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Granny Flat Legal Issues – We Break them down with a Lawyer

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You may be surprised to uncover common legal problems when building a granny flat. So in today’s article we go over Granny Flat legal issues with Carolyn Deigan, the principal of CLS Legal in Sydney, NSW.

 

We cover legal granny flat issues such as:

 

  • Granny flat design plans and copyright law
  • How to arrange payment for trades people
  • Pheonixing practices; what they are and how to avoid them
  • Building Warranties
  • Building Contracts
  • How to avoid dodgy builders

 

To help summarise these points and more I had the chance to chat with Carolyn Deigan, the Director and principal of CLS Legal.

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Carolyn helps us with legal questions about granny flat builds

 

Enjoy the invaluable information below to save you headaches with your granny flat build.

 

Granny Flat Designs

 

This can be considered a bit of a ‘grey area’ as there are not any specific rules apart from you cannot not infringe on copyright of another person’s design work. However with granny flats many of the designs are very similar, hence the grey area. You may not know you were copying another design which previously existed.

 

It becomes clearer if there has been a copy made of another designers Intellectual Property (IP) around a design, something that is clearly different from any other design out there. This may include something that is completely unique and not seen before.

 

The real issue lies when the ‘copying’ was clearly done. Such as;

 

You go to Freedom Kitchens for instance, have them design a kitchen you for your exact space. You then take those exact (Freedom branded) plans and go to a cheaper joiner to have the kitchen made.

 

In this case there is clear copyright infringement and damage has clearly been caused to Freedom.

 

  • A clear loss of income for the work they did in this case.

 

Simply put; there has to be “damages” for a court to see a clear winner when it comes to remuneration. Carolyn strongly recommends getting a ‘licence” to use the work of the designer, paying them for the work and clearly acknowledging the designer on all plans.

 

Paying for Tradespeople

 

You should always have a clear contract in place before any building work begins. With clearly defined “progress payments”. This will state the exact dates that a payment will be made and for the specific work that is carried out.

 

For instance; you may make a 30% payment upfront to help the tradesperson with their prime costs, such as materials and paying for any labour.

 

But be wary however, as this is a game as old as time. Many tradespeople will want as much money up front as possible.

 

For large building and construction projects, there is generally a quantity surveyor who will price a job up and hand these figures to a project manager. After the quantity surveyor and project manager have received a few quotes they can be sure how to stagger the payments and for how much.

 

However, with a smaller granny flat build (and buying a lot less materials) you can’t rely on a third party to verify the materials needed as easily.

 

Carolyn’s advice was:

 

Stick to this progress plan and never feel intimidated by a tradesperson to go “off-contract”. Carolyn has seen cases where builders will go back to a homeowner and say: “Sorry I need more for this or that…Or I didn’t factor in the cost for “X”. They take as much money as they can get for a “pre-payment”, skip town, never to be seen again.

 

Phoenixing Practice

 

The example of a builder skipping town above is a common approach to a term called “Phoenixing Practice”. Just as a phoenix rises from the ashes, these building company’s will take as much money as they can get. Declare themselves bankrupt then start another company down the line. Absolved of all past debts and rights to do any work set out in past contracts.

 

This also includes wiping their hands of warranty work they should be responsible for.

 

Sadly, the only person left burnt is the home-owner

 

There are tougher new rules coming into play, which is great news. However Carolyn mentioned there are still ways that crooked builders and dodgy trade people do business to get themselves off the hook for terrible work they “completed”.

 

The real biggest problems that home owners face are:

 

1. Defects
2. Variations

 

The defects are the problems which arise after the builder has finished the work, such as cracked walls appearing, water damage due to cladding not being installed correctly, plumbing issues…

 

The list goes on.

 

Variations are work and materials added on top of the existing contract.

 

Lets say, as the build progresses you decide, “Oh wouldn’t it be nice to add in a Skylight here”. The builder will say, that is outside of the contract, we can do it for you, but it’s going to cost you!

 

And as the builder is already half way done, they know you can’t stop the contract. (It isn’t that easy with many building contracts you sign) and it is too much of a hassle in many instances. The builders now ‘have you’ so to speak and will add in exorbitant costs for these variations in many cases.

