Background
In November 2020, Shina Khan contracted with Fairmont Homes to construct a residential dwelling in Guildford, Sydney for $491,620. The contract incorporated Housing Industry Association standard terms and included Special Condition 3, which permitted the builder to revise the contract price if construction had not commenced within 180 days of execution.
Due to delays—including demolition of an existing structure and the discovery of asbestos contamination—construction had not commenced by June 2022. The builder then issued a variation (BV-2) seeking a price increase of $48,573. Khan refused to sign the variation, and the builder issued a breach notice claiming she had failed to provide an instruction or direction within the required time. The builder subsequently terminated the contract and commenced proceedings in the Local Court seeking $76,703.99 in damages, which the Local Court awarded on 9 October 2025.
The Court’s Holding
The Supreme Court allowed Khan’s appeal and set aside the Local Court judgment. Justice Muston held that the word “variation” in Special Condition 3 must be construed as a reference to variations under Clause 18 of the contract, which requires both parties’ written agreement. Under Clause 18, if the owner does not provide signed acceptance within five working days, the builder’s offer is deemed withdrawn. Therefore, Khan’s refusal to sign BV-2 did not constitute a “substantial breach” under Clause 27.2(f), and the builder had no right to terminate or recover damages.
The Court reasoned that where words added to a standard form contract conflict with the standard terms, the parties’ specific language controls. The Court also noted that the Home Building Act 1989 (NSW) requires specific warnings about price variations, and the contract’s warning referenced Clause 18—not Special Condition 3—indicating the parties intended price variations to proceed through Clause 18’s mutual agreement mechanism. Special Condition 3 gave the builder the right to propose a revised price, but not to compel acceptance or to claim breach if the owner declined.
Key Takeaways
- Owners cannot be forced to accept price increases by builders simply because work has not commenced within an agreed timeframe.
- When a standard form contract conflicts with special conditions added by the parties, the special conditions control the interpretation.
- The term “variation” in building contracts has a special, technical meaning requiring mutual agreement; unilateral price increases do not qualify.
- A builder cannot claim breach of contract or terminate based solely on an owner’s refusal to agree to a price increase, even where delays have occurred.
Why It Matters
This decision significantly protects residential building contract owners in New South Wales by clarifying the interplay between standard form terms and special conditions. It prevents builders from leveraging construction delays—many caused by circumstances neither party fully controls—to force price increases. The Court’s holding ensures that owners cannot be placed in an impossible position: either accepting a price increase they may not be able to afford (having secured financing only for the original price) or committing a contractual breach.
The decision reinforces that the Home Building Act 1989 protects consumers by requiring price variations to proceed through a mechanism requiring mutual agreement, not unilateral imposition. By holding that builders must offer variations according to Clause 18’s procedure—where unsigned offers are deemed withdrawn—the Court preserves the freedom of contract while preventing builders from weaponizing delays to lock owners into higher prices. For builders and owners alike, this ruling clarifies that where Special Condition 3 contemplates a price revision, that revision must still follow Clause 18’s bilateral process rather than becoming a forced obligation.