Q: I have a client that has refuses to pay the progress payment of practical completion until the Certificate of Occupancy has been issued. Could you suggest what I should do to get this payment?
A: The issue of clients refusing to pay the practical completion component of the contract until the Certificate of Occupancy and Use has been raised by MBA members several times last year and again this year.
Basically a Certificate of Occupancy and Use is issued after the practical completion stage has been reached.
MBAs ACT Home Building Contract states that “practical completion is considered to have been achieved as when the Works* are complete with exception for minor omissions and/or defects which do not prevent the building to being reasonably fit for occupation or use by the owner”.
It should be noted that practical completion excludes such things as letterboxes, driveways, non-structural retaining walls and the like which do not affect the internal amenity of the house.
In brief, Part 2 of the MBAs ACT Home Building Contract provides that on “reaching practical completion the builder is entitled to receive the unpaid balance of the contract sum together with any other money which is payable under the contract”
The owner is not entitled to withhold any money from the builder for works which are deemed to have reached practical completion and any minor defects or minor omissions which do not prevent the works from being reasonably fit for occupancy or use.
On receiving said payments the builder is to hand over all keys and certificates to the owner. Those certificates may include those documents required by legislation that relating to the building work for a Certificate of Occupancy or Use to be issued.
The owner can then provide those certificates to the building surveyor (also known as building certifier) to enable a Certificate of Occupancy or Use to be issued. Bearing in mind that the owner had appointed the building surveyor for this building work and also that the Application for Certificate of Occupancy and Use must be signed by the owner(s) at the completion of the building work.
An application for Certificate of Occupancy and Use can be applied for at the completion of the building works.
Section 85 of the Building Act 2004 states that:
(1) Completion day, for the residential building work, means the day the work is completed or the day the contract relating to the work ends, whichever is the latter
(2) Without limiting subsection (1), the work is taken to have been completed no later than the day a certificate of Occupancy (if any) is issued for the work.
Your client should be fully aware of their responsibilities under the conditions of the contract and should have sort legal advice if they needed further clarification prior to signing the contract.
As your client is refusing to pay the progress payment of practical completion until the Certificate of Occupancy has been issued, perhaps your client could seek advice from the building surveyor as to whether he/she is satisfied that the building work has been completed to enable a Certificate of occupancy and use to be issued without resorting to them seeking legal advice.
*Works – means the building and construction work being undertaken by the builder pursuant to the contract.
If you have any technical questions you can contact Master Builders ACT (02) 6175 5900.