition was void for non-compliance with Schedule 1B of the Queensland Building and Construction Act 1991 (Qld);[2] and, third, the special condition represented an ‘unfair term’ for the purposes of the Australian Consumer Law.[3]

The homeowner succeeded on all three points. As to the first point, His Honour accepted that the special condition was void of uncertainty. As regards the third point, His Honour accepted that the clause was not reasonably necessary to protect the builder’s legitimate interests and that it was unfair. Both points could have been addressed at the contract drafting stage. For example, in the case of the first argument, clearer drafting of the allowable increase would have assisted, and, in the case of the third argument, the retention of evidence explaining the legitimate interest which the builder was seeking to protect, and allowing for/inviting precontract negotiations would have been useful.[4]

The second argument was intriguing. It turned on His Honour’s view that the ‘warning’, which was in the following terms, did not comply with the QBCC Act:

WARNING

The contract price is subject to change. The clauses that allow for changes to the contract price are clauses 9, 10, 11, 13, 15, 16, 19, 20, 21 and 23.

Now, it may be noted that the special condition in question was not referred to in the above warning ‘as printed’. The builder argued that it was incorporated by way of a special condition. His Honour rejected that view. Intriguingly, even if His Honour had accepted that the special condition had been included in the warning, His Honour still would have held that the special condition was void because:

• Schedule 1B of the QBCC Act provides that the warning must, first, state the clause(s) that give rise to a change in the contract price, and, second, must explain the ‘effect’ of such clause(s); and
• No part of the ‘warning’ explained the effect of the relevant special condition.

His Honour gave an example of the sort of warning which he thought was required:

The contract price is subject to change, either increasing or decreasing. The clauses that allow for changes and their effect are the following:

Clause 20: where a written variation is made to the works or to the manner of carrying out the works (see definition of “variation” in clause 38.1) the contract price may increase or decrease.

Special condition 7: if commencement begins after the anticipated start date, the builder may increase the base price component of the contract price to the builder’s then-current base price for the same house type and increase the contract price by the same amount.

Why does this matter?

For builders, Perera is a problem. Almost all of the standard industry contracts contain the sort of warning which His Honour held to be void. That means:

• In the context of contracts that have already been entered into, builders cannot enforce clauses that increase the contract price (think variations, increases to provisional sums etc). You need to seek legal, as you may need to consider claims which are ‘outside the contract’; and
• In the context of new contracts, you will need to ensure that new contracts comply with Perera by ensuring that the appropriate ‘warning’ is on the front page. You should obtain legal advice regarding this issue.

For owners, Perera is a mixed blessing. Whilst it might prevent the builder from claiming ‘extra’ amounts under the contract, it equally might prevent the contract price from being reduced (it is debatable whether a clause can be ‘a little bit’ void). It might also lead to other claims outside the contract. Legal advice should be obtained before relying on Perera.

For industry bodies, you may need to have your standard contracts reviewed to ensure compliance. You can anticipate upset members and complaints if your contracts are partly void.[5]

[1] [2023] QDC 99 (‘Perera‘).

[2] The QBCC Act; specifically section 14(6).

[3] The ACL.

[4] The latter would have undermined the homeowner’s argument that the contract was a ‘standard form’, noting that only ‘standard form’ contracts are subject to the unfair contracts regime.

[5] Indeed, if you are paid for such contracts, we anticipate exposure and potential claims based on the sale of contracts that are not fit for purpose.

Queries

For further information regarding this article, please contact the author or any member of our Building & Construction team.

Disclaimer

This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.