Signing a building contract is a significant moment. You’re committing real money to something that doesn’t exist yet, trusting a builder to deliver what they’ve promised over months of construction. Understanding how and when payments flow throughout that process isn’t just financial housekeeping—it’s one of the most important ways to protect yourself if things don’t go to plan.

Melbourne’s domestic building contracts operate under Victoria’s Domestic Building Contracts Act 1995, which sets clear rules about deposit limits and payment terms. Most reputable granny flat builders structure payments fairly and transparently. But knowing what’s standard—and what’s a red flag—puts you in a much stronger position before you sign anything.

What Victorian Law Says About Deposits

The Domestic Building Contracts Act is clear on deposit limits, and it’s worth knowing these numbers before any conversation with a builder.

For contracts exceeding $20,000, maximum deposits are capped at 5% of the total contract price. On a $230,000 Signature package, that’s $11,500—not a cent more. Builders requesting 10% deposits often justify this with material procurement or scheduling reasons. These requests exceed legal limits regardless of the explanation, and you’re well within your rights to decline.

If a builder genuinely cannot start your project on a 5% deposit, that’s worth pausing on. It can indicate cash flow pressures that may affect your project down the track. Consumer Affairs Victoria investigates deposit limit violations and can pursue action against non-compliant builders—worth knowing if you encounter this issue.

How a Standard 5-Stage Payment Schedule Works

Reputable builders structure payments across construction milestones so money flows proportionally with work completed. Here’s how a typical schedule looks for a $230,000 granny flat.

Stage 1 – Deposit (5%): $11,500 Paid on contract signing. This covers initial design development, permit applications and securing your place in the build schedule. Nothing more should be required before permits are approved.

Stage 2 – Base/Foundation (15%): $34,500 Triggered when foundations are complete and certified. For timber subfloor construction, this means stumps installed, bearers and joists complete, and structural inspection passed. You should be able to see tangible work on your property before releasing this payment.

Stage 3 – Frame (20%): $46,000 Released when wall framing, roof framing and structural bracing complete and pass inspection. At this stage your granny flat starts looking like a building. A building inspector should certify frame completion before payment is triggered.

Stage 4 – Lock-Up (25%): $57,500 Paid when external cladding, windows, doors and roofing are complete—meaning the building is weatherproof and secure. This is a significant milestone because your granny flat is now protected from weather damage regardless of what happens next.

Stage 5 – Completion (35%): $80,500 The final and largest payment, released only when construction fully completes, defects are rectified and occupancy certification is issued. Retaining this payment until genuine completion gives you real leverage to ensure outstanding items are addressed properly.

Warning Signs in Payment Structures

A few payment requests should immediately prompt questions.

Deposits exceeding 5% violate Victorian law and expose you to unnecessary risk if the builder fails before commencing. Progress payments not tied to inspected milestones mean money leaves your account without verified work completion as the trigger. Requests for the final payment before occupancy certification remove your leverage at exactly the moment you need it most. Verbal payment agreements that differ from written contracts should always be resolved in writing before any money changes hands.

Legitimate builders welcome questions about payment schedules. If a builder responds to payment queries with pressure or frustration rather than clear explanations, that tells you something important.

Domestic Building Insurance: Your Safety Net

Victorian law requires builders to take out Domestic Building Insurance (DBI) before accepting deposits for contracts over $16,000. This insurance protects you if the builder becomes insolvent, dies or disappears before completing your project.

Ask for evidence of DBI before paying any deposit. The insurance certificate should name your property and reflect the contract amount. Builders who cannot produce this documentation are not legally entitled to collect deposits—full stop.

DBI covers incomplete work up to $300,000 and rectification of defective work for six years after completion. It’s not a perfect safety net, but it provides meaningful protection for one of the largest financial commitments most families make.

Progress Inspections: Don’t Skip These

Each payment milestone represents a natural point for independent inspection—and it’s money well spent. Building inspectors charge $300-$600 per stage inspection, identifying defects and incomplete work before payments are released and while builders still have financial incentive to address issues.

Common inspection findings at frame stage include bracing deficiencies, incorrect stud spacing and moisture-damaged timber. At lock-up stage, window sealing, cladding installation and roof flashings frequently reveal workmanship issues. Identifying these before releasing payments is straightforward; pursuing rectification after final payment requires legal processes that are slower and more expensive.

For families building accommodation for parents or investment properties targeting strong returns, independent inspections protect investments worth $190,000-$255,000. The $1,500-$3,000 total inspection cost across five stages represents exceptional value.

Handling Variations During Construction

Most granny flat builds involve at least one variation—a design change, unforeseen site condition or specification upgrade initiated by either party. Variations must be documented in writing, signed by both parties and priced before work proceeds.

Verbal variation agreements create disputes because memories of what was agreed differ conveniently under financial pressure. Insist on written variation orders for everything, regardless of how minor changes seem at the time. Reputable builders expect this—it protects both parties.

Variation costs should be reasonable and itemised. If a builder presents a variation costing $5,000 for what seems like minor work, request a breakdown of materials and labour. Understanding what you’re paying for prevents overcharging that some builders embed in vague variation pricing.

Your Next Steps

Payment schedules should be one of the first things you review in any building contract—before you’re in love with the design and emotionally committed to proceeding. Book a free site assessment where we walk through our contract and payment structure transparently so you understand exactly what you’re agreeing to.

Contact Innovista Group with any questions about how we structure payments, what each milestone involves and how we handle variations. We think transparent financial conversations make for better projects—and better relationships with the families we build for.