Retentions and Final Payments

The final payment is often the only real practical leverage a homeowner feels they have. Many homeowners assume they can simply hold back part of it until defects are fixed. In South Australia that assumption is frequently wrong.

The standard HIA and MBA residential building contracts do not, as a matter of course, provide for the homeowner to retain a portion of the price at Practical Completion.

More commonly, they require the final payment to be made in full, without set-off or deduction, on the builder reaching practical completion. Understanding this before you sign is essential, because it shapes what you can and cannot lawfully do when a dispute arises at the end of the build.

The final payment is leverage

Under the standard forms, once Practical Completion is reached the balance of the contract price generally becomes due and payable in full.

These contracts typically do not entitle the homeowner to withhold, retain or deduct an amount for outstanding or disputed defects, and many expressly require payment without set-off. In other words, the contract usually contemplates that defects notified at or after handover will be dealt with through the defects liability period - not by holding back money. Understand what makes the final payment due before you assume you can withhold any part of it.

Standard SA contracts usually do not provide a retention at Practical Completion

A right to hold back part of the final payment as a retention is not a default feature of the standard HIA or MBA residential contracts.

If you want the ability to retain an amount pending rectification of defects, that generally has to be negotiated and recorded expressly - for example, in a Special Condition setting out how much may be retained, when it may be withheld and when it must be released.

Check whether your contract contains any such mechanism. If it does not, you should not assume you can lawfully withhold money simply because defects exist.

Do not over-withhold

A common and genuinely difficult dispute arises at the end of a build.

On one side, the homeowner may be convinced the work is not practically complete and the home is not ready for handover and may be reluctant to release the final payment.

On the other side, the builder may say practical completion has been reached, demand payment in full first, and undertake to remedy any defects afterwards under the defects liability period.

These competing interests need to be understood carefully, because the answer usually turns on a single question: has Practical Completion, as defined by the contract, actually been reached?

Document defects clearly

The consequences depend on whether Practical Completion has genuinely occurred. If the work truly is not practically complete, the final payment may not yet be due, and a homeowner’s refusal to pay may not constitute a breach of the contract at all.

Conversely, if Practical Completion has been reached, withholding payment on account of defects may itself put the homeowner in breach.

From the other direction, a builder who demands or requires payment in advance of the work being practically complete may not only be in breach of the contract but may also be committing an offence, because the Building Work Contractors Act 1995 (SA) generally restricts a builder to genuine progress payments for work actually performed.

Because so much turns on the correct characterisation of practical completion, this is an area where obtaining advice before acting is far safer than improvising.

Document defects clearly and act promptly

A clear, written and dated defects list, supported by photographs, is valuable whatever the payment position.

If you contend the home is not practically complete, that record helps explain why. If practical completion has been reached and defects remain, the same record helps the builder rectify efficiently under the defects liability period.

Notify defects promptly, in writing, and give the builder a reasonable opportunity to inspect and respond.

Questions to ask before signing

How does the contract define Practical Completion and what makes the final payment due?

Does the contract allow me to retain or set off any amount for defects, or must I pay in full?

If retention is not provided, can a Special Condition be negotiated?

What happens if we disagree about whether Practical Completion has been reached?

What is the defects liability process after handover?

The key lesson

In South Australia the standard HIA and MBA contracts usually require the final payment in full, without set-off, once Practical Completion is reached - they do not ordinarily give you a retention for defects. The real battleground is therefore whether Practical Completion has genuinely occurred.

Refusing to pay when the work is not practically complete may not be a breach; refusing once it is may be.

Equally, a builder demanding payment before Practical Completion may be in breach and may commit an offence under the Building Work Contractors Act 1995 (SA). If you are uncertain which situation you are in, obtain advice before withholding money or releasing the final payment.

Before You Sign

This guide provides general educational information for South Australian homeowners. It is not personalised legal advice. The effect of any issue depends on the wording of your own contract, schedules, Special Conditions, plans, specifications and the facts of the project. A good builder and a well-understood contract should work together. Before committing to one of the largest financial transactions you may ever undertake, consider having the actual contract reviewed so you understand the obligations, notice requirements and consequences before they are tested on site.

Before You Build. One Signature. One Chance.