Justice Served: Homeowners Successfully Challenge Increase to “Fixed” Price Building Contract
Increase to fixed term building contract held to be void
Yesterday the Queensland District Court released the decision of Perera v Bold Properties (QLD) Pty Ltd [2023] QDC 99.
The applicants, Mr and Mrs Perera, entered into a New Home Contract with the respondent, Bold Properties (QLD) Pty Ltd for the respondent to construct a new house for the applicants for a fixed sum of $645,370. The respondent sent the applicants a message in which it said that due to increased costs of building materials, it intended to increase the contract price by $51,342.
The applicants commenced proceedings seeking a declaration that the contract provision on which the respondent relied to increase the contract price was void (special condition 7).
The Court decided in favour of the applicant in finding that special condition 7 is void and unenforceable and the applicant was not subject to the increase in the contract price.
The Court made a number of observations which we have summarised here.
Uncertain contract clauses
The Court summarised the law relating to uncertain contract clauses.
In determining whether a contract or term of a contract is void for uncertainty, three relevant principles have been identified:
- The first is that if parties to a contract do not agree on a fundamental term there will be no contract at all.
- The second is that there is no contract if its effect is that one party is left to choose whether or not it will perform it, since the obligation is illusory.
- The third is that there can be no concluded bargain if a vital matter has been left to the determination of one of the parties.
In relation to the third principle, it has been noted that:
[The] cases establish that while a determination of a price or payment under a contract may be left to the party entitled to receive the price or payment, that will only be so where there are criteria – either express, or such implied criteria as “fair and reasonable”.
The Court found that special condition 7 was void and unenforceable because special condition 7, in purporting to allow the respondent to increase the price based on unstated objective criteria, effectively purported to enable the respondent to change an essential term – the price –without any reference to any such criteria. That makes the clause and its potential effect uncertain. It is therefore unenforceable.
Required Warnings
The contract included a warning on the first page of the contract. However, the warning was modified by special condition 7, the effect of which was not explained. The warning was therefore contrary to the QBCC Act and was void to the extent of that insufficiency. The contract remained on foot and enforceable, without that condition.
Unfair contract term
Special condition 7 was also held to be an unfair term under the Australian Consumer Law because:
- It results in a significant imbalance of power between the parties. It provides the respondent with a unilateral right to vary the upfront price of the contract, which has purportedly been locked in by a separate agreement between the parties for which consideration was provided, without providing any right to the applicants to terminate or otherwise to negotiate the increase.
- It would result in a detriment to the applicants. Were the respondent entitled to rely on special condition 7 to increase the contract price, the applicants would have to choose between repudiating the contract and opening themselves up to damages or paying the higher price, notwithstanding that, on its face, the contract purports to be a fixed price contract.
- The respondent failed to show that special condition 7 was reasonably necessary to protect its legitimate interests.
Key takeaways
Perera outlines the power dynamics present in domestic building contracts, and the unfair circumstances owners may find themselves in. Fortunately, in this case the owners sought recourse and were able to obtain a good outcome.
We recommend that owners obtain legal advice before signing domestic building contracts, to avoid circumstances such as these, and the associated cost and delay of bringing proceedings.
Owners ought to be aware that domestic building contracts, even those in a standard form from QBCC or the Housing Institute of Australia (as was the case here), may contain special conditions that favour builders rather than owners. Often these special conditions must be tailed to your circumstances to protect your interests.