Signing a Building Contract: Essential Clauses & Traps to Avoid Before You Commit

Signing a building agreement for your new home or investment property is a significant milestone. It’s exciting—but also a moment that demands careful attention. Contracts can vary greatly, and overlooking critical details can lead to serious financial and legal risks.

To help you navigate this crucial stage with confidence, we’ll explain what to watch out for, which contract terms offer the best protection, and why ensuring your contract includes a robust due diligence period is vital.

Why the Type of Contract Matters

Building agreements come in many forms, but not all are created equal. Contracts can either protect your interests or disproportionately favour the builder. This difference often depends on who drafted the agreement.

Standard Contracts (Recommended)

At Today Homes, we recommend using the standard Master Builders Association contract. Here’s why:

• Industry Familiarity: Lawyers and banks across New Zealand are familiar with this contract, simplifying legal reviews and financial approvals.
• Balanced Terms: Clauses within the Master Builders contract are balanced to protect both the homeowner and the builder, reducing the risk of bias or hidden traps.

Builder-Drafted Contracts (Proceed with Caution)

Some builders prefer using their own customised contracts, typically drafted by their lawyers. Unfortunately, these agreements often lean heavily in favour of the builder. Without careful scrutiny, you might unknowingly agree to terms that put your interests at risk.

If you’re presented with a custom contract, take extra care and ensure your lawyer conducts a detailed review to avoid hidden pitfalls.

Common Traps Hidden in Building Contracts

When reviewing any building contract, watch out for the following potential traps:

• Unfavourable Payment Terms: Ensure deposit amounts, payment schedules, and final payment conditions are clearly defined and fair.
• Ambiguous or Biased Clauses: Carefully examine clauses related to delays, variations, and cancellations. Some contracts favour builders by limiting your rights in these situations.
• Missing Essential Safeguards: Contracts lacking clear safeguards—such as due diligence periods or finance approval clauses—expose you to financial risk.
• Hidden Costs: Confirm that costs for council fees, consents, compliance, or unexpected contingencies are clearly defined and accounted for in your agreement.
• The Essential Clause: One critical feature your building agreement must contain is a clear, defined due diligence period. This is your safety net and should never be overlooked or underestimated.

What is a Due Diligence Period?

A due diligence period is a specified timeframe—typically 10 to 15 working days—allowing you and your professional advisors (such as your lawyer and bank) time to thoroughly review the agreement and financial arrangements before the contract becomes legally binding.

During this time, you can:

• Get independent legal advice to ensure you fully understand the implications of all terms.
• Obtain confirmation from your bank or mortgage lender regarding finance approval based on the contract price and conditions.
• Clarify any ambiguous or unclear clauses with the builder.

Including a due diligence period protects you from rushing into a commitment that could have lasting negative consequences.

Why You Should Insist on a Due Diligence Clause

Some buyers mistakenly sign agreements immediately, without including conditions or sufficient review periods. Unfortunately, if you later encounter difficulties in securing finance or discover issues with the terms, your ability to withdraw without penalty is severely limited—or even impossible.

Always insist that your builder includes a due diligence clause. Reputable builders will welcome this transparency because it shows confidence in their pricing, conditions, and quality assurance.

Key Questions to Ask Before Signing Your Building Contract

To avoid any unpleasant surprises or costly mistakes, here are several essential questions to clarify before committing to your contract:

• Is this a standard Master Builders Association contract, or has it been customised?
• Does the agreement clearly specify the total cost, including consents, council fees, and site preparation?
• What are the terms for making variations or changes during construction?
• Is there a defined due diligence period allowing legal and financial review?
• Under what conditions can either party terminate the agreement, and what are the associated penalties or costs?

Your builder’s willingness to answer these questions transparently is often a strong indicator of their integrity and professionalism.

Final Thoughts: Protect Your Interests Before You Commit

Signing your building contract is exciting, marking the start of a major project. But before you commit, always take the time to thoroughly review your agreement. Opting for a recognised industry-standard contract, carefully examining each clause, and ensuring your due diligence period is securely in place will significantly reduce your risk and stress.

At Today Homes, transparency and fairness underpin everything we do, and we firmly believe homeowners deserve clarity and security from day one.

Safeguard your interests, ask the right questions, and then sign with confidence, knowing your dream home is on a solid foundation—both legally and financially.