Major Projects & Construction 5 Minute Fix 96: head contractor licensing, easements, recitals in construction contracts

QBCC Act – Head contractor licensing exemption Version 2.0

Section 42 of the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act), prohibits a person from carrying out or undertaking to carry out building work without an appropriate licence, unless they fall within the scope of an exemption.

Of the exemptions provided in Schedule 1A of the QBCC Act, the head contractor exemption (contained in section 8, Schedule 1A of the QBCC Act) has attracted the most legislative and industry scrutiny. It permits an unlicensed person to enter into a contract to carry out building work (or indirectly cause building work to be carried out) provided the work is:

• for non-residential construction work; and
• to be carried out by an appropriately licensed contractor.

When introduced, the exemption's objective was stated to be to remove the "regulatory impediment for commercial development in Queensland" by allowing principals of public infrastructure projects to cause commercial building work to be carried out by appropriately licensed contractors without contravening the licensing requirement under section 42.

However, concerns developed within the industry that contractors were misusing the exemption to avoid the licensing requirements under the QBCC Act. In response to these concerns, the Building Industry Fairness (Security of Payment) and Other Legislation Amendment Act 2020 provided for the repeal of the head contractor exemption.

Concerted lobbying from commercial stakeholders led to the section that omitted the exemption never being activated. And now, the Building and Other Legislation Amendment Bill 2022 introduced to parliament on 29 March 2022, kills off the proposed repeal entirely but amends the exemption to make it subject to regulations. This amendment is said to provide flexibility to respond to issues as they arise and potentially require "particular head contractors to obtain a licence".

The proposed new regulations have not yet been tabled or made publicly available. However, it is expected that the regulations will provide carve-outs from the head contractor exemption for high-risk work that impacts life safety, such as mechanical services or fire protection.

The Bill has been referred to the Transport and Resources Committee for further consideration. We will continue to track its progress and provide updates as they arise.

How a common driveway easement halted a mixed commercial and residential development

In McWilliam v Hunter [2022] NSWSC 342, the NSW Supreme Court found that construction of a mixed commercial and residential development should be restrained if it would unreasonably prevent the neighbours' use of the driveway.

In this case, the Plaintiffs and Defendants were beachfront neighbours in a coastal town in Northern NSW. The Plaintiffs' property wrapped behind the Defendants' property so that the only vehicle access to the Plaintiffs' property was a "right of carriageway" easement along the boundary of the Defendants' property.

The Defendants subsequently proposed to undertake a mixed commercial and residential development, including a structure overhanging the driveway at a height of approximately 2.8m. The Defendants contended that 2.8m was a reasonable height limit for the easement, especially given that the Plaintiffs' existing vehicles and garage access did not exceed this height.

The Plaintiffs commenced proceedings to restrain the development on the basis that the overhanging structure would constitute an unlawful obstruction upon their reasonable use of the driveway easement, particularly for vehicles requiring a vertical clearance greater than 2.8m.

The Court ultimately determined that the imposition of a height limit of 2.8m over the driveway easement by the proposed development would substantially interfere with the Plaintiffs' reasonable use and enjoyment of the easement. As such, the Court ordered that the Defendants be restrained from proceeding with the proposed development.

While the Court's findings turned upon the facts, this decision is a timely reminder for builders and developers of:

• the potentially significant impact of relatively "minor" issues, such as a driveway easement, on the progress of building and construction works; and
• the importance of obtaining advice on all potential issues, not merely in respect of contracts, before commencing development and construction works.

Don't overlook the recitals – Court confirms importance of recitals in contract interpretation

Recitals are commonly used in construction contracts and deeds to set out the background facts and intentions of the parties surrounding the parties' agreement. However, recitals are often viewed as being merely administrative or procedural, with little consideration given to them when drafting.

In Khattar v Hills Shoppingtown Pty Ltd (subject to a Deed of Company Arrangement) [2022] NSWSC 363, the courts relied heavily on the recitals to interpret the parties' obligations under the deeds, ultimately leading to a finding of repudiation.

While the use of recitals in contract construction is a well-established legal principle, the decision in Khattar serves as a reminder to parties to ensure that recitals are thoughtfully and carefully drafted so as to reflect the parties' intentions.