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Your deposit is exposed! How Canberra’s construction laws are failing to protect consumers in 2023.

Published 27 April 2023. Updated 30 April 2023.

We have recently seen an uptick in clients approaching us with grievances against builders that have taken deposit moneys (tens of thousands of dollars) under a residential building contract and then abandoned the project without residential works insurance in place. These types of consumers find themselves in a difficult position having to take steps to recover money from a potential insolvent builder.

When you enter a construction contract you are required to pay an upfront deposit to the builder. This deposit is paid before the builder lifts a finger. Deposits help builders to manage risk in case you decide to abandon the contract. This way the builder can incur a variety of expenses with the assurance that they will not be left out-of-pocket by you. But you take up the risk that if a builder goes insolvent you will lose your deposit.

The Building Act 2004 regulates construction work in the Australian Capital Territory. It sets some standards and protections for consumers.¬†Unfortunately the legislation has a number of shortcomings. The legislation attempts to provide some protection to consumers through a scheme known as ‘residential building work insurance’.

Residential building work insurance can protect up to $10,000 of the deposit paid if the builder goes insolvent. However the scheme is poorly designed since insurance is not required before you pay the deposit and it is up to the builder to apply for that insurance. Additionally the $10,000 protection does not reflect the true value of exposed deposits in the current market.

The system is not functioning in a way that properly protects consumers. This is why on 21 April 2023 we wrote to the minister for Sustainable Building and Construction in the ACT (Minister Vassarotti) to bring this to her attention.

Author: Sebastian Marquez