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Residential Building Contracts Are About To Get More Complicated

The leaky home crisis was the catalyst for most of the new building laws that have been introduced over the past decade.

  • 6 March 2012
  • Author: Geoff Hardy
  • Number of views: 1874
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Residential Building Contracts Are About To Get More Complicated

The leaky home crisis was the catalyst for most of the new building laws that have been introduced over the past decade. Those reforms have largely stemmed from the Hunn Report of August 2002, which was a very good analysis of the state of the building industry at the time, and the factors that gave rise to leaky homes. 

However the one weakness of the Hunn Report was that it made a number of mistaken assumptions about the inadequacies of our justice system. The overall thrust of their conclusions was that homeowners were at a significant disadvantage when attempting to hold builders to account for shoddy workmanship, and that the power balance was very much in favour of the builder.

The reality, in fact, is the opposite. Homeowners have the same range of legal rights and remedies that any other citizen has, but they also have special rights under various statutes such as the Consumer Guarantees Act and the Building Act. They can resolve their disputes not only in the Disputes Tribunals and in the Courts, but also in the Weathertight Homes Tribunal, or though adjudication under the Construction Contracts Act, or (under most building contracts) by negotiation, mediation, and arbitration. 

Despite this, it remains the official view that homeowners are starved of legal rights and remedies. And so a raft of consumer-friendly provisions were duly approved by the Cabinet in August 2010, and have found their way into the Building Amendment Bill (No. 4) that will shortly be referred to a parliamentary select committee for a round of public submissions. 

Residential building contracts of a certain minimum value (the level currently proposed is $20,000) will have to be in writing. They will also have to contain (as a minimum) the “information, content, terms and conditions” that are yet to be prescribed by Regulations. Cabinet has already directed that this will include the timeframe for the project, the contract price, the warranty and remedy obligations, and the dispute-resolution process. 

A residential building contract that is not in writing, or does not contain the required information, content, terms and conditions, will be deemed to do so by default. That suggests that the mandatory wording will effectively be a default building contract. And it will presumably be necessary to compare these default clauses to the corresponding provisions of every written residential building contract, and apply those that are judged to be the most client-friendly. 

If the No. 4 Bill is passed without modification, then homeowners who believe they have been the victims of shoddy workmanship will have a choice between five different laws covering essentially the same thing, but all slightly inconsistent with each other. 

One of those is the warranties concerning workmanship, building materials and performance standards that would be implied into residential building contracts. These already exist, in the form of sections 396-399 of the Building Act. But what the No. 4 Bill will do is introduce a standard set of remedies for breach of the warranties, which are similar to those conferred by the Consumer Guarantees Act, but lack the sophistication or the safeguards built into that Act. 

In a marked departure from the approach taken in the Consumer Guarantees Act, if the homeowner believes the warranties have been breached, he will be able to simply cancel the building contract. It will not matter how minor the breach is or how far advanced the project is, and he will not have to give the builder an opportunity to rectify the breach first. 

These warranties (and the corresponding right to cancel) will apply not only to builders, but also to designers (architects, engineers, and draftsmen) who design the structural components or the external envelope of a household unit. 

The warranties will also be automatically implied into every agreement for the sale and purchase of a household unit where the vendor is an “on-seller”. On-sellers are people who build a household unit, or arrange for it to be built, or acquire a household unit from the first owner, in each case for the purpose (or with the intention) of selling it. 

In a residential building project, if the homeowner believes there has been “defective” building work, and the defect is capable of being remedied, he will have the option of notifying the builder or designer within one year of completion. In that case the builder or designer must remedy the defect within a reasonable time. However, all the homeowner will need to do is “assert” that there is a defect. If the builder or designer does not then prove (on the balance of probabilities) that it is not in fact a defect, then the homeowner’s assertion is automatically deemed to be correct. 

Of course all these rules assume that shoddy workmanship is self-evident, whereas in reality it is often just a genuine difference of opinion. Builders may argue that the alleged defects are too trivial or nit-picky, or the client wants a better standard than the one agreed and paid for, or the work won’t be shoddy once it is finished, or the defect has been caused by the designer or a tradesman who has contracted directly with the owner, rather than the builder. 

The smorgasbord of rights and remedies that homeowners are going to be given, will only make these issues much more complex to resolve, not less.

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Geoff Hardy

Geoff HardyGeoff Hardy

Geoff’s academic qualifications and his background as a former partner in New Zealand national law firm Simpson Grierson, means that we can confidently handle any commercial law matter, no matter how complex.

This newsletter is not intended to be relied upon as legal advice.

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