Agreeing a Deposit and Stage Payments

Thirty per cent, and the ground has not been broken

The quote for the rear extension was signed on a Tuesday. On Thursday there is an invoice for thirty per cent of it, payable before anyone arrives, and the homeowner is standing in an unaltered kitchen wondering whether that is normal or whether it is the beginning of a story they have read in a newspaper. Both readings are available, because the invoice on its own does not distinguish between them.

The builder's side of it is usually real. A steel beam for the opening is fabricated to the engineer's schedule, which makes it a made item rather than a stock length off a rack; the padstones go with it. Aluminium doors and a rooflight are surveyed and ordered with a lead time in weeks. A groundworks gang is booked into a week somebody else wanted. A firm of four cannot carry all that on its own overdraft, and a builder who never asks for money in advance is usually one being funded by the last customer's final payment — a worse position for everyone than an honest deposit.

So the argument is not thirty against fifteen. Arguing about the percentage is arguing about the wrong quantity, and it is the argument that produces a compromise at twenty-two per cent attached to nothing at all. The question worth asking is what each payment is attached to: which named thing has to exist, in the world, before that money moves. Get that right and the percentage mostly settles itself, because a payment tied to a purchase order is limited by the size of the order and a payment tied to a physical stage is limited by how much of the building is standing.

Section 106, and why the Act everyone quotes is not in your kitchen

When the trade says the Construction Act it means Part II of the Housing Grants, Construction and Regeneration Act 1996, as rewritten by Part 8 of the Local Democracy, Economic Development and Construction Act 2009. It is an unusually practical piece of legislation. Section 109 gives a right to stage payments unless the work is to take less than 45 days. Section 110 requires an adequate mechanism fixing what becomes due and when, and a final date for payment. Sections 110A and 110B set up the notices: the payer states what it proposes to pay and how it was calculated, and if it says nothing the payee serves its own notice in default. Section 111 makes the notified sum payable unless a pay less notice arrives in time. Section 112 allows suspension for non-payment, section 113 kills pay-when-paid, and section 108 lets either party adjudicate at any time. Where a contract fails to provide any of it, the Scheme for Construction Contracts (England and Wales) Regulations 1998, as amended in 2011, supplies the missing terms whether the parties like them or not.

Section 106 takes all of it away from you. A construction contract with a residential occupier — one principally relating to operations on a dwelling which one of the parties occupies, or intends to occupy, as a residence — sits outside those provisions. Your extension, your loft, your kitchen: outside. No statutory entitlement to be paid in stages, no default mechanism waiting to be imported, no notice regime, no right for either side to down tools over money, and no adjudication unless you have agreed to one. That is deliberate rather than an oversight: a machine designed for commercial supply chains was kept away from a homeowner who has never seen a payment notice.

What is left is the contract you signed and the general consumer law behind it. The Consumer Rights Act 2015 supplies the terms nobody wrote down: section 49 requires the service to be performed with reasonable care and skill, section 51 supplies a reasonable price where none was agreed, and section 52 a reasonable time. Those matter, but notice what they are not. None of them says when a payment falls due, and the forum for enforcing them is the county court rather than an adjudicator with a four-week clock. Everything the commercial world gets by statute, you get only by writing it down.

The mirror image changes who is exposed. If nobody is going to live in the property — a flat refurbished to let, a house done up to sell, anything by a developer — section 106 does not apply and the full machine bites. That is the world in which a missed payment notice and a missed pay less notice make the payee's application the notified sum under section 111, payable in full and enforceable by adjudication within weeks regardless of what the work was worth. The repeal of section 107 by the 2009 Act also brought oral construction contracts inside the regime, so a landlord who agreed a refurbishment on the phone is inside it and does not know. The Construction Contracts (England and Wales) Exclusion Order 1998 carves out further categories, and Scotland runs its own Scheme regulations.

The practical response is to bolt the machine on by agreement. The JCT Building Contract for a Home Owner/Occupier exists in versions for a job with and without a consultant administering it; the JCT Minor Works Building Contract is the step up where an architect or surveyor issues certificates; the RIBA Domestic Building Contract covers the same ground from the designer's side. Whichever form is used, three things have to be legible on the face of it before anyone signs: what event makes a payment due, how many days run from that event to the final date for payment, and what either party does when they disagree about the amount.

A stage a stranger could stand in the garden and confirm

The test for a payment trigger is whether somebody who has met neither of you, with no interest in the outcome, could look at the building and say yes or no. On commencement fails it — commencement is a van arriving. At fifty per cent complete fails badly, because fifty per cent of what is exactly the question in dispute. After four weeks fails, because it pays for time rather than work whether the four weeks were rained off or not. Delivery of materials to site is the subtle one: it looks physical, and it pays for a pallet that may still belong to the merchant.

The stages that pass the test are the ones the building already has to reach anyway, and in England and Wales the regulator has written the list for you. Regulation 16 of the Building Regulations 2010 requires notice at named points in the work: commencement, the excavation for a foundation, the foundation itself, the damp-proof course, the oversite concrete, any drain or sewer before it is covered up, and completion. Each is a notice that has to be given whether or not it suits the programme, and each is an opening for somebody with no financial stake in your job to come and look. Hang the early payments on the same pegs and the verification is free and independent. American practice gives the same through Section R109 of the International Residential Code, whose inspection points run through the foundation, the rough-in, the frame and the final, with the certificate of occupancy under Section R110 at the end.