 

Personally, I knew of a builder who quoted $6000 for an added water pit to add for a granny flat. This is basically a hole in the ground with some pipe running from a water tank for any over flow. Yep, people are being charged $6000 to basically dig a hole a few metres cubed in volume.

 

And I get it, many people just want to be finished with the project and feel stuck; as if they don’t have any options, so will pay these bills.

 

Feel free to look over HIA and Master Builders contracts online and speak with a property lawyer about the contracts. Namely, how you can protect yourself from defects and over-inflated variations.

 

One example is looking at the possibility to include a clause in the contract. Allowing you to hire your own trades for any variations within a period of time. To building companies time is money, so it many be unlikely that some builders will sign your contract, but is is certainly worth investigating further.

 

Building Warranties

 

There are two types of warranties:

1. Statutory Warranty
2. Contractural Warranty

 

The first, Statutory warranties covered by an organisation, such as the ACCC who states that any products or materials purchased must last for a reasonable length of time, no matter what the manufacturer or retailer states on the side of their box (for instance).

 

Contractual Warranties are warranties that are baked into the contract itself. Warranties that you and the builder agree upon. It is your responsibility as the land owner and “owner-builder” to arrange these contracts.

 

However, you can rest assured that if you hire a turn key granny flat builder, the builder you employ has a 6 year responsibility to ensure their work stands the test of time. Unless they use some form of ‘pheonixing’ practice (mentioned above) to dodge their responsibilities.

 

Building Contracts

 

Carolyn mentioned that there are two common types of contracts when it comes to building and construction.

 

1. Design and construct
2. Just construct

 

The first one is where you hire a building company to take care of your entire design work and construction of the granny flat. The second is only for the building work itself.

 

If you go the second route you need to know about a common thing that goes on between architects, trades people and building companies. Which I can illustrate through a story.

 

If a plan is drawn to include wood floors on a concrete slab and the ceiling height is set at the standard 2.4m (minimum ceiling height of any home). If the concrete slab is laid and it isn’t perfectly smooth, more cement of (floor leveler) will need to be added before the wood floor goes on top. If this ads to much “thickness” to the floor, you ceiling height will now be under the minimum allowable 2.4m height.

 

This is a common scenario for large scale builders building multiple units in an apartment building. The designer will blame the builder and the builder will blame the designer for this end result… But you are ultimately responsible and it could cost you small fortune to rectify.

 

As this will need to be fixed in order to get your occupation certificate and a sign-off from the certifier . (Plus you can’t insure an illegal granny flat that hasn’t been “signed-off”).

 

How to Avoid Dodgy Builders

 

The best way to avoid dodgy builders is to:

 

1. Look them up on the fair-trading website

2. Check their references

3. Check their ABN, by Googling: “ABN Lookup” online. To ensure they have been running for at least a few years.

 

On the Fair trading website, you type in a tradesperson licence number and it will list:

 

• If their licence is current (not expired)
• Most importantly, any complaints made against them in the past

 

This is a great starting point before engaging in more conversations with anyone you want to hire. Secondly, you want to ask them for references regarding people they have worked for in the past.

 

Carolyn, made an interesting point, if they say :

 

“Due to privacy acts, I can’t give any reference details to you – then Run away”

 

In a little tongue-and-cheek, what Carolyn meant is that, if they are a reputable builder there is no issue with them engaging a past client and saying; would you mind if I passed your details on as a reference? It is unlikely a happy person with that builder would say no to that simple request.

 

Materials and Trade accounts – What to look out for

 

Most people do not understand that if you pay for your materials at Bunnings, Reece or a similar store and are given a trade account, they have the right to place a caveat on your property and take your home as means of paying any outstanding debts.

 

This is a little unknown issue that most homeowners don’t know about.

 

It is baked into the Terms and Conditions of being granted a trade account. That is why I strongly suggest, paying on a “cash basis” and not raking up debt that you think you will ‘get to’ one day. As that one-day may be too late.

 

Conclusion

 

I hope this insight with Carolyn Deigan proves as useful as it was for me.

 

There are many facets to the building industry and many opportunities for trades people to take advantage of unsuspecting home-owners. Those looking to undertake a granny flat build as an owner-builder.

 

If you want to know more about the steps to build a granny flat then see this in-depth article I created.