Radical change for residential building

On 1 January 2015, assuming the Government stays true to its word, new laws are going to come into force that are going to have a big impact on residential building. These new laws, which are part of the Building Amendment Act 2013, not only increase residential builders’ potential liability but they also increase their paperwork substantially, and for many of them they completely alter the terms on which they contract with their clients.

Geoff Hardy

What does the Building Amendment Act 2013 do? Well among other things, it does this:

1. For all residential building work costing $30,000 or more, if the builder’s customer is the homeowner, it will be compulsory for the builder to have a written building contract signed by the customer.

2. If the written building contract (or the quote, if that is all there is) does not contain all the clauses the Act requires it to contain, the gaps that are missing will automatically be filled by the Government’s clauses.

3. If the parties do not get a written building contract signed at all, then they get all the Government clauses by default.

4. Even before the homeowner agrees to hire the builder, the builder has to hand over a checklist that will be written by the Government that will urge the homeowner to carefully consider the risks they are letting themselves in for. Even if the building work is likely to cost less than $30,000, this checklist still has to be handed over if the homeowner asks for it.

5. At the same time the builder also has to hand over a document, that will have to be written beforehand, that tells the potential customer all about the builder, the builder’s company, the insurance they carry, and the guarantees and warranties that apply to their materials and workmanship. That includes any product warranties that are likely to be issued.

6. And at the conclusion of the project, the builder has to provide to the customer and the Council, copies of all ongoing insurance policies, guarantees and product warranties, and the maintenance requirements for every component of the work that has a durability period. This applies to all residential projects regardless of how much the building work costs.

7. If builders do not do any of those things, then they can be spot fined $500 on each occasion.

8. More importantly, it will most likely be something for which they can be disciplined by the Building Practitioners Board.

9. The defects liability period will automatically be a minimum of 12 months, and if the homeowner asserts that the workmanship or materials were defective, it is up to the builder to prove otherwise, failing which the builder will have to fix it up at his or her expense and possibly pay damages.

10. On top of that 12-month warranty, the builder already gives to the current and future owners of the home, a range of ten-year warranties under the Building Act 2004. If the owner establishes that the workmanship or materials were not up to scratch, and the builder cannot prove that he or she was not at fault, then the builder has to fix it up at his or her expense and possibly pay damages. Furthermore, if the defect is serious, the builder might not even be given the opportunity to fix it up. Instead, the owner can get another builder to do so, and recover any additional cost from the original builder.

These changes have been in the pipeline since as early as 2010 so it is not as if they have just been sprung on the industry. I have been writing articles and presenting conference papers on the subject for the past five years, and merchants like ITM and trade associations like Certified Builders and Master Builders have been informing their customers and members for some time. But despite that, I suspect there is a huge percentage of the residential building industry that is overwhelmed with information overload, or a bit shell-shocked by all the recent reforms, and are unaware that this is just around the corner.

What are the practical steps builders can take in order to be ready for 1 January? Two things mainly – get to know their obligations under the new laws, and gather together the documents they will need to have in place by the New Year. That in itself is a bit of a challenge, because at the moment all we have available are the enabling legislation in the Building Act 2004 and the Cabinet directives. The regulations containing all the detail are still in preparation. In the most breath-taking example of short-notice lawmaking I have ever seen, these are expected to be promulgated in early-mid December, just two or more working weeks before their commencement.

As far as familiarising themselves with the law is concerned, builders can get plain-English, user-friendly newsletters from the websites of MBIE, their merchant, their trade association, or my firm Madison Hardy. In addition, some of the merchants and trade associations are currently conducting educational meetings throughout the country, as are many of the larger building franchises and group home building companies no doubt.

As far as the documents are concerned, there are four of them, and they are:

1. The checklist that has to be handed over to potential residential customers.

2. The disclosure statement that has to be handed over to potential residential customers.

3. The written building contract the builder has to get the residential customer to sign.

4. The insurance policies, guarantees and warranties, and maintenance requirements the builder has to tell the customer about at the end of the project.

Where do builders get these from? On the MBIE website they will eventually be able to get the checklist and the template for the disclosure statement. Their merchant, franchisor, group home building company, trade association or insurance broker should be able to help them with those, as well as the end-of-project documents. But as far as their building contract is concerned, if they do not use the standardform contracts put out by Standards New Zealand, New Zealand Institute of Architects, Certified Builders, Master Builders or the bigger franchises or group home building companies, they should not risk it. They should be talking to construction law experts to make sure it is compliant once and for all.

Geoff Hardy is the proprietor and senior lawyer at Madison Hardy, and a former partner at Simpson Grierson. He was an ADLS Councillor from 2006-11 and Vice-President from 2009- 10, and has been the Convenor of ADLS’s CPD Committee since 2010. 

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