Conditional Occupancy Permits in Victoria | Troise v Blue Key
10 min read
10 February 2025
In Troise v Blue Key Properties Pty Ltd (Building and Property) [2025] VCAT 9, VCAT considered whether a builder could rely on a conditional occupancy permit to establish completion and require final payment under a major domestic building contract.
The Tribunal also considered the owners’ termination of the contract, defective and incomplete building work, vandalism damage, liquidated damages and variation credits. The owners ultimately recovered $196,800 from the builder.
Background
Ana Maria Troise and Luciano Troise purchased land in Tamarind Crescent, Werribee, intending to construct three two-storey units as part of their retirement strategy.
On or about 19 August 2018, the owners entered into a major domestic building contract with Blue Key Properties Pty Ltd. The contract price was $812,000, including GST.
The contractual works commenced in December 2018. Under the contract, the builder had 340 days to complete the project.
On 9 September 2020, the relevant building surveyor issued a document described as an occupancy permit. It stated:
“Occupancy is subject to the following conditions – All appliances and services to be fitted off and commissioned prior to occupation.”
On the same day, the builder issued its completion-stage invoice for $81,200.
The owners refused to pay that invoice. Their building consultant subsequently inspected the units and identified defective and incomplete work, including missing appliances, flyscreens and water meters.
The dispute continued for several months. During that period, Unit 3 was vandalised while the builder remained in possession and control of the site. On 30 April 2021, the owners terminated the contract.
Issues before VCAT
VCAT was required to determine:
whether the purported occupancy permit was valid;
whether the builder had completed the contractual scope of works;
whether the builder’s notice of completion and final payment claim were valid;
whether Special Condition 6 was enforceable;
whether the owners validly terminated the contract;
whether the builder was liable for vandalism damage;
the amount recoverable for defective and incomplete work;
whether the owners were entitled to liquidated and consequential damages; and
the parties’ respective claims under the contract.
Was the conditional occupancy permit valid?
Senior Member Edquist found that the document issued on 9 September 2020 was not a valid occupancy permit.
The condition required all appliances and services to be fitted off and commissioned before occupation. Until that work had been completed, the relevant electrical and plumbing certifications could not be issued and it was difficult to see how the building surveyor could have been satisfied that the premises were safe and suitable for occupation.
VCAT referred to Barbour v Australian Elegant Homes Pty Ltd [2018] VCAT 1242 and Cardona v Brown [2012] VSCA 174. Those authorities supported the proposition that a statutory construction stage is either complete or it is not.
The Tribunal therefore rejected the builder’s contention that the permit was valid because the owners could occupy the units after arranging for the appliances and services to be fitted off and commissioned.
Had the building works reached completion?
The Tribunal separately found that the contractual works had not reached completion by 9 September 2020.
Under the contract, completion required the works to be completed in accordance with the contractual plans and specifications. The owners’ building consultant identified numerous defects and incomplete items in each unit, including:
appliances that had not been installed;
flyscreens that had not been installed; and
water meters that had not been installed.
VCAT explained that a relevant building surveyor is responsible for assessing compliance with applicable building legislation, not for certifying strict compliance with every term of a building contract.
Accordingly, the issue of an occupancy permit does not, by itself, establish contractual completion. Whether completion has occurred must be determined under the particular building contract.
Was the builder entitled to final payment?
Clause 36.1 of the contract prevented the builder from demanding final payment until it had provided the owners with an occupancy permit.
Because the purported occupancy permit was invalid, the builder was not entitled to demand final payment under that clause. The builder’s notice of completion was also invalid, meaning that the contractual procedures concerning final inspection, defects and payment had not been enlivened.
The builder alternatively relied on Special Condition 6, which provided that the owners had 14 days to make the final payment after an occupancy permit was issued.
VCAT found that the final progress payment could only become payable after completion of the relevant stage. Special Condition 6 was contrary to, or purported to vary or exclude, the operation of the Domestic Building Contracts Act 1995 (Vic).
The Tribunal declared Special Condition 6 unenforceable under s 132(1)(a) of that Act.
