Building Act 2004 – amendments and impact on building contracts
Important new legislative measures for protection of consumers in the area of building work came into force on 1 January 2015.
These protection measures are the result of amendments to the Building Act 2004 (the Act) introduced by the Building Amendment Act 2013 (the Amendment Act) and the Building (Residential Consumer Rights and Remedies) Regulations 2014 (the Regulations).
The changes apply to residential building work carried out by a building contractor, in particular, where the price of the work is $30,000 (inclusive of GST) or more. They affect any building contractor who is contracted directly by a client homeowner to carry out residential building work.
The consumer protection measures contained in the Act are found in sections 362A to 362V of the Act. The salient protection measures can be summarised as follows:
- The Act now makes it mandatory for a building contractor to make certain precontract and post-contract disclosures including:
(a) providing pre-contract disclosures to clients in the form of a prescribed “Disclosure Statement” and a prescribed “Checklist”, prior to entering into a residential building contract for work priced at $30,000 (inclusive of GST) or more or if the client requests such disclosures; and
(b) providing certain written information post completion of work to the client, regardless of the price of work carried out.
- Written building contracts are mandatory for work priced at $30,000 (inclusive of GST) or more.
- There are new implied warranties and remedies for breach of implied warranties.
- A 12 months’ defects liability period is implied in all building contracts.
Pre- and post-contract disclosures
The information to be disclosed in the Disclosure Statement is prescribed by regulation 5 of the Regulations and the form of the disclosure is contained in Schedule 1 of the Regulations. The building contractor is required in the Disclosure Statement to provide information regarding the contractor’s business, the skills and qualifications of any identified key person involved in the building work, information on relevant insurance policies carried by the contractor and on guarantees or warranties it provides in connection with the work.
Failure to provide a Disclosure Statement exposes the building contractor to a fine not exceeding $2,000. A contractor who knowingly provides false or misleading information in a material particular or makes a material omission in the Disclosure Statement is on conviction liable to a fine not exceeding $20,000.
The Checklist is prescribed by regulation 5 of the Regulations and the form of the Checklist is contained in Schedule 2 of the Regulations. The Checklist is intended to inform the client homeowner of matters and risks the homeowner should consider or attend to when entering into a building contract.
Failure by a building contractor to provide the Checklist exposes the contractor to a fine not exceeding $2,000.
Post completion of work information
The required information post completion of work must be provided by the building contractor after completion of the residential building work regardless of the value of the work. This requirement is found in section 362T of the Act and regulation 9 of the Regulations. The information must include:
- information about processes and materials for ongoing maintenance of the building work;
- copies of every insurance policy that the contractor holds in relation to the building work; and
- copies of guarantees or warranties that apply to the building work.
Failure by a building contractor to provide the post-completion information exposes the contractor to a fine not exceeding $2,000.
Mandatory written building contracts
For residential building work costing $30,000 (inclusive of GST) or more, there is now a requirement for provision of a written contract by the building contractor to the client. The building contract must be in writing, be dated, and must comply with the requirements of sections 362F and 362G of the Act and regulations 6, 7 and 8 of the Regulations.
If there is no formal written building contract entered into, or the contract does not contain the minimum content prescribed in the Act or the Regulations, the contract between the building contractor and the client is deemed to include the default building clauses set out in Schedule 3 of the Regulations.
The act of entering into an unwritten contract for residential building work with a price of $30,000 or more constitutes an infringement offence. It exposes the non-compliant building contractor to a fine not exceeding $2,000.
Implied warranties and default clauses in building contracts
Sections 362H, 362I and 362K of the Act impose mandatory implied warranties, which are deemed included in residential building contracts. These warranties are set out in section 362I. They apply to oral and written building contracts. They can be summarised as follows:
- The building work will be carried out in a proper and competent manner and in accordance with the plans and specifications and with the relevant building consent.
- All materials supplied will be suitable for the purpose for which they will be used.
- All materials supplied will be new unless otherwise stated in the contract.
- The building work will be carried out in accordance with, and will comply with, laws and legal requirements.
- The building work will be carried out with reasonable care and skill and be completed by the date specified in the contract or, if there is no date specified, within a reasonable time.
- The household unit will be suitable for occupation on completion of the building work.
If the contract specifies the particular purpose for which the building work is required, the work and materials used in carrying out the work will be reasonably fit for that purpose.
If the contract specifies the result that the client owner wishes the building work to achieve, the building work and materials used in carrying out the work will be of such nature and quality that they might reasonably be expected to achieve that result.
Remedies for breach of implied warranties
New remedies for breach of implied warranties are prescribed in sections 362M to 362P of the Act. These include:
- A requirement for the building contractor to remedy breach of implied warranties within a reasonable time.
- If the contractor refuses, neglects or fails to remedy the breach, the client homeowner can have the breach remedied by someone else and recover the costs from the contractor and (where appropriate) claim damages, or cancel the building contract (if work is not completed) and claim damages.
- For breaches that cannot be remedied, or where the breach is substantial, the client can seek damages for any resulting reduction in value and for other loss and damage, or cancel the building contract (if work is not completed) and claim damages.
The Act also now allows the owner of the building or land on which the work was carried out under a residential building contract to take action against the contractor for breach of implied warranties, even if the owner was not a party to the contract. As such, the benefit of the warranties can be passed to and may be enforced by subsequent owners.
Defects liability period of 12 months
From 1 January 2015, a defect liability period of 12 months’ warranty is implied in every building contract for work carried out to household units. Pursuant to section 362Q of the Act, a building contractor must, within a reasonable time of receipt of written notice given within 12 months of completion of the work, remedy any defect in work (capable of remedy) carried out on or after 1 January 2015.