Contractors Debt Act

The Little-Known Contractors Debt Act

In the general scheme of things, a builder may be engaged by a home owner, or owner of land (such as a developer), or in the case of a Strata Scheme by the Owner’s Corporation to carry out building work. Depending on the nature and extent of the work the builder has been engaged to perform, the builder may in turn engage contractors to perform specialist or other types of tasks relevant to the contractor’s trade.

In these circumstances, the builder will satisfy payment claims made by contractors engaged by the builder for such work – the builder bears this obligation.
There are however, some instances where the owner of a property, or the Owners Corporation in the case of a Strata Scheme, can become liable for monies owed to a contractor by the builder.

The Contractors Debt Act 1997 enables an unpaid contractor to recover monies from a property owner or owner’s corporation from the money which was due to the builder by them. This is of course assuming the contractor carried out the work the builder had engaged it to perform and the money was owed to the builder who is now in default.

Once the Principal or owner receives notification by a contractor of the default, the owner is not authorised to make any further payments to the defaulting builder.

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Once all relevant procedures and notifications have been complied with, the contractor can seek to recover monies owed to it by the defaulting builder from the Principal. The Principal will be authorised to pay the contractor from money which would otherwise have been payable to the builder.

This legislation can also be used to enforce a judgment debt the subject of an Adjudication Certificate under the Building and Construction Security of Payments Act 1999 as against a builder or developer, as the case may be.

Where an Adjudication Certificate is obtained and filed as a Judgment in a court of competent jurisdiction, an application may also be made under the Contractors Debt Act 1997 for the issue of a Debt Certificate. It is this Debt Certificate which may be served on a Principal under a Notice of Claim pursuant to Section 7 of the Contractors Debt Act 1997, triggering the obligations of the Principal to comply with the Notice of Claim. In this way, a Claimant’s means of enforcing an Adjudication Certificate under the Building and Construction Security of Payments Act 1999 are broadened.

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