Building Contract Troubles

Farmer Freddy and Pebbles deal with issues in the building contract for the new barn

As Farmer Freddy sits back and enjoys the soft sound of the rain soaking into the farm’s parched soil he remembers that he still hasn’t signed the building contract for the new barn.

Spreading the numerous pieces of paper across the dining room table he locates the contract and flips to the last page. Just as he moves the pen forward to scribble on the dotted line he hears a knock at the door. 

“Pebbles,” greets Freddy. “What a timely visitor you are!”

“Good afternoon, Dad,” replies Pebbles as she approaches the table. “What have you got there?”

“I’ve decided to go ahead with having the new barn built. With the weather starting to look a little more like it should for this time of year I think a decent place to store the machinery when it’s not in use would be a good idea,” explains Freddy.

“And these are the plans and specifications here?” asks Pebbles.

“Everything down to the colour of the roller door,” replies Freddy. “All I have to do now is sign the contract, pay the deposit and they can start next month.”

“That’s great, Dad. I think it’s a really good idea you’ve decided to go ahead with it. Before you sign the contract though, do you mind if I take a look at the terms?” asks Pebbles.

“Sure,” replies Freddy as he hands Pebbles the contract. “But I wouldn’t get too concerned with it; it’s all fairly standard stuff. I’m using the same company that John over the road used last year and they’ve got a solid reputation. This is their standard form contract.”

“It’s still a contract though, Dad, and for a good amount of money. Like here, for example - did you know that the deposit is for 15% of the contract sum?” queries Pebbles.

“Well, yes but they told me that was normal,” replies Freddy.

“It might be normal practice for them but in my opinion that’s much too high. What if the builder goes under before the build starts? You would become an unsecured creditor with nothing to show for your money. I would have thought a 5-10% deposit would be much more appropriate,” explains Pebbles.

“And what about this clause here, Dad?” continues pebbles. “It says that if you fail to pay any monies due and owing, the Builder can register a mortgage against the title to your property. Were you aware of that?”

“Well, no, but this is their standard form contract. It’s non-negotiable,” replies Freddy.

“Believe me, it is negotiable. And what’s more, if you sign the contract with this clause in it you will be in breach of your mortgage with the Bank. You will be agreeing to further encumber your land without the Bank’s consent – a direct breach of a term of your mortgage,” states Pebbles.

“I had no idea,” replies Freddy. “What should I do?”

“Let me take the contract to work, along with the plans and specifications, and I will pass them on to a colleague who looks at a lot of these. He will be able to tell you what terms are reasonable and what terms need to be amended. I know it’s easier just to sign it and that the chances of something going wrong are slim but you’re talking about spending $300,000 – I think we can spare an extra day to get some proper legal advice,” states Pebbles.

“Thanks, Pebbles,” replies Freddy. “What would I ever do without you.”

The content of this document is necessarily general and readers should seek specific advice on particular matters and not rely solely on this document. 

If you would like more information on any of the topics in this document, please contact your usual Auld Brewer Mazengarb & McEwen adviser. 


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