Guide 3 of 6Any price, and over $20,000
How much deposit can a builder ask for?
Under section 8 of the Home Building Act, a deposit for residential building work can be no more than 10% of the contract price. Over $20,000, no deposit or other payment may be taken until compensation cover is in place. A builder in Sydney is bound by both rules, as is every builder in NSW.
General information about NSW home building law, not legal advice. Not a government website. For your own job, Building Commission NSW is on 13 27 00.
The 10% cap
Section 8 of the Act sets the most a deposit can be: 10% of the contract price. A deposit, in the Act’s sense, is a payment on account made before work under the contract starts. A builder must not ask for or take a deposit above that cap, and the maximum penalty is 200 penalty units for a person and 1,000 for a company, which at $110 a unit is $22,000 and $110,000.
The NSW Government’s contracts page says the same in plain terms: “Under NSW home building law, the maximum deposit you can be asked to pay is 10 percent.” Its step-by-step guide confirms the cap applies to contracts between $5,000 and $20,000 as well.
The cap is a rule for residential building work, and the Act decides what that is. Its definition includes specialist work, such as plumbing or electrical wiring, done in connection with a home, and leaves out other work whose reasonable market cost is $5,000 or less (the amount set by Regulation clause 12). So a small specialist job sits under the cap, and a small job of other work sits outside the Act’s definition of residential building work, so the cap does not reach it.
From Home Building Act 1989, section 8 and Schedule 1 and NSW Government, Contracts for residential building work.
No money before the cover
For a job over $20,000, the order of events is fixed. Section 92 of the Act says a builder must not ask for or take any payment, deposit or otherwise, unless insurance that complies with the Act is in force for that work in the name the builder contracted under. The amount above which this applies is $20,000, set by Regulation clause 53.
The NSW Government’s contracts page puts it this way: “If the work is required to be covered under the Home Building Compensation Scheme, it is illegal for the contractor to ask for a deposit or other payment under the contract unless the cover has been taken out, and a certificate of the cover is given to you.”
Two more warnings sit on the NSW Government’s insolvency page. “Any payment above this amount may not be recoverable under home building compensation cover,” it says of the 10% cap. And a separate upfront payment for plans before the building contract “is generally not covered by home building compensation cover and may not be recovered if the builder becomes insolvent.”
From NSW Government, Contracts for residential building work and NSW Government, Protecting yourself in case of builder insolvency.
A worked example: one renovation, paid in stages
Say the contract price for a renovation in Sydney is $60,000, including GST. That is over $20,000, so every rule on this page applies. The $6,000 below is the law’s ceiling for the deposit, not a price: the cap is a maximum.
| Stage | The most you can be asked for | Before you pay |
|---|---|---|
| Deposit | $6,000, which is 10% of $60,000 | A certificate of compensation cover in your hands |
| Progress payments | Only authorised kinds: set amounts for set stages, or payment for work already done | The stage is finished, or the invoices and receipts are in |
| Variations | Whatever the written variation sets out | The variation in writing, signed by you and the builder |
From Home Building Act 1989, sections 8, 8A and 92 and NSW Government, Protecting yourself in case of builder insolvency.
Progress payments
For a contract over $20,000, section 8A of the Act allows only authorised progress payments, and a builder must not ask for or take one that is not. The amount is set at $20,000 by Regulation clause 11, for contracts from 1 March 2015. A contract can use more than one authorised kind.
The NSW Government sets out the kinds plainly. A progress payment is authorised when:
- the contract clearly sets out specific stages of work and the amount or percentage of the contract value payable at the completion of each stage, or
- the contract provides for fixed payment intervals or an “as invoiced” payment, where the payment is for labour and materials for work already performed and supporting invoices and receipts are provided.
“Progress payments must match the work carried out and, for cost plus contracts, be supported by receipts or other verifying documents,” says the contracts page. An extra or early payment that is not authorised may affect your ability to recover it under home building compensation cover.
For a large project such as a new home, the NSW Government suggests you may consider a progress inspection by an independent building consultant or architect before each payment, and to be prepared to pay between $250 and $500 for each one.
From NSW Government, Protecting yourself in case of builder insolvency and NSW Government, Contracts for residential building work.
Variations
“A variation is a change or adjustment to what has already been agreed in the contract.” Variations must be in writing, attached to the contract and signed by you and the builder, and the document must explain what the change costs and how it moves the overall price. If the variation is needed because of the builder’s own fault, you do not have to pay for the extra work to fix it.
The NSW Government’s quotes page gives the textbook case: “there may be rock beneath the surface of your land, which needs to be removed.” Under most contracts, its delays page adds, a builder cannot change or increase prices unless there is a variation in the work.
From NSW Government, Contracts for residential building work and NSW Government, Getting quotes for contractors.
If a payment dispute does arise, the disputes guide sets out who to go to, in order. The compensation cover guide explains what the certificate in the first row protects.