The 10% Deposit Rule and Why Upfront Design Payments May Fall Outside HBCF

The residential building deposit limit

For residential building work in NSW, the maximum deposit is generally 10% of the contract price. Where HBCF cover is required, the contractor should provide the project certificate before taking that deposit. A request for a larger amount should be examined against the contract and legislation rather than accepted as an industry norm.

The deposit must also be paid to the correct contracting entity and recorded clearly. A transfer to a director, salesperson, related development company or unexplained account can complicate later proof of the debt and the insured loss.

Separate preliminary agreements

Many projects begin with a tender, soil test, drafting, engineering, selections or pre-construction agreement before the main building contract. These services may be genuine and may have their own price, but they are not automatically treated as a deposit under the later building contract or as insured construction work.

NSW Government guidance warns that upfront payments for design, plans or pre-construction agreements are generally not covered in the same way as progress payments under the insured building contract. If the business collapses before the main contract starts, the homeowner may have to pursue the payment as an ordinary debt.

Avoid paying twice for the same deliverable

The preliminary agreement should state exactly what the owner receives, who owns the plans and reports, whether fees are credited to the building contract and what happens if the parties do not proceed. Each deliverable should be provided progressively rather than leaving the owner with only a receipt.

Before signing the main contract, reconcile every earlier payment. Identify whether it purchased completed design services, was credited to the contract price or remains an amount claimed as lost. This prevents the same payment being treated inconsistently in the HBCF submission, liquidation proof of debt and replacement-builder budget.

Practical payment controls

Keep signed agreements, invoices, receipts, bank records and copies of every drawing, report and approval produced. Refuse vague invoices such as project commencement fee where the legal basis and deliverable are unclear. Confirm whether GST is included and which entity is supplying the service.

The safest structure is transparent: a valid HBCF certificate before the building deposit, a deposit within the statutory maximum and later progress payments linked to work actually completed. Early design services should be separately defined and delivered.

Practical takeaway: The label placed on an early payment does not determine its protection. Contract structure, timing, entity and completed deliverables matter.

How ARK Houses can help

ARK Houses uses clearly defined pre-construction deliverables and contract payments rather than vague commencement fees. Where we take over an unfinished project, we reconcile earlier payments so the owner is not inadvertently paying again for the same promised work without a clear record.

Discuss Your HBCF Documentation