Domestic Building Contract Review
A building contract is the most important document you will sign in connection with your home construction or renovation. Standard form building contracts in Victoria — including HIA and MBA standard contracts — are drafted to protect the builder's position. Having a building lawyer review your contract before signing can identify key risks and negotiate protections for you.
What a Contract Review Covers
- Fixed price vs. cost-plus arrangements — and the risks of each
- Cost escalation clauses and their scope (particularly relevant given incoming December 2026 changes)
- Variation procedures — approval requirements and pricing
- Payment stages and progress payment obligations
- Practical completion definition and disputes
- Defects liability provisions
- Builder's right to extend the contract period — and owner's remedies for delay
- Termination rights for both parties
- Dispute resolution clauses
- Insurance obligations (DBI, public liability, contract works)
Domestic Building Contracts Amendment Act 2025 — Key Changes (From 1 December 2026)
Plain English Contracts
All domestic building contracts must be in plain English and include essential details — scope of work, agreed price, parties, start date, and completion timeframe. Requirements previously applying only to major domestic building contracts (MDBCs — over $10,000) will now apply to all domestic building contracts.
Cost Escalation Clauses — Banned Under $1 Million
Cost escalation clauses are banned in domestic building contracts under $1 million. This is a major reform following the post-COVID construction cost surge that left many homeowners facing demands for significant price increases they had not anticipated.
For contracts of $1 million or more, cost escalation clauses are permitted but capped at 5% of the original contract price as the maximum total escalation. The cap applies across all cost escalation clauses in the contract. Any clause exceeding this cap is unenforceable.
New Termination Rights for Owners
Owners can end a major domestic building contract if:
- Completion time extends past 50% of the agreed contract period (1.5x the contracted time), regardless of the reason; or
- The contract price increases by more than 15%
Owners will no longer need to determine whether the cost increase was "reasonably foreseeable" — a controversial requirement that has been a significant barrier to exercising termination rights under current law.
Payment Proportionality
Builders cannot demand or receive payments that exceed the percentage of work actually completed. If 50% of the work is done, only 50% of the contract price can be demanded. This directly addresses the "front-loading" of progress payments by builders — a practice that has exposed homeowners to significant loss when builders become insolvent early in a project.
Single Variation Process
A single, simplified process for contract variations is introduced for major domestic building contracts — whether the variation is initiated by the homeowner or the builder. This replaces the multiple overlapping and often confusing variation procedures in current standard contracts.
Preliminary Agreements
Builders and clients can enter separate preliminary agreements for developing plans and specifications before the main contract is signed. This allows builders to charge for legitimate pre-contract work and reduces the risk of "free" preliminary work that leads to disputes about scope and pricing.
Common Variations Disputes
Variations disputes are among the most frequent and contentious issues in residential building. Common issues include:
- Builder claiming extras for work the owner says was included in the original contract
- Oral approval of variations — which are generally unenforceable under the DBCA without written consent
- Cost of "prime cost items" and "provisional sums" exceeding the contract estimates
- Owner requesting changes and disputing the builder's pricing
- Builder refusing to complete work unless additional variations are paid
Frequently Asked Questions — Contracts & Variations
Yes. Under the Domestic Building Contracts Act 1995 (Vic), a builder must provide a written major domestic building contract for building work over $10,000. The contract must comply with various statutory requirements. Failure to provide a compliant written contract is a breach of the DBCA and can result in penalties for the builder. Without a written contract, both parties are exposed to disputes about the agreed scope, price, and timeframe. Verbal contracts are also technically enforceable but extremely difficult to prove.
The HIA (Housing Industry Association) and MBA (Master Builders Association) standard domestic building contracts are industry-drafted documents that have historically favoured builders' interests in several key areas — including: expansive rights to claim extensions of time, broad cost escalation provisions, limited termination rights for owners, and complicated variation procedures. The statutory protections in the DBCA override many unfavourable contract terms, but reviewing and negotiating the contract before signing is strongly recommended. From December 2026, many previously unfavourable terms will be prohibited or regulated — but only for new contracts entered into after that date.
Prime cost (PC) items are items where the price in the contract is an estimate — typically because the final product has not been selected (e.g., tapware, tiles, appliances). The final contract price for these items is adjusted to reflect the actual cost of the selected item, plus the builder's margin. Provisional sums (PS) are estimates for work where the full scope cannot be determined at the time of contracting (e.g., site preparation, excavation). Both PC items and provisional sums can result in significant cost increases if the estimates are too low — which is a common source of building contract disputes.
Under the Domestic Building Contracts Act 1995 (Vic), a builder must obtain your written consent before carrying out variations to the contract. Variations carried out without written approval are generally not enforceable. Following the High Court's decision in Mann v Paterson Constructions [2019] HCA 32, builders cannot claim quantum meruit (fair payment) for unwritten residential variations. The builder's recovery is limited to what is permitted under s38 DBCA. If a builder is demanding payment for unapproved variations and threatening to stop work or refuse to hand over the property, seek legal advice immediately — you have rights and the builder may be in breach of the contract.
Under current Victorian law (pre-December 2026), cost escalation clauses in domestic building contracts are permitted if they comply with the requirements in the DBCA. If you have a valid cost escalation clause in your contract, and the clause has been correctly invoked, you may be obliged to pay the increased cost. However, if there is no escalation clause, or the clause has not been properly invoked, price increases may not be payable. From 1 December 2026, cost escalation clauses will be banned in contracts under $1 million and capped at 5% in contracts over $1 million. If you have received a demand for a significant price increase, seek legal advice before paying — the increase may not be legally required.
Under the DBCA, you have a 5 business day "cooling off" period after signing a major domestic building contract — during which you can withdraw without penalty. After the cooling off period, termination rights are limited and depend on the specific circumstances: builder breach, builder abandonment, mutual agreement, or (from December 2026) the new statutory termination triggers (15% price increase or 50% time overrun). Attempting to terminate a building contract incorrectly can expose you to a damages claim from the builder. Always seek legal advice before purporting to terminate a building contract.
General information only. This information is general in nature and does not constitute legal advice. Please contact Matrix Legal for specific advice about your building contract or dispute.