NSW Residential Payment Disputes to be Resolved under Security of Payment Legislation

From 1 March 2021, contractors may apply for adjudication of payment claims under owner occupier construction contracts in NSW.

Currently, the Building and Construction Industry Security of Payment Act 1999 (the Act) prescribes as a class of construction contracts owner occupier construction contracts. The Act does not apply to such contracts. This is the effect of section 7(5) of the Act and clause 4(1) of the Building and Construction Industry Security of Payment Regulation 2020 (the Regulation).

Schedule 2 of the Regulation will commence on 1 March 2021. It omits clause 4.

Schedule 2 also prescribes an owner occupier construction contract as an exempt residential construction contract as defined in section 4 of the Act. Section 11(1C) of the Act provides for a progress payment under an exempt residential construction contract to be made on the date on which payment becomes due in accordance with the terms of the contract, or, if the contract has no express provision for payment, on the date occurring 10 business days after a payment claim is made.

In summary, Schedule 2 of the Regulation will broaden the scope of the Act to allow contractors working directly for a residential homeowner to serve a statutory payment claim on the homeowner by endorsing it as a payment claim made under the Act.

As there are no transitional provisions to the Regulation, save that the Regulation commences on 1 September 2020 and Schedule 2 of the Regulation will commence on 1 March 2021, there may be differing legal opinions as to whether an adjudication application can be made by a contractor engaged by a residential home owner under an owner occupier construction contract that commenced after any of:

  1. 21 October 2019, the commencement date of the relevant amendment to the Act; or
  2. 1 September 2020, the commencement date of the amended Regulation; or
  3. 1 March 2021, the commencement date of Schedule 2.

Watch this space.

It is notable that the NSW government has introduced this significant change without an announcement to homeowners or the industry generally.

Adjudicate Today, in supporting the extension of Security of Payment rights to residential home builders, has advocated providing homeowners with an additional 10 business days to provide a payment schedule (as per the Tasmanian Security of Payment Act) and an additional warning on both the payment claim and section 17(2) second opportunity notice about the severe consequences to a home owner by not providing a written payment schedule to the home builder.

In this regard, the Murray Review1 recommendations 12 and 13 to the Commonwealth provide:

12 The legislation should apply to the residential housing sector so as to enable a residential contractor/builder to make a progress payment claim against an owner-occupier.
13 The legislation should prescribe that whenever a residential contractor/builder serves a payment claim on an owner-occupier, the payment claim must include:
  1. information on how the owner-occupier respondent can reply to the payment claim, and
  2. the time period within which the reply/payment schedule must be given.

The NSW Department of Finance, Services & Innovation, Better Regulation Division advises2

‘The reason behind the Government providing the transition period between 1 September 2020 and 1 March 2021 was primarily to give owner occupiers and the industry, time to adjust to the change. Further, during the consultation period we received feedback from stakeholders recommending educational material be developed if the exemption to owner occupier construction contracts was removed. Therefore, in this time, the Department will be preparing guidance material for owner occupiers and builders, explaining their obligations under the Act. This guidance material will be included in building contracts under the Home Building Act 1989. We understand the importance to the industry of owner occupiers understanding their obligations under the Act once this change comes into effect.’

Adjudicate Today will cooperate with government to ensure the widest possible distribution of information to both industry participants and homeowners.

The Regulation introduces many other key reforms including:

  • removing the annual reporting requirements for trust accounts to NSW Fair Trading,
  • introducing an obligation to provide trust account records to subcontractors if their money is held in trust,
  • introducing qualifications and eligibility requirements for adjudicators, and
  • removing owner occupier construction contracts as a prescribed class of construction contract to which the Act does not apply, but ensuring they remain exempt for the purposes of prompt payment provisions in the Act, consistent with the existing treatment of contracts for that type of work.

I have previously written on this. Refer New NSW Consolidated Building and Construction Industry Security of Payment Regulation 2020 & Adjudicator CPD Guidelines

1 J Murray AM: Review of Security of Payment Laws, December 2007
2 Email from NSW Department of Finance, Services & Innovation, Better Regulation Division to Adjudicate Today dated 4 September 2020.