Owners Successfully Terminate Contract Due to Defects and Incomplete Work

Anna Maria and Luciano Troise have won a VCAT case against Blue Key Properties Pty Ltd after a long-standing dispute over defects and incomplete work in their Werribee townhouse development. The Tribunal ruled that the homeowners were entitled to $196,800 in damages, rejecting the builder’s final claim and confirming that the contract was lawfully terminated due to multiple breaches.

The dispute arose when the homeowners engaged Blue Key Properties in August 2018 under a major domestic building contract to construct three two-storey townhouses for a total of $812,000. However, after receiving an occupancy permit in September 2020, the homeowners identified significant defects and incomplete work, leading to a refusal to pay the final claim. The contract was ultimately terminated by the homeowners on 30 April 2021.

Defects and Incomplete Work Identified

The Tribunal reviewed multiple defects in the construction, which were documented in expert reports. Among the major issues were:

• Structural and brickwork issues – The cost of rectifying brickwork defects was a significant point of contention, with experts providing widely differing cost estimates.
• Stormwater and plumbing defects – Investigations revealed issues with stormwater drainage, incomplete downpipe installations, and plumbing work that failed to meet standards.
• Unfinished installations – Key appliances, flyscreens, water meters, and plumbing fixtures had not been installed in all three units at the time of the final claim.
• Balcony waterproofing failures – Leaks from a poorly graded balcony led to water damage in one of the unit’s bedrooms, requiring extensive repairs.
• Vandalism damage – During the period when the contract was still active but works were stalled, vandals broke into unit 3, causing further damage, for which the Tribunal held the builder responsible.

VCAT’s Findings and Ruling

The Tribunal made several key rulings, including:

1. The occupancy permit issued in September 2020 was invalid. The Tribunal determined that the permit, which had conditions requiring further work before occupation, did not constitute a valid completion notice under the contract.
2. The homeowners lawfully terminated the contract on 30 April 2021. Since the builder failed to complete the work as per the contract terms, the owners were justified in terminating the agreement.
3. The builder was liable for damage caused by vandalism. Since Blue Key Properties retained control of the site up until termination, they were found responsible for rectifying the damage to unit 3.
4. Special Condition 6 of the contract was unenforceable. The builder attempted to rely on Special Condition 6, which stated that the final claim was payable within 14 days of the issue of the occupancy permit. However, VCAT ruled that this clause was contrary to the Domestic Building Contracts Act 1995 (Vic) and therefore unenforceable.

Why the Builder’s Claim Was Invalid

The builder argued that Special Condition 6 of the contract entitled them to full payment within 14 days of receiving an occupancy permit, regardless of the actual completion of the work. However, under Section 40 of the Domestic Building Contracts Act 1995 (Vic), a builder cannot demand progress payments that are not directly linked to the progress of the building work. This law exists to prevent builders from claiming payments before work is actually completed.

The Tribunal found that:

• The occupancy permit issued was conditional, meaning the building was not fully completed at the time of the claim.
• The builder failed to complete all contractual works as required under the contract before issuing the final claim.
• Special Condition 6 attempted to override Section 40 of the Domestic Building Contracts Act, which prohibits payments from being demanded before work is completed.

Since the builder’s claim was based on an invalid permit and an unenforceable contract clause, the Tribunal dismissed the claim for final payment and instead ruled in favour of the homeowners, awarding them damages.

Damages Awarded to the Homeowners

The Tribunal awarded a total of $196,800 in damages, broken down as follows:

• $40,200 for rectification of vandal damage.
• $57,536 in agreed liquidated damages for delays in completion.
• $111,837 for defective work that required rectification.
• $56,928 for completion costs, including the installation of missing appliances, plumbing, and electrical work.

The damages were offset by the builder’s unpaid final claim of $81,200, reducing the final awarded sum to $196,800.