Did the owners validly terminate the contract?
The owners served a notice of intention to terminate on 31 March 2021. It relied on defective work, incomplete work, delay and the builder’s unauthorised change to the slab design.
The builder maintained that the owners were in breach because they had not paid the final claim. However, that position depended on the purported occupancy permit, the invalid notice of completion and the unenforceable special condition.
VCAT declared that the owners validly terminated the contract on 30 April 2021.
Liability for vandalism damage
Unit 3 was extensively vandalised before the contract was terminated.
Under the contract, the works remained at the builder’s risk until possession passed to the owners. As the builder remained in possession and the contract was still on foot when the vandalism occurred, VCAT found that the builder was responsible for the resulting damage.
The Tribunal awarded the owners $40,200 for vandalism damage.
The owners’ expert evidence
The owners initially claimed $443,812 for unrectified defects based on costings prepared by one of their experts.
During cross-examination, it was established that the expert had:
exceeded his instructions by costing defects he had identified himself;
substantially overstated the cost of rectifying brickwork; and
exaggerated the cost of other rectification items.
The owners consequently abandoned that expert’s costings. For unrectified defects, they instead adopted costs assessed by the builder’s expert for defects he accepted were present. They also relied on actual rectification and completion expenses where appropriate.
This aspect of the decision illustrates the importance of ensuring that an expert remains within their instructions and provides transparent, supportable costings.
Damages awarded
VCAT assessed the owners’ losses as follows:
Claim | Amount awarded
Vandalism damage | $40,200
Agreed or liquidated damages | $57,536
Foundation design credit | $11,500
Defective building work | $111,837
Completion costs | $56,928
Post-termination rental loss | Nil
Window variation credit | Nil
Resurveying costs | Nil
Total | $278,001
Because the owners had validly terminated the contract, they were entitled to recover the reasonable cost of having another contractor rectify and complete the works. However, they were required to give the builder credit for the unpaid contract balance of $81,200.
VCAT therefore reduced the owners’ damages from $278,001 to $196,800.
The builder’s counterclaim was dismissed. The owners were also granted liberty to apply separately for interest, costs and reimbursement of fees.
Why was the rental-loss claim rejected?
The owners claimed lost rent for the period between termination and the dates on which the three units were eventually leased.
VCAT rejected that claim because the owners had not acted sufficiently promptly to mitigate their losses. The Tribunal found that, after termination, the owners had access to the unpaid contract balance and could have arranged for the necessary work to be completed sooner.
The decision demonstrates that a successful party must still take reasonable steps to minimise losses caused by a contractual breach.
Key takeaways
The decision provides several practical lessons for Victorian owners and domestic builders:
An occupancy permit does not necessarily establish completion under a building contract.
A document expressed to permit occupation only after essential appliances and services have been completed may not constitute a valid occupancy permit.
Contractual completion depends on the definition and procedures contained in the particular contract.
A building surveyor does not certify that every contractual item has been properly completed.
A builder may not be entitled to final payment if the relevant completion stage has not been achieved.
Special conditions cannot contract out of the Domestic Building Contracts Act 1995 (Vic).
A builder may continue to bear the risk of damage to the works while it retains possession of the site.
Expert evidence must remain within the expert’s instructions and be supported by a defensible methodology.
Owners must take reasonable steps to mitigate their losses, even where the builder has breached the contract.
The decision should not be expressed as establishing that every conditional occupancy permit is necessarily invalid. Its application will depend on the wording of the permit, the nature of the outstanding work, the applicable statutory requirements and the terms of the building contract.
Conclusion
In Troise v Blue Key Properties Pty Ltd, VCAT found that the builder had not completed the contracted works and could not rely on the purported conditional occupancy permit to demand final payment.
The builder’s notice of completion was invalid, Special Condition 6 was unenforceable, and the owners validly terminated the contract. After assessing the accepted claims and deducting the unpaid contract balance, VCAT ordered the builder to pay the owners $196,800 and dismissed the builder’s counterclaim.
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