If a contract is a construction contract parties may rely on the default provisions of the Act to provide some certainty and structure for the operation of their contract. Unless one of the parties is a residential occupier….Section 106 specifically provides that the Act does not apply to a construction contract with a residential occupier.
What is a contract with a Residential Occupier?
A contract with a residential occupier is a contract which principally relates to construction operations on a dwelling that one of the parties to the contract occupies, or intends to occupy, as their residence. For the purposes of the Act, "dwelling" means a house or a flat, and "flat" means a separate and self-contained premises.
The residential occupier should be an individual, not a company. A real person must be living or intending to live in the premises, so property development situations where the property may later be used by a residential occupier following development and sale by the developer would not fall under the exclusion. There should be no "commercial" elements to the contract, so for example the refurbishment of a number of buildings, some which the employer would live in with others that are for sale, would not fall under the exclusion.
An occupier may still be a residential occupier for the purposes of the Act, even if they have to move out while building work is carried out, or if they only intend to live in the property once the building work is complete. This means that a contract with a person, for the construction or self-build of an entire dwelling or for an extension, alteration or refurbishment project is not covered by the Act.
What does this mean?
What this means in practice is that, without the benefits contained in the default position of the Act, residential occupiers, and contractors working on residential builds, are sometimes not afforded the same level of protections as commercial employers.
Residential construction contracts can be sparse, with some being agreed purely on a verbal basis. That makes it difficult to identify any core terms and conditions which apply to the work. Without the Act's default protection, a residential occupier would not be entitled to, for example, refer the matter to adjudication in the event of disputes, or have certainty in terms of payment obligations and rights to suspend performance, unless these issues are expressly addressed in contract.
If you are embarking on a self build endeavour it makes sense to put in place a formal contract which will cover the arrangements of your building project in detail. A formal contract would cover for example, the stages at which you should pay the builder (and an agreed price!), along with procedures for how to deal with extra costs, quality, project scheduling, potential overruns and other items such as purchasing materials, insurance, site safety and so on. It would also allow you to choose a forum for resolution of any disputes including, if appropriate, an option to refer any disputes to adjudication.
A written contract gives you transparency and clarity on what’s going to happen to your build along the way, unlike a verbal contract. A formal contract can be easily referred to throughout the project and it ought to be comprehensive enough to cover all the details of the build. A written contract will also give you peace of mind on the building or alteration of your home.
Formal contracts such as those offered by the JCT and SBCC are good tools to help establish the relationship between builder and client. The SBCC Minor Works Contract is often used for building works to residential dwellings, and the SBCC also publishes a home owner building contract, designed for those wishing to carry out work to their home.
At Morton Fraser, we are experienced in drafting and negotiating all types of construction contracts, including those used for self-builds. We can also liaise with your funder to ensure that every party obtains the level of protection that they require to ensure the transaction progresses smoothly.
Whilst the HCGRA does not presently cover contracts with residential occupiers, a project for a residence can be just as complex as a commercial contract for construction operations. It's possible that a residential self-build or an extension or alteration to an existing dwelling may be the biggest project any individual undertakes. It's important that adequate protection be put in place before a spade is in the ground.
If you require assistance with Self-Builds or any further information on Construction generally, please contact Alyson Cowan using the details below.