New Domestic Building Contract Laws in Victoria: What Changes for Owners and Builders

If you are about to sign a contract to build a home, extend or renovate in Victoria, the rules that govern that contract are changing. The Domestic Building Contracts Amendment Act 2025 (Vic) rewrites several parts of the Domestic Building Contracts Act 1995 (Vic): how much a builder can ask for up front, when progress payments fall due, how far the price can rise, how variations are agreed and when an owner can walk away.

Signing a building contract? I review domestic building contracts before you sign. See building contract review or call 1800 776 529.

When the changes start

Most of the Act starts on a day or days set by proclamation. Any provision that has not started by 31 March 2027 starts on that day. The outer date was originally 1 December 2026; Parliament moved it to 31 March 2027 in the Consumer Legislation Amendment Act 2026 (Vic) s 178ZL. As at the date of this article, none of the contract changes has started.

The new rules apply only to contracts entered into on or after the day they start (Domestic Building Contracts Amendment Act 2025 (Vic) s 20, inserting s 139). A contract you sign before then stays under the current law.

Who the changes affect

The Act applies to domestic building contracts: contracts to build, renovate, extend, improve or repair a home, and much of the work done with them, such as landscaping, driveways, fencing and pools. Many of its protections apply only to a major domestic building contract, which is a contract above a price set by regulation, currently $10,000.

Draft regulations released for consultation on 18 August 2026 propose raising that threshold to $20,000 (see the Victorian Government’s notice of the regulatory impact statement). If that change is made, jobs priced between $10,000 and $20,000 will no longer have to meet the major contract requirements.

Contracts between a builder and a developer building two or more homes for sale are treated differently: only a handful of the Act’s provisions, including the implied warranties, will apply to them (new s 3A).

Old rules and new rules at a glance

On a phone, swipe the table sideways to see all three columns.

Deposits and progress payments

At present the 1995 Act itself fixes the maximum deposit: 5 per cent where the contract price is $20,000 or more, and 10 per cent where it is less (s 11). It also fixes the stages at which a builder can claim progress payments, and the percentage of the price for each stage (s 40).

The amending Act moves both into regulations (ss 23 and 25). A builder will not be able to demand or receive a deposit above the percentage prescribed for the contract. Contracts to build a new home are grouped by how much of the builder’s cost goes into modern methods of construction, such as prefabricated or modular parts made off site: more than half, between 30 and 50 per cent, or less than 30 per cent. The regulations can set payment stages and percentages for each group, and a builder can never claim more than an amount that relates directly to the progress of the work. For other major contracts, such as renovations and extensions, each payment must relate directly to the work actually carried out.

The draft regulations propose deposit limits and, for homes built with less than 30 per cent modern methods, set stages and percentages. They were not final when I wrote this article, so the figures may change.

The principle is the same as before: a builder should not be paid ahead of the work. That limits how much an owner has at risk if the builder stops work or becomes insolvent.

Price rises: tighter limits on cost escalation clauses

A cost escalation clause lets a builder pass on increases in the cost of labour and materials after the contract is signed. At present a builder can use one if the contract price is more than $500,000, or if the clause is in a form approved by the Director of Consumer Affairs Victoria (s 15(2)). Under the new rules (s 11 of the amending Act):

• a contract can include one only if the price is $1 million or more;
• the clause is void unless, before the contract is signed, the builder gives the owner a notice in the prescribed form explaining it, and the owner signs or initials next to the clause;
• cost escalation clauses cannot add more than 5 per cent to the total contract price;
• the builder is taken to promise that any increase was calculated with due care and skill, and must give the owner copies of the invoices or receipts behind it; and
• a builder who does not follow these rules cannot recover the increase. Going past the 5 per cent cap, or putting a clause in a contract under $1 million, is also an offence.

For most new homes and renovations under $1 million, the price should not move because materials cost more.

