In this article, you will learn how to draft your renovation contract in Malaysia like a pro!
The content here is suitable for
- Homeowner who wants to draft a renovation contract in case this was not provided by the contractor.
- Contractors who wish to provide professional legally binding renovation contracts for their clients.
Most people, at some point in their lives, will deal with renovation contractors.
The renovation process is stressful, yet fruitful when you receive your dream unit. Whether it is a home, retail, or office unit, the size of the project is big or small, you can expect some form of delays, cost overruns, defects, or unforeseen circumstances.
A seasoned property owner who has gone through multiple renovations may have in-depth knowledge of how to deal with renovation contractors.
If you’re planning a renovation for the first time, you probably have a lot of tough questions.
For instance, how to calculate the renovation cost, how to find reliable contractors, and what furnitures & appliances you want.
One of the worst nightmare is your contractor takes your money and then disappears!! You don’t want to be a victim of renovation scams!
A lot of disputes with renovation contractors can be avoided with an adequate written contract.
But in reality, majority of small-scale projects have a poorly drafted or no contract in place or just verbal agreement.
So, I am going to show you how to draft a professional renovation project.
I will be brutally straightforward on how to prepare a construction or renovation contract using the template provided by CIDB. Download the template at the end of this article.
STANDARD TERMS OF CONSTRUCTION CONTRACT FOR RENOVATION AND SMALL PROJECTS [STCC-RSP 2015]
We will draft the document with a real case below.
Real Study Case
Ms Arya (nickname) wants to do a full house renovation on her condominium in KL. Come with the unit is the kitchen cabinet. The purpose of the renovation is for rental. One of the quotations she received is shown below (Shared with consent from Arya).
Assuming Arya is satisfied with the project presented and decides to go with this.
Step by Step – Drafting the Renovation Contract With Template
All the steps here are drafted based on the Standard Terms Of Construction Contract For Renovation And Small Projects [STCC-RSP 2015] from CIDB.
This renovation contract was written in modern plain language with around 5000 words.
It fulfill most of the criteria of what would be expected of a renovation contract. This renovation contract consists of Parts A and B, Only Part A needs to be filled.
This contract can be prepared by the contractor, the homeowner, or appoint a third party to become the contract administrator.
Step 1: Prepare The Renovation Contract
Both of the parties in this contract are purely for example purposes.
Page 1: Make sure both party are there.
A.2 It is encouraged to appoint a third party to become the contract administrator. In this case Arya is the contract administrator as well.
A.3 Make sure all other documents that need to go into the renovation contract are added.
A.5 Make sure the Contract Sum is spelled out clearly.
A.6, A.7 Be specific on the project start and end dates.
A.10 Liquidated Damage is important to ensure the contractor completes the project within the period mentioned in A.6 and A.7
A.13 If the contractor requested a deposit, which is already a known practice, you can add the amount here.
A.19 Get authorized signatures from all parties, including witness’.
Step 2: Stamp the Contract at LHDN Malaysia
Once you drafted your contract, get the other party to review it. If both parties are satisfied with the terms, the next step is to stamp the contract. Stamping is to ensure the contract is admissible in court in Malaysia.
The cost of stamp duty for renovation and small projects is 0.1% of the contract sum. In this case, the total sum is RM26,707. The stamp duty is RM26.70.
The whole process can be done online.
You need to scan the contract and documents into PDF before submitting them to the LHDN portal.
It may take a day or two before it is approved. Then all you need to do is pay the stamp duty.
After payment, you will receive a Stamp Certificate.
Remember, save it as a PDF and print it later! The portal only allows 1 print! (From LHDN Staff’s advice)
If you are unsure, visit the local LHDN branch and they will guide you through the process.
Once you’re done with that, your contract is officially stamped. Send a copy to your contractor with a Stamp Certificate.
Step 3: Letter of Award
Together with the contract, create a Letter of Award using the template in the same document.
Other Documents To Be Included in Renovation Contract
Aside from the contract, there are a few documents that should not be left out of the contract.
I. Scope Of Work
This is by far the most important document that should be in the document. It lists down all the works, materials used, dimensions, quantities, and unit pricing.
You should clearly expect what things go into your living room!
There might be clauses that outline the things that are not included or requirements from the client side.
Read carefully and communicate with your contractor until both sides are satisfied.
2. Contract Sum
The contract Sum is the full amount pre-agreed for a renovation project. You can see how the final numbers are added up from the scope of work.
Be detailed and read through every clause in the agreement. You need to spot any sneaky clauses from the contractor that could lead to more problems at a later stage.
A common one is an increase in cost due to changes in design and delays caused by clients. Make sure you do not make changes in midway or intentionally delay the supposed payment.
3. Payment terms
Renovation is costly and it is common for contractors to offer progressive payment terms. A progressive payment term allows clients to make payments according to a payment schedule.
In Arya’s contract, the payment term is 60%, 35%, and 5%. For most people, this is bad because 60% upfront is too much.
A good one can be 30% – 65% – 5% or 10% – 40%-40%-5% depending on the type of renovation works.
Again, read the payment terms carefully. Some sneaky contractors may quote a 30% up-front payment as a non-refundable confirmation fee.
4. Drawing and Specification
Always include the contractor’s detailed floor plan measurements and 3D interior layout. You should get if not 100% similar, at least 80-90% like what they proposed to you.
If you have your drawings and specifications, include those as a “client requirement”.
Add relevant proposals from the contractor.
Attach photos of the existing house condition before renovation.
5. Permissions and Responsibilities
Check with local authorities on renovation permits.
Some gated communities or high-rises have specific rules on what and when renovation works can be carried out. Things like lift and floor protection and no work after 6 pm should be stated clearly in the contract.
Some buildings impose a working deposit to obtain permission to start the work.
The contract should outline respective responsibilities.
One thing is for sure, never pay the working deposit on behalf of your contractor. It is their responsibility to clean the place after completion of work to get back the deposit.
Getting Ready For Home Renovation
Drafting a renovation contract for the first time may exhausting. If you’re not sure, send us your current draft and we can advise. (Note, we do not provide drafting services!)
In HeroReno, we provide top-notch contracts that follow exactly the Standard Contract by CIDB. It offers adequate protection for both the client and contractor sides.
Download the Standard Terms Of Construction Contract For Renovation And Small Projects (STCC-RSP 2015) here.
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