Eight things hotel developers must change in their construction contracts in 2016

With the BCIPA amendments now in force, and a number of recent Supreme Court decisions dealing with BCIPA and the QBCC Act, it is essential that hotel developers amend their contracts. In particular, it will now be necessary, as a result of recent decisions, to have a contractual warranty for latent defects in favour of hotel operators, hotel lessees and subsequent purchasers.

  1. In Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36, the High Court held that a builder did not owe a duty of care to a body corporate or subsequent purchaser for economic loss caused by latent defects. This was because the building contract set out extensive rights for defective work and the Court would not interfere in commercial parties allocation of risk in a contract. Developers of hotels need to take into account who may be affected by latent defects (such as hotel operators, hotel lessees and the like) and extend the contractual warranty for defects.
  2. Ensure that any other relevant agreements/leases are annexed to the building contract and obtain a warranty that the builders will not put the principal in breach of those other agreements.
  3. Amend clause 5 of Australian Standard to allow security to be converted immediately following notice being provided.
  4. Decide on a process when payment claims are over $750,000, and make a decision on whether the payment schedule under BCIPA and/or the certificate under the contract will:
    (a) be due 15 business days from receipt of a payment claim (which will be the same day as payment is due!); or
    (b) be due 10 business days from receipt of a payment claim, to reflect our recommendations.
  5. Ensure any termination for convenience clause survives termination. This will deprive the contractor of any more reference dates to lodge a new BCIPA claim and defeat any claim for work carried out after the last reference date and up to the date of termination.
  6. Ensure that any preconditions to payment claims (i.e. statutory declarations and other documentation essential to be able to assess the claim) are phrased as preconditions to the reference date under the contract accruing and not the right to lodge a claim.
  7. Require a deed of release as a precondition to the contractor achieving practical completion. A further deed of release should also be obtained at final completion to ensure complete contract close out. This should stop BCIPA claims between PC and FC.
  8. Ensure the clause allowing the superintendent to grant EOTs at the superintendent’s discretion, is limited to the superintendent’s absolute discretion, while being under no obligation to do so and for the benefit of the principal only. This will ensure that time bars are effective.


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