Variations: one process, whoever asks

At present the Act has one procedure when the builder wants to vary the plans or specifications of a major domestic building contract, and another when the owner asks (ss 37 and 38). The amending Act replaces both with a single variation agreement (s 17). It must be in writing, signed by both of you, and state the date, a detailed description of the change, the reason for it, whether a building permit may need amending, any delay with the builder’s estimate of its length, and the cost and its effect on the contract price.

A builder who varies the work without a compliant agreement generally cannot recover any money for it, unless VCAT finds exceptional circumstances or significant hardship and that it would not be unfair to the owner. There are exceptions for variations a building surveyor requires through a building order, and for urgent work to prevent danger or damage to property.

In practice: agree every change in writing, with its price and its effect on the completion date, before the work is done. Do not agree to variations by text message or on site.

Owners can end the contract more easily

Under the amended s 41, an owner can end a major domestic building contract if:

• the contract price increases by 15 per cent or more after the contract is signed; or
• the work is not finished within one and a half times the period the contract allows.

Today an owner relying on these triggers must also show that the builder could not reasonably have foreseen the cause when the contract was made. That requirement goes (s 19 of the amending Act). Increases from prime cost items, provisional sums and variations the owner asked for still do not count towards the 15 per cent or the time limit.

The owner ends the contract by giving the builder a signed notice saying why, and the builder is entitled to a reasonable price for the work done, capped at what the contract would have paid. Get advice before you send a notice: a notice given on the wrong basis can put you in breach of the contract.

Already in a dispute with your builder? See my building and construction page or call 1800 776 529.

Other changes

• Every contract in writing: a builder must not enter into any domestic building contract unless it is in writing and in English, and states each party’s name and address, a detailed description of the work, the price (or how a cost plus price is worked out) and the date (new s 7A).
• Split contracts treated as one: if a builder and an owner make several contracts that could have been one major domestic building contract, they are treated as a single contract (new s 3(2)).
• Warranties reach related agreements: the warranties implied into domestic building contracts will also apply to any agreement a builder and owner make in connection with the contract (s 8, as amended).
• Design work outside the Act: preparing plans, specifications or a bill of quantities is taken out of the Act, so an agreement for that work alone is not a domestic building contract (ss 5 and 6, as amended).
• Disputes and enforcement: the Act also changes the dispute resolution process and moves functions from Consumer Affairs Victoria to the building regulator.

What owners should do now

1. Check which rules apply. A contract signed before the start date stays under the current law.
2. Have the contract reviewed before you sign. Look at the deposit, the payment stages, any cost escalation clause, the completion date and how variations are handled.
3. Keep the original price and timetable. If you need to rely on the 15 per cent or time overrun rights, you will have to show where you started.
4. Put every variation in writing, with its price and its effect on the completion date.

What builders should do now

1. Update your contract templates before the start date, including the deposit, payment schedule and variation clauses.
2. Review any cost escalation clause. From the start date it can be used only in contracts of $1 million or more, with the prescribed notice given and signed before the contract.
3. Match progress claims to the work done. Where no prescribed schedule applies, each payment must relate directly to the work carried out.
4. Train your site and office staff on the new variation agreement, so no change starts without one.
5. Watch for the final regulations, which will set the deposit limits and payment stages.

How I can help

I review domestic building contracts for owners before they sign, and advise builders on updating their contracts for the new rules. I also act in building disputes, including defects, delays and payment claims. See my building and construction lawyers page, and my earlier article on Victoria’s building law overhaul for the insurance and rectification order changes that started on 1 July 2026. Subcontractors should also read Fairer Payments on Jobsites.

Call 1800 PRO LAW (776 529) or send the details through the enquiry form. I reply to every enquiry within one business day.

Written and reviewed by Radek Dajer, principal solicitor, Professional Edge Lawyers. Current at 27 October 2026.

This article is general information current at 27 October 2026. It is not legal advice about your situation. The regulations were still in draft when it was written.

Related Insights

Building & Construction

Victoria's Building Law Overhaul: What Homeowners Need to Know in 2026

Building & Construction

Fairer Payments on Jobsites: What Victoria's 2025 Reforms Mean for Subcontractors

Building & Construction

Building Defects in Victoria: Your Rights as a Home Owner