Publications

Building law changes: Enhanced consumer protection

By Jonathan Aquilina - February 2015

Introduction

The Ministry of Business, Innovation & Employment (“MBIE”) has recently announced a number of new consumer protection measures with the aim of improving practices in the residential construction sector.  The new measures are contained in the Building (Residential Consumer Rights and Remedies) Regulations 2014 (the “Regulations”).

The Regulations have been introduced following the Building Amendment Act 2013 (the “Amendment Act”), both of which came into force on 1 January 2015.  The Amendment Act is the result of a comprehensive review of the Building Act 2004 (the “Act”), which is the primary piece of legislation governing the New Zealand construction industry.

New rights for clients - what you can expect from your builder

The key consumer protection measures introduced by the Regulations and the Amendment Act include the following:

• For all residential building work costing $30,000 (including GST) or more (the “price threshold”):
• Contracts are to be in writing;
• Building contractors are to provide checklists and disclose certain information;
• There is now minimum content that must be included in residential building contracts;

• There are various default clauses that are taken to be included in a residential building contract, in the circumstances outlined further below;
• Information that a building contractor must provide to its client after the building work is completed; and
• Fines of $500 where a building contractor breaches any of the written contract, disclosure or checklist requirements.

The price threshold is based on the total price for all work being done by the building contractor, regardless of whether it is covered by one or more contracts.  Any attempt to break the required work into separate, multiple, lower-priced contracts to get round the Regulations will therefore be ineffective.

Subject to the price threshold noted above, the Regulations apply to all “residential building contracts”.  The Regulations will therefore apply both to owner-occupier homeowners and residential landlords undertaking construction work on their rental properties.

Some further details on the new measures follow below.

Checklists and disclosure statements

The checklist prescribed by MBIE contains useful information for a client to consider before engaging a builder on a construction project.  The checklist covers various points, including:

• Details of the type of construction work caught by the Act;
• Agreeing the project scope and management structures;
• Issues to consider in hiring competent building contractors;
• Agreeing on a contract price and making payments;
• Having a written contract;
• The importance of effective communication; and
• Resolving disputes.

The prescribed disclosure statement requires the builder to provide details of various project-specific matters relating to the proposed work, including:

• The name of the building contractor;
• Contact details for the person responsible for supervising the work;
• Details of relevant insurance policies held or to be held by the building contractor; and
• Information about any guarantees or warranties which the building contractor offers in relation to the building work.

A building contractor who knowingly provides false or misleading information, or who knowingly leaves out information they are required to provide in the disclosure statement, is liable to a fine of up to $2,000.

Minimum content

The Regulations set out minimum requirements for the content of contracts for building work above the price threshold.  This includes:

• Party details;
• Details of the works;
• Start and completion dates;
• Payment arrangements;
• The contractual mechanisms governing how changes to the scope of the work (also known as “variations”) will be managed and agreed; and
• Dispute resolution procedures.

Default clauses

The Regulations prescribe default clauses which will be considered to be part of a construction contract in the following circumstances:

• Where residential building work is above the price threshold and there is no written contract; or
• Where the written contract does not including the minimum content required by the Regulations.

The default clauses cover such aspects as:

• A requirement for the building contractor to obtain all necessary building consents (written and oral contracts) and code compliance certificates (oral contracts only);
• How variations will be managed;
• Monthly progress payments; and
• How disputes will be managed.

Post-completion information

The Regulations set out the information and documentation that a building contractor must provide to a client on completion of the building project.  This includes:

• Copies of relevant insurance policies;
• Copies of any guarantees and warranties relating to the work; and
• Information on how to maintain any element of the building work if the validity of any applicable guarantee or warranty could be prejudiced by the failure of the client to carry out maintenance in the prescribed manner.

Other relevant provisions

Aside from the consumer protection provisions of the Regulations, the Amendment Act itself sets out implied terms that apply to all residential building work, regardless of whether or not there is a written contract and what the contract terms are.  The implied provisions are wide-ranging in nature and cover such aