Don’t get caught out – BIF Act update – potential impacts on financiers and developers

Building Industry Fairness (Security of Payment) Amendment Bill 2020

Focus: Charges over property

WHO SHOULD READ THIS

• Any private sector principal (particularly property developers), financiers, contractors or subcontractors involved with construction work in Queensland.

WHAT YOU NEED TO KNOW

• The Building Industry Fairness (Security of Payment) and Other Legislation Amendment Bill 2020 (Bill) will introduce a statutory charge over land that may be imposed by a contractor in the event of non-payment.
• The Bill also introduces a charge over property if a respondent does not pay an adjudication amount, to the value of the adjudicated amount.
• Further, the Bill would allow a respondent to lodge a payment withholding request against a ‘higher party’ (which may include financiers).
• The Bill also proposes that a separate retention trust account is to be created by each contractor and private sector principal, which would operate to protect retention monies.
• It is expected that legislation will commence on 1 July 2020.

WHAT YOU NEED TO DO

• Ensure you are aware of the ability to place a charge, and the risk that may impose for principals or financiers are properly understood. 
• Financiers and principals in particular should also understand the implications of a payment withholding request.
• If you are a private sector principal or contractor in the industry, you may also need to ensure you have a retention trust account established when the Bill is passed.

A new charge over property

A right for the claimant to impose a statutory charge over land is introduced to respond to concerns raised about the existing lack of enforcement actions available to a claimant in the event it has not been paid an adjudicated amount.

The new part 6A of the Bill provides a claimant for an adjudication application, who is a head contractor, the ability to have a charge registered over property where an adjudicated amount has not been paid.

The charge can only be registered against the property on which the construction work was carried out or related goods and services supplied, that is the subject of the adjudicated amount. Additionally, the respondent, or a related entity of the respondent, must be the registered owner of the property as defined under the Land Title Act 1991 (Qld).

‘Related entity’ is given a broad meaning under the Bill and extends to, for individuals, members of the same family of the individual. For corporations, it can extend to an individual or member of the individuals family that is a majority shareholder, director or secretary of the corporation or a related body corporate of the corporation, or has an interest of 50% or more in the corporation.

In order to request the charge over the property, the claimant must lodge with the registrar of titles the required form along with the adjudication certification and a statutory declaration stating the lot on plan description of the property, that the adjudicated amount has not been paid and, where applicable, that the registered owner is a related entity of the respondent.

The effect of a charge over property is that it provides an ability for the claimant to ultimately seek an order that the property be sold to satisfy the respondent’s debt to the claimant. The charge over property is intended as a mechanism to encourage a respondent to pay following adjudication.  If implemented, it will no doubt have implications for financiers and other interested parties (i.e. those with security over the land too).

Payment Withholding Requests

The new Part 4A of the Bill will also allow a claimant who is not paid an adjudicated amount, to serve a ‘payment withholding request’ on a higher party above the respondent to protect money that may be payable as a result of an adjudication decision, where the adjudicated amount is not paid in the timeframes required by the Act.

A ‘higher party’ will include a head contractor and a financier.

The Explanatory Note of the Bill provides that allowing a claimant to serve a payment withholding request after an adjudicated amount is not paid will be introduced as a way to reduce the risk of non-payment of an adjudicated amount, incentivise payment and provide an alternative mechanism to the holding of disputed amounts in a disputed funds trust.

Queensland will be the first jurisdiction to introduce such measures.

Section 90 Requirements – reminder

To avoid exposure to Part 6A of the Bill, it is important that a respondent strictly comply with the requirements set out in section 90 of the Act, that is:

If an adjudicator decides that a respondent is required to pay an adjudicated amount, the respondent must pay the amount to the claimant on or before:

• the day that is 5 business days after the day on which a copy of the decision is given to the response by the adjudicator; or
• if the adjudicator decides a later date for payment, the later date.

Retention Trust Account Requirements

A Retention Trust is a trust over amounts being withheld as retention for security performance under a building contract. The requirement for a Retention Trust Account replaces the existing regime for retention part of Chapter 2 of the BIF Act (that is, it will no longer be part of the Project Bank Account).

Section 32 of the Bill provides that a retention trust account is required when:

•  the contract is a head contract or a first tier subcontract for a head contract; and
•  the contracting party withholds the retention amount in the form of cash; and
•  a project trust is required for the head contract.

The Retention Trust Account would no longer be part of a Project Bank Account and it would instead be a separate requirement for all contractors and private sector principals in the contractual chain to create a Retention Trust Account to withhold cash and retention in relation to any project which requires a Project Bank Account.

A Retention Trust Account is not required to be held by a contracting party, when that party is the State, the Commonwealth, a state authority, local government or another entity prescribed by regulation.

New section 33A of the Bill would establish a charge over the retention funds in favour of the contracted party. This charge will apply to the funds whether they are in the trust account or not. This gives the contracted party priority interest over the amount for which the charge applies should the contracting party become insolvent.

For further information on any of the issues raised in this alert, please contact our team below.

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.