The Building Amendment Act 2013 has now been fully implemented. The purpose of the amendments is to increase consumer protection and certainty.

The Act moves reliance (and liability) away from council and  places the onus on residential builders and on-sellers . The result for builders is an increase in their obligations and an associated increase in risk and liability.
Having the right contracts in place to protect the builder’s business will now be essential. These contracts will be the most useful tools in a builder’s toolbox.

Requirements for builders

As from 1 January 2015, builders must:

• Provide prescribed  pre-contract disclosure information  and a prescribed  checklist  to their client before entering into the contract, where the contract price is $30,000 or over (including GST), or where client requests it (even if under $30,000).
• Provide a  written building contract , with certain prescribed terms, where the contract price is $30,000 or over (including GST). Certain terms are deemed to apply even if they are not in the contract.
• Provide certain  post contract information  which includes information about (and copies of) insurances, guarantees and warranties relating to the works, and maintenance requirements.

What building contracts must contain

Minimum requirements for the building contract are that it must be in writing, must be dated and it must contain all of the following:

• Description of the building work including materials and products used.
• The person carrying out the supervision of the building work.
• Expected start dates and completion dates.
• Contract price and payment method.
• Process for varying the contract.
• Dispute resolution processes and process for any delays.
• How defects will be remedied, including reference to Building Act implied warranties.
• Acknowledgement that the contractor has supplied, and the client has received the disclosure information and the check list.

Penalties

The onus is on the building contractor to make sure all the new obligations are met.

If the project is over $30,000, the builder may be subject to a fine of up to $500 for:

• Not providing pre-contract disclosure; or
• Not providing a written contract; or
• Not complying with the written contract.

In addition, the builder could be subject to a fine of up to $20,000 for knowingly making a false or misleading statement or omission during disclosure process.

Warranties

The implied warranties have not changed under the amendment act, but the remedies/penalties for breaching those warranties have increased.

The remedies depend on whether or not the breach can be remedied, and whether or not it is substantial. The home owner (or subsequent homeowner) has 10 years to bring a claim.

Once a home owner notifies the building contractor of a defect, it is deemed that a defect exists (and is capable of being remedied) unless the contrary is proven. The builder must remedy the defect within one year of building work being completed.

There are a number of defences available to builders including, for example, where the defect is caused by someone over whom building contractor has no control or by a failure to carry out normal maintenance.

Subcontractors

Importantly, subcontractors are specifically excluded from the implied warranties provisions.

This may result in the head building contractor being liable for a subcontractor’s work, with no means of recovering that sum from the subcontractor.

Having the right contracts in place

Standard generic building contracts can be long winded and confusing. An experienced commercial lawyer can draft the required written contract and subcontracts, tailored for the builder’s particular circumstances, so that it reduces the risk to the business as much as possible.

If you would like to discuss any matters relating to The Building Amendment Act 2013, or any other business law related matter, please contact the personal assistant to our business specialists, Suzanne Sumner or by email on suzanne.sumner@smithpartners.co.nz  or by phoning  09 837 6840.