Americans use the expression “no-brainer” when something is so blindingly obvious that you don’t even have to think about it. This newsletter explains why it is a no-brainer that you should take out one of the new guarantees that are now available.
Apart from help with building contracts, there are two main reasons why builders come to us for legal assistance. One is to recover some money from a client in a dispute situation. The other is to defend an allegation that the builder has done defective work.
Remember what a “record of work” is? It is something that a licensed building practitioner must hand over to his client and the local territorial authority, when he completes “restricted building work” on a house or a small-to-medium apartment building.
There is some confusion about what it is actually called, as many people refer to it as a “memorandum”. The Building Act 2004 (sections 88 and 317(1)(da)(ii)) refers to it only as a “record of work”, but the Building (Forms) Regulations 2004 call it a “Memorandum from licensed building practitioner (record of building work)”. They are the same thing.
As a general rule, 10% of people are inherently honest, 10% are inherently dishonest, and the other 80% are as honest as the circumstances require.
That rule applies to people in all walks of life, and all occupations. So just as it applies to builders, so it also applies to homeowners. And it is just a matter of luck whether you happen to come across a client who falls into that 10% dishonest bracket.
The Construction Contracts Act 2002 (the “CCA”) was introduced because the New Zealand construction industry was behaving badly at the turn of the century.
Payments weren’t flowing down the chain to where they were badly needed, and disputes took far too much time and money to resolve. So the Government followed the lead already taken by a number of other western countries, and passed the CCA to address these issues. The main thrust of the CCA is to get payment to the contractors at the bottom of the pile promptly, and the two main ways it does that, are payment claims and adjudication.
When the Government appointed Messrs Hunn, Bond & Kernohan to enquire into the causes of the leaky building syndrome in 2002 (they were called “The Overview Group on Weathertightness”) they took it upon themselves to investigate and report on all the failings of the construction industry in New Zealand. In their otherwise excellent report (issued in two parts on 31 August & 31 October 2002) they offered the following comments:
“it is understood that [the Companies Act] offers little … protection to a home-builder/buyer consumer in the event of the vendor company … being put into voluntary liquidation by the directors”
“there is currently nothing to stop the unscrupulous … builder from liquidating their company … to avoid claims and action from dissatisfied purchasers”
In 2010 the (then) Department of Building and Housing announced its final round of building law proposals that arose out of the leaky building crisis.
The proposed reforms were broadly intended to achieve two objectives. The first was to ease the burden on Councils, who were inheriting the lion’s share of liability for the cost of leaky home repairs, and were getting overly-cautious and risk-averse as a result. The second was to encourage homeowners to be better informed when embarking on building projects and to give them more rights and remedies when things went wrong.
Most builders will be aware by now that since 1 January 2015 you have had to provide to your residential clients four different documents – a checklist, a disclosure statement, a written building contract, and an owner’s manual.
The checklist is easy because it’s a standard form you download from the MBIE, and the written building contract is easy if you belong to Certified Builders, Master Builders, or one of the volume builders or franchises. It’s the disclosure statement and the owner’s manual that present a few problems. Here’s how to deal with them.
There are currently five laws holding residential builders accountable for their workmanship or materials (and only two in the case of commercial builders).
They are the law of contract, the law of negligence, the Consumer Guarantees Act 1993, the implied warranties under section 362I of the Building Act 2004, and the 12 month defects warranty under section 362Q of the Building Act. Of those five laws, in only two of them is it necessary to prove (or disprove) that there is a “defect” in the workmanship or materials. In the other laws you have to prove something else – in the case of negligence a breach of a duty of care causing foreseeable loss, in the case of the Consumer Guarantees Act a breach of an implied guarantee, and in the case of the Building Act implied warranties a breach of one of those warranties.
It is section 40 of the Building Act 2004 that says you must not construct, alter, demolish or remove a building without a building consent.
And it is sections 41 and 42A that list the exceptions to that rule. There are exceptions under section 41 for certain Government buildings, urgent work, energy work, work authorised by a territorial authority, and the various types of work listed in Schedule 1 to the Building Act. Section 42A then goes into greater detail about Schedule 1.
When Mainzeal Property and Construction Ltd went into receivership, contractors were owed $18.3m in retentions, most of which they will probably never receive.
So on 31 March 2016 the Government will be introducing a new set of rules about retentions, following the trend that has already emerged in other countries. They are part of the amendments to the Construction Contracts Act 2002. Depending on whether you are at the bottom of the feeding chain (a specialist trade contractor) or at the top (a developer or commercial building owner), this will either be good news or bad news for you. If you are somewhere in the middle, it will be both good news and bad.