The recent decision of Khan v Fairmont Homes (NSW) Pty Ltd [2026] NSWSC 770 considered whether the variation clause in a standard form residential building contract applied to a special condition that allowed the contract price to be revised and whether the Owner breached that clause.

The parties entered into a contract adopting the HIA standard terms for the construction of a residential dwelling and agreed to a special condition allowing the Builder to revise the contract price in circumstances of delay in commencement. The use of the word ‘variation’ in the special condition concerning the revision of the price was inconsistent with the definition of that word in the standard terms which applied only to defined ‘building works’. The Builder relied on the special condition to issue a notice of ‘variation’ to the price. The Owner failed to accept the revised price or respond to the notice under the variation clause in the contract and the Builder sought to exercise a right to terminate the contract for breach and claimed damages.

The primary judge awarded the Builder damages for the breach. On appeal the Supreme Court of NSW reversed the decision, although it did not entirely agree with the submissions of either party as to the application of the variation clause.

Applying the principle that greater weight is ordinarily given to the words added to a standard contract by the parties under special conditions, the Court found that the parties intended to extend the variation clause in the standard contract to a price ‘variation’ under the special condition. This was notwithstanding that the circumstances contemplated in the special condition did not fall within the scope or definition of ‘variation’.

However, applying the variation clause in the contract to the circumstances, the Court found that the Owner was not required to accept or respond to the Builder’s notice of variation, as the price increase did not relate to building works as defined in the variation clause. Further, the clause expressly provided that a ‘variation’ was deemed withdrawn if not accepted by the Owner. Accordingly, the Owner’s failure to respond to notice of the price ‘variation’ was not a breach and the Builder was not entitled to terminate the contract.

The case demonstrates the difficulty of applying inconsistent contractual terms and reinforces the importance of drafting special conditions to ensure that relevant terms and mechanisms provided in the main contract are referred to and adopted as intended.

The decision can be found here.