In August 2022 Charith and Hew Perera entered into a “fixed price” $645k home build contract with an anticipated start date of 9 December having earlier paid a non-refundable deposit to secure the price.
Just eight weeks later builder Bold Properties Pty Ltd notified the couple that the anticipated start date would not be met – due to COVID related “shortages in various key building trades and disruptions to the industries supply chain” – and that the customer must “share the burden of the additional costs”.
On those grounds it imposed a price increase of $51,342.
The Pereras contested the builder’s reliance on special condition 7 which purported to allow it to “increase the contract price to the current base price of the house type”. The clause permitted it to do so at its sole discretion “in the event that commencement has not taken place by the anticipated start date”.
They applied to the District Court for an order declaring the price escalation clause to be void and severing it from the contract.
Judge Kenneth Barlow KC observed, when the matter came before him by way of originating application, that although the price increase was to the “current base price” of the particular house type, the contract provided no indication as to how the base price was determined.
“This leaves the respondent without any real constraint or reference criteria by which a price increase may be determined,” he noted. “Rather, the respondent may fix whatever price it determines as its current base price for the house type, including a price that has no correlation to the price that it agreed to charge”.
In his view, the ability to change its price without any express criteria rendered the clause void for uncertainty.
The court also considered section 14 of schedule 1B of the QBCC Act that requires domestic building contracts valued over $20,000 to specify the price or “the method for calculating it” and that a prominent warning be included with brief details as to the factors that might escalate the price.
The warning on this contract’s first page adjacent to the specified price stated that it was “subject to change” by reason of factors contained in various contract clauses.
The “subject to change” warning did not though refer to special condition 7 which only appeared on page 10 of the contract bundle, something the judge also thought was fatal to the builder.
The “indirect” reference to the special condition did not in his view meet the consumer protection objectives of the QBCC Act and was therefore void on that basis as well.
The court also considered the nature and effect of the delay to the build start date.
Clause 2.1 specified the building works would start “on the later of the anticipated start date or 20 working days from the day” that various prerequisites had been completed. Clause 2.7 obliged the builder to ensure that building works would start “as soon as is reasonably possible”.
On 22 November Bold had notified the owners that it anticipated commencing site preparations in January and the slab pour in February. It was not in dispute that the final start work prerequisite was satisfied when Bold received building approval on 23 November.
By operation of clause 2- – the judge concluded – it was therefore obliged to have commenced work as soon as possible but no later than 21 December 2022.
Judge Barlow observed that although special condition 7 was impliedly meant to allow an increase in the base price to reflect costs increases since the date of contract to that date in December – it was expressed in wider terms to permit any increase which thereby also made its potential effect uncertain.
The outcome has the effect of requiring Bold to build the home at the original price.