Past the inspection calendar you write your own triggers, and the discipline is to describe a physical state rather than an activity. Two are habitually botched. Roof on is not a stage; watertight is, and watertight means the covering complete, the flashings and abutments dressed and sealed, the openings temporarily weathered, and rainwater running to a temporary outfall rather than down the new blockwork. First fix is not a stage either, because first fix complete and first fix inspected are weeks apart in consequence: after plaster nobody can verify anything, and the money has already gone.

1. Write the trigger as a physical state of the building, in one sentence, with no adverbs: what exists, across what extent, in what condition.
2. Name who confirms it — building control, the approved inspector, an architect or surveyor if one is appointed, or both parties jointly with a dated photograph.
3. State the amount as a fixed sum, not a percentage, once the contract sum is fixed; percentages drift every time a variation is agreed and nobody re-cuts them.
4. State the number of days between the trigger being confirmed and the final date for payment, so that late has a definition.
5. State what the payer does if they think the stage has not been reached: by when, in writing, and with what detail. Without that, the only available response is silence.
6. Photograph every stage on the day it is confirmed, from the same two positions each time. It costs nothing and it settles nearly every later argument about sequence.

Retention, and the last payment nobody wants to make

Retention exists because the final payment is the only leverage that outlives the works; once it is gone, the builder's incentive to come back for a sticking door is goodwill. The commercial mechanism is a small percentage held from each interim payment, half released at practical completion and the balance at the end of the rectification period — on domestic work typically three to twelve months, depending on what the contract says. It is a good mechanism and it is routinely botched on a small job, because a percentage held from six payments needs somebody tracking six numbers, and nobody is.

The version that survives a domestic job is a single named sum, written into the schedule as its own line, held from practical completion for a stated number of months and released against a dated snagging list. It is easier to explain to a builder, easier to defend, and it fails less often. Whichever form it takes, agree it before the first payment rather than discovering at the end that the schedule accounted for the whole contract sum and left nothing behind.

That makes it worth defining practical completion as a set of documents rather than a feeling, because otherwise it becomes a conversation about whether the site is tidy. On a domestic extension in England and Wales the list is short and every item is somebody else's signature: the building control completion certificate or the approved inspector's final certificate; an electrical installation certificate to BS 7671 with the Part P notification; a gas safety record where a fitting has been touched, under the Gas Safety (Installation and Use) Regulations 1998; certification for the glazing; the engineer's confirmation of the beam and its bearings; and the manufacturer warranties registered in your name rather than the builder's. In the United States the hinge is the certificate of occupancy under Section R110 of the International Residential Code, and in the lien states the final payment moves against a statutory release — California's forms at Civil Code sections 8132, 8134, 8136 and 8138 being the clearest example. Money released against paper is a decision; money released against a handshake is a hope.

Late, stopped, and cancelled

Interest on a late payment is not automatic here. The Late Payment of Commercial Debts (Interest) Act 1998 applies where both parties act in the course of a business, which a homeowner does not, so a domestic invoice citing it is citing the wrong statute. Whatever interest applies comes from the contract itself, and a rate out of proportion to the loss is the sort of term Schedule 2 of the Consumer Rights Act 2015 flags as potentially unfair. That cuts both ways: a homeowner cannot charge a builder statutory interest either.

Stopping work is the other asymmetry section 106 creates. The statutory right to suspend for non-payment under section 112 is not available on a domestic contract in either direction, so the contract has to say what happens: how many days late a payment has to be, what notice is served, how long the other side has to cure it, and what the money position is if the job is terminated with the roof half on. Materials on site, work in progress and the retention all need a home in that clause.

Cancellation deserves its own read, because it is the one place a homeowner has a stronger position than they expect and a narrower one than they are told. Where a contract is agreed away from the trader's business premises — signed at your kitchen table, which is how most domestic building work is agreed — the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 give a right to cancel under regulation 29, over a cancellation period regulation 30 sets at fourteen days, require the trader to give prescribed information including notice of that right under regulation 10 and Schedule 2, and extend the cancellation period under regulation 31 where that information was never given. Regulation 36 is the one that catches builders: if work is to begin inside the cancellation period, the consumer has to have expressly requested it in a durable medium, and if they then cancel they pay for what was actually done.

The narrowing is in regulation 28, which takes some work outside those cancellation provisions altogether — the construction of new buildings and of substantial new extensions among them. So a rear extension and a kitchen refit, signed on the same table on the same evening, can sit on opposite sides of that line. That is a reason to read regulation 28 before relying on the fourteen days rather than after relying on it, and a reason not to treat the cancellation right as a substitute for a deposit that was sized properly in the first place.

One sheet, two signatures

The finished article is a single page with five columns: stage number, the trigger written as a physical state, who confirms it, the fixed sum, and the running total including retention. Both parties sign it, both keep a copy, and it goes into the contract as an appendix rather than living in an email thread. It works for a behavioural reason rather than a legal one — most domestic disputes are not about dishonesty but about two people holding different versions of what was agreed, neither able to prove it.

One last comparison worth carrying: some jurisdictions have decided the deposit question by statute rather than by negotiation. California's home improvement contract provisions in the Business and Professions Code, at sections 7159 and 7159.5, cap the down payment on a home improvement contract at the lesser of one thousand dollars or ten per cent of the contract price. England and Wales set no such limit, and nothing in the Building Regulations or the Consumer Rights Act supplies one. That absence is the reason this page exists. Where no statute fixes the number, the only defence is a schedule where every payment is attached to something a stranger could walk into the garden and verify.