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Under a Preparation of Plans Agreement or a Preliminary Work contract homebuyers sometimes pay a small deposit on signing these contracts, which does not commit either party to build the home. The agreement covers the builder’s costs of plans being drawn up, application fees, and the like.  Usually if the contract goes ahead, any deposit is taken into account in determining the final contract price.

An owner who pulls out of dealings with the builder at this stage  may find that the builder has incurred significantly more costs than the amount paid as a deposit. While there may be some refund due for indemnity insurance premiums, for example, these amounts may be less than the builder’s other costs in preparing the contract documents and drawings.

In other words, the builder may not be required to return the full deposit, or any amount, depending on the costs that have been incurred. If the owner wishes to dispute the situation, the Building Disputes Tribunal will not be appropriate since no home building work is involved.

On the other hand, if the owner has signed a building contract and then wishes to cancel, the situation may be more serious. In addition to any costs that have been incurred the builder may also be entitled to claim loss of profit for work that would have otherwise been completed under the contract.

It is vital that homebuyers read and understand the contract to be signed, in particular the obligations that may be incurred if the homebuyer has a change of mind. Remember also that cancelling a contract does not entitle the owner to take the building plans to another builder. Usually the plans are copyright and the use of them without permission by the author or originator is not permitted.

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