Variations in residential building contracts are common, sometimes even inevitable. Whether it’s a request from the homeowner to upgrade materials or a need to address unforeseen conditions, variations can significantly alter the scope, cost, and timing of a construction project.

However, under the Home Building Act 1989 (NSW) (the Act), there are strict legal requirements for how variations must be handled. Failing to comply can result in serious consequences, particularly for builders seeking payment or enforcement rights.

This article explains the statutory requirements, exceptions, and key considerations when managing variations in residential building contracts.

Statutory Requirements: Variations Must Be in Writing

Under Section 7E and Schedule 2 of the Act, all residential building contracts must include a provision stating that any variation to the contract must be in writing and signed by both parties. Failure to comply with the written requirement may result in any term that is inconsistent with the Act unenforceable. 

This legal obligation exists to promote clarity and prevent disputes by ensuring both the builder and homeowner understand and agree on:

  • the nature of the change;
  • the cost implications; and
  • the impact on the project timeline.

If a variation is not properly documented and signed by both parties, it may be unenforceable, meaning the builder may not be entitled to payment or damages, even if the work was done and the homeowner verbally agreed to it.

Written Variation: What Must Be Included?

For a variation notice to be valid and enforceable, it should include the following:

  • a clear description of the variation work;
  • the price of the variation, including GST;
  • details of any additional costs or savings resulting from the variation;
  • the estimated additional time, if any, required to complete the work; and
  • both the builder and the homeowner must sign and date the variation document to make it enforceable. 

The Importance of Pre-Approval

Variation documents should be prepared, approved, and signed before any variation work commences. Builders who proceed with changes without prior approval or simply based on verbal agreements do so at their own risk, especially if the homeowner later disputes the additional charges or refuses to pay.

Exceptions to Written Requirements

While the law generally prohibits oral variations, there are narrow exceptions where written documentation may not be required, such as emergencies where there is an immediate danger to persons or property, and when urgent work must be carried out promptly and cannot wait for the standard documentation process.

Possibility of Quantum Meruit Claim for Builders

Generally speaking, the builders have no claim in contract against the owner in respect of the oral variations to the building work. But in Xu v Jinhong Design & Constructions Pty Ltd [2011] NSWCA 277, Macfarlan JA pointed out the possibility that the builder is likely to a quantum meruit claim to recover the value of the work done in pursuance of the oral variations (Pavey & Matthews Pty Ltd v Paul [1987] HCA 5), which is a claim of that type is based on unjust enrichment and is not based upon the existence of an implied contract (Lumbers v W Cook Builders Pty Ltd [2008] HCA 27). However, the most proper way to handle any variation is always to document the variations in writing. 

Key Considerations 

  1. Always document variations in writing before work begins.
  2. Include detailed descriptions, pricing, GST, and time impacts.
  3. Ensure signatures from both parties to avoid disputes later.
  4. Remember that verbal agreements are not enough, even if both parties seem to agree at the time.
  5. Builders should be cautious and proactive, especially on cost-plus contracts, which may have unique variation protocols.
  6. Emergency work must truly meet the criteria of urgency or risk to be exempt.

In summary, variations must be approached with care and legal precision. While flexibility is often needed in construction, it should never come at the cost of clarity and enforceability. Written variation agreements protect both homeowners and builders by ensuring mutual understanding and reducing the risk of costly disputes.

Feel free to contact Damin Murdock at Leo Lawyers via our website, on (02) 8201 0051 or at office@leolawyers.com.au. Further, if you liked this article, please subscribe to our social media accounts.

DISCLAIMER: This is not legal advice and is general information only. You should not rely upon the information contained in this article and if you require specific legal advice, please contact us.