Former building chief slams new home contracts as ‘pathetic’ and ‘unfair’

The former head of one of the country’s largest group builders has criticised new-home contracts as “inadequate” and “pathetic”.

Andrew Crosby, who stepped down as CEO of Universal Homes in February, described the standard contracts that homeowners sign when building a new home as unfairly weighted in the builders’ favour.

Crosby said in a salvo posted on LinkedIn last week: “At least one of these industry association-promoted new home build contracts is pathetic. I would rather have no contract and just give the builder access to my bank account ... than sign them as they are currently written.”

By law, anyone doing a new build or renovation worth more than $30,000 must have a written contract with their building contractor.

Crosby now runs his own property consultancy business and is upfront that one of the services he offers is reviewing building contracts.

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He told OneRoof that he’d seen a lot of worrying building contracts from not only small building firms but also large group builders.

Echoing the sentiment of his social media post he said: “I would rather give the builder an open cheque book and say, ‘Yep, those plans look great, go and build it’.”

He said contracts as they currently stand contained no risk protection measures for the client.

“It [the contract] locks you in. The builder can do whatever they like, they can charge whatever they like. There are clauses that look like protection but they are just unbelievable.”

Crosby said buyers should have their contracts reviewed professionally. Photo / Getty Images

Crosby said that in the current market, buyers should have the upper hand in negotiations, noting that supply chains had improved over the past two years while the cost of materials had dropped.

For example, he said, the building cost for a standard two-bedroom terrace was $3000 per square metre, down from $3500 a square metre a year ago.

While Crosby stressed that there were “many builders whose contracts are fair”, more needed to be done to balance things out between both parties.

“If a builder can’t fix a price for something they’re going to build in the next six months, there’s something wrong,” he told OneRoof.

But, he added, the onus was on buyers, some of whom were spending $1m-$2m on a new house, to scrutinise their contracts and have them reviewed professionally.

Lawyer Joanna Pidgeon, who convenes the Law Association’s documents and precedents committee, agreed with Crosby, but said asking for changes to standard contracts would be difficult for some buyers.

“When it is hard trying to find a builder, they may find it hard to get a builder to use another form. However, a softer building market may make it easier to negotiate amendments to the standard contracts or create space for a more balanced form to be used,” she said.

Lawyer Joanna Pidgeon says not paying an invoice can put buyers in "serious breach" of their contract. Photo / Supplied

Pidgeon agreed that when a building company presents their contract, the terms will usually be in its favour. In particular, most have cost escalation clauses allowing them to pass on price fluctuations.

“Clients should get legal advice on these contracts before signing, as they need to understand how they work, and how to not end up being blindsided by the payment schedule process, for example. If they don’t act in a timely way, they are legally obliged to pay a disputed invoice.”

Not paying an invoice “can put them in serious breach of contract and may see them lose their right to their [builders’] guarantee”.

QV operations manager James Wilson, who has recently completed a new build himself, said the danger for most buyers was that the process was often rushed. “A lot of banks prefer a fixed price contract, so that’s a push to get it signed. Yet the contract is the most important part of the whole process.”

He said that even with his decades of experience as a valuer costing new builds, he was surprised that he didn’t know many of the ins and outs of the contracts, especially the parts of the build that have “provisional sums”.

These, he said, were used for things like ground works, engineering and retaining works, and usually include maximum figures for that part of the build. However, a builder may not know exactly how much things are going to cost until they start work.

QV operations manager James Wilson: “You’re often dealing with a salesperson who is not a lawyer or an engineer or a builder." Photo / Fiona Goodall

He’s also seen cost escalation in standard things like kitchen and bathroom fit-outs. “You’re often dealing with a salesperson who is not a lawyer or an engineer or a builder. I hear it all the time. People say that when the builder looks at the provisional sums, they go, ‘That’s not enough.’ It’s human nature. If someone says, ‘We’ve allowed $30,000 for X’, that’s what the quote comes in at.”

Lane Neave partner Matt Maling said he sometimes sees the level of imbalance highlighted by Crosby. “The industry association contracts generally contain balanced risk allocations as do the standard forms. But I would caution homeowners using any of these documents without some amendment,” he said.

“At the end of the day, these contracts are prepared by industry associations who are ultimately trying to protect the interests of their members and the contracts are definitely weighted in favour of the builder. There are several clauses I commonly remove or amend to re-balance the contract.”

Malcolm Fleming, chief executive of the New Zealand Certified Builders Association (NZCB), told OneRoof that the association prided itself on producing building contracts that were “fair to both the homeowner and the builder”.

“An additional benefit of using a trade association building contract is that users need to be members of the trade association, which in NZCB’s case means that they are trade-qualified,” he said.

“While trade associations cannot adjudicate disputes, we can and do play a valuable role in encouraging our members to engage with their clients to resolve any issues they may have with our members.”

According to a recent MBIE survey, disputes over final cost “were more common for those who selected their builder for the lowest price rather than for fixed price certainty or other reasons”.

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