Do you Have to Make Progress Payments to Your Builder? A Recent Supreme Court Clarification.
Victorian law requires progress payments to builders on commercial projects. Recent case clarifies exemptions for mixed-use developments with domestic building work.
In the context of large, commercial developments, Victorian law has implemented protections for builders wherein the owner of the site is required to make ‘progress payments’: to pay the builder progressively for their work. Since its passing in 2002, the Building and Construction Industry Security of Payment Act 2002, has awarded the right to builders to make claims to their contractors for payments of work completed under a building contract up to the present time. These are payments whose schedule can be agreed by contract, but if it is agreed by contract, the builder is entitled to payment after a statutory period of time.
The law is intended to enshrine the terms of payment which bind commercial, high-value building developments.
For this reason it is important to know whether the Security of Payment Act applies to you, if you are a developer.
The case of Piastrino v Seascape Constructions provides clarification as to whether builders who are constructing mixed use developments, which involve both commercial and domestic building work, are required to make progress payments to the builder. In October 2017, Mr Piastrino entered into a contract with Seascape Constructions to construct a building comprising both apartments and shops. Under the Building and Construction Industry Security of Payment Act 2002, the developer of a residential building is not required to make progress payments to the builder. Therefore, the primary question put to the court was whether this exemption would also apply to mixed use developments.
The Court found that the exemption could apply to mixed use developments that include domestic building work. However, in this particular case, the Piastrinos were found to be ‘in the business of building residences’, and so the exemption did not apply.
The decision in Piastrino v Seascape ultimately provides a clear authority on the application of the exemption to progress payments. It is important for property owners to note that the exemption is only partial and will not apply if they are found to be ‘in the business of building residences’. For builders, the decision reinforces the risk of failing to identify separately any domestic building work from other work in a contract, as required under section 12 of the Domestic Building Contracts Act 1995.
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