Paying a builder: stage payments, retention and your rights

(1) This Part does not apply ... (a) to a construction contract with a residential occupier (see below) ... (2) A construction contract with a residential occupier means a construction contract which principally relates to operations on a dwelling which one of the parties to the contract occupies, or intends to occupy, as his residence.

What the Act would otherwise give

Who counts as a residential occupier

Two consequences follow from the wording of section 106(2):

• Landlords are outside it. Work on a house you let and do not live in is not work for a residential occupier, so the Act applies to the contract in full.
• The definition of a dwelling is narrow. A "dwelling-house" in this section does not include a building containing a flat. For work on a whole building divided into flats, the exclusion turns on whether the work principally relates to the flat you live in.

What the contracts put in its place

• JCT HO/B and HO/C 2021. A lump sum including VAT, paid in one sum on completion or in agreed instalments. JCT's practice note says these forms include adjudication although the Act does not require it.
• JCT Home Repair and Maintenance Contract. Payment only on completion, which is why JCT says the work should not run beyond four weeks.
• JCT MW 2024. Interim valuations and certificates, a pay less notice and a retention. JCT says its contracts, other than the Home Owner forms, take account of the Construction Act.
• RIBA Domestic Building Contract 2018. NBS's review of the 2018 edition notes that it includes payment provisions similar to the Act's, although the Act does not apply to residential occupiers.
• FMB domestic contracts. A standard version, and a version with a defects stage payment or retention to cover snagging and remedial work.

Stage payments and deposits

Citizens Advice's advice for England is to pay in stages, so problems can be put right before the final payment, with the payment points agreed in advance. On deposits it says:

• avoid paying everything up front, and offer to buy materials yourself instead of paying a deposit for them;
• if a deposit cannot be avoided on a long job, do not agree to more than 25%;
• check whether the deposit is insured, or held by an escrow company registered with the Financial Conduct Authority;
• pay by card; a credit card payment of between £100.01 and £30,000 may give a section 75 claim against the card provider.

Tie each stage to finished work (roof on, first fix complete), not to a date.

Retention

Retention is a percentage of each payment held back as security against defects. Under JCT MW 2024 the contract particulars state the percentage of the value certified before practical completion and the percentage on and after it (clause 4.4). The difference is the retention. JCT's comparison table notes that Minor Works does not hold it in trust.

For example, on a £60,000 contract with 95% certified before practical completion and 97.5% after, you hold £3,000 until practical completion and £1,500 until the defects are made good. RICS calls that second half the contractor's most immediate incentive to come back. See practical completion and the rectification period.

Your rights under the Consumer Rights Act 2015

Chapter 4 of Part 1 applies to a trader supplying a service to a consumer (section 48). What the builder told you is binding where you relied on it (section 50), and where no price or time was agreed, the price and time must be reasonable (sections 51 and 52).

Every contract to supply a service is to be treated as including a term that the trader must perform the service with reasonable care and skill.

If the work falls short, you can require the builder to do it again, within a reasonable time, without significant inconvenience to you and at its own cost (section 55). If that is impossible, or the builder does not do it in that way, you can require a price reduction, up to the full price, refunded within 14 days of the builder agreeing you are entitled to it (section 56). Damages and the other ordinary remedies remain (section 54(6) and (7)), and no contract term can exclude liability for reasonable care and skill (section 57(1)).

What this means for you

Because the statutory payment rules do not protect either side on your own home, the contract has to. Agree the payment points, how each payment is checked, what is held back and when it is released, before work starts. JCT's Home Owner forms, MW 2024 and the RIBA Domestic Building Contract all give you a framework to do that. See which building contract.

Parallel Architecture values the work and certifies payments as contract administrator: see tender and contract administration.