Home Building Tips for Builders in NSW
Security Accounts and Ability to Pay

Most builders will be aware that standard home building contracts allow for a security account to be set up between the builder and the home owner.  This can be done where the home owner is providing some or all of the project funds themselves that they have in their possession (as opposed to funds being borrowed from a bank).

In the case of a security account being set up:

• the account is usually in the joint names of the builder and the home owner;
• the builder and the home owner are joint signatories for any withdrawal from the account;
• the home owner receives any interest that is accumulated from that money.

Despite the above, most builders will also be aware that home owners are generally reluctant to part ways with their money before the work is carried out, and home owners will usually refuse to allow their money to be deposited into a security account.

Building projects involve a lot of money, and given this, how can the builder be sure that the home owner will have sufficient funds to make payments at the different progress stages of the project?

Every home building contract should contain an ‘Ability to Pay’ clause, which allows the builder the right, at any time, and even at multiple times throughout the project, to request the home owner to provide written evidence (to the builder’s satisfaction) that the home owner has the ability to pay all money that may become payable to the builder.

Home building contracts should also:

• require that such evidence be provided within 2 business days, and
  
  
• if the home owner fails to provide such written evidence within this time, the builder can suspend the works, and also issue the home owner with a notice of serious breach, which will start the clock on then allowing the builder to terminate the contract at a later time.