Warning to Home-builder applicants, don’t get caught out of time!
People seeking to avail themselves of the $25,000 Commonwealth Government Home-builder grant must be wary of timing pitfalls. Whilst the grant sounds like a great policy to stimulate the construction sector, it has extensive criteria that must be satisfied to obtain it. We will explore some of those issues in further detail in this article. Of further concern is that often applicants will have made financial and contractual commitments before they know if they will receive the grant.
The eligibility criteria for the Commonwealth Home-builder grant are as follows:
- you are a natural person (not a company or trust);
- you are aged 18 years or older;
- you are an Australian citizen;
- you meet one of the following two income caps:
- $125,000 per annum for an individual applicant based on your 2018-19 taxable income or later; or
- $200,000 per annum for a couple based on both 2018-19 taxable income or later.
- you enter into a building contract between 4 June 2020 and 31 December 2020 to either:
- build a new home as a principal place of residence, where the property value does not exceed $750,000; or
- substantially renovate your existing home as a principal place of residence, where the renovation contract is between $150,000 and $750,000, and where the value of your existing property (house and land) does not exceed $1.5 millon (pre-renovation);
- construction must commence on or after 4 June and within three months of the contract date.
A lot of this criteria will be difficult to meet and/or could result in significant issues for those seeking the grant to financially assist with the build.
One criteria that could catch a lot of people out is the requirement for the build or renovation to commence within 3 months of signing. Imagine this, you conduct all your research, find the perfect block of land, the house design you want and the builder to construct it. You then apply for your finance and get bank approval, the bank proceeds to advance you the money and you buy a block of land and sign the building contract with your chosen builder. Your chosen builder gets extremely busy because of the volume of people staring new builds or substantial renovations, which current statistics indicate is occurring, and your builder is unable to commence construction within the 3 months of you signing the contract. You, therefore, do not get the $25,000 Home-builder grant. Did you insert a penalty clause in your contract with your builder for them not commencing within 3 months? Most people won’t and as builders get busy, which they will, many people may get caught out.
If there is not a clause in the contract making it a condition to commence construction within 3 months of signing the contract but the builder verbally promised the customer that they would commence within 3 months of signing the contract, will the customer have a claim? Most likely yes, because a representation has been made that the customer relied upon to their detriment. However, verbal communications are always substantially harder to prove than a written contract clause.
The home-builder in that circumstance will then face multiple problems, they will have purchased the block of land, had the funds advanced from their bank but then may not have the funds necessary to complete the build because they were replying upon the $25,000 Home-builder Grant to complete the build. They also still have a contract with a builder that they have to comply with.
Construction will be deemed to be commenced when significant works, excavations or physical building works commence. Preparatory works such as site clearing, fencing, markings, delivery of building products, will not be considered as commencement of construction. There could be significant argument over what is considered to be commencement of construction as timelines get close. It will be interesting to see how the government determines whether or not a construction has been commenced before the 3 month period. The home-builder must provide evidence that construction has commenced, and this may include a declaration from your builder that construction has commenced.
You may apply to the Commissioner of State Revenue (WA) to extend the construction commencement date by up to 3 months where the reasons for the delay are unforeseen and beyond the control of the parties to the contract. The Commissioner will consider each application on a case by case basis and evidence detailing why construction did not commence within the required time frame must be provided. Some of the types of delays that may be considered a reasonable basis for the Commissioner to exercise the discretion to extend the commencement date include:
- delays in obtaining council or building approvals;
- difficulties in obtaining construction materials and/or sub-contractors;
- delays in financial institutions assessing and approving finance;
- substantial delay due to inclement weather;
- health problems relating to, or the death of, a person critical to the commencement of the project;
- significant delays in the issue of title caused by Landgate; or
- natural disasters.
The Commissioner is unlikely to exercise their discretion:
- if an applicant does not undertake appropriate due diligence when entering into a contract, or makes deliberate and informed choices which makes them ineligible without the exercise of the Commissioner’s discretion;
- if delay results from the builder contracting to undertake more work than they could be reasonably expected to complete in the relevant timeframe;
- if construction is delayed because the land developer has set pre-development sales targets and insufficient blocks have been pre-sold in a subdivision; or
- for any other reason the Commissioner considers not unforeseen or beyond the control of the parties.
The contract cannot be a replacement transaction. The Commissioner may reject a grant application if it is found that the building contract replaces another building contract that was dated prior to 4 June 2020 when the grant came into operation.
There is also a belief that many people will have difficulty accessing the grant and may already have taken steps to buy land before they are sure they will receive the grant. For the comprehensive home-building contract Home-builder grant, you can only apply once the foundations have been laid. For the contract to substantially renovate your home, you must show evidence of payments of at least $150,000 towards the contract price having already occurred at the time of making the application. With off the plan sales contracts to purchase new homes, you can apply when construction has been completed and you are the registered owner of the property.
There is little doubt that there are going to be matters arising as a result of the HomeBuilder grant and possibly other stimulus packages that the Federal Government has provided to assist the economy to survive and recover from the Covid-19 impact.
In Western Australia, the State Government has also announced a further $125 million building bonus package. The package includes $117 million for a $20,000 building bonus grant and $8.2 million for the expansion of the 75% off the plan transfer duty rebate scheme. Differing from the Federal Government initiatives, the State Government Scheme is not means tested and has no cap on the property value. This means those Western Australians who are eligible for the Commonwealth grant could receive up to $45,000 for new residential builds. First home buyers may also be able to access the existing $10,000 First Home Owner grant and First Home Buyer Duty Concession meaning potentially up to $69,440 benefit for Western Australian first home buyers.
If you require assistance in reviewing building contracts or assistance in the drafting of relevant protective provisions into your building contract, please contact Lynn and Brown Lawyers in that regard.
About the author:
This article has been authored by Steven Brown who is a Perth lawyer and director at Lynn & Brown Lawyers. Steven is a Perth lawyer and director, and has over 20 years’ experience in legal practice and practices in commercial law, dispute resolution and estate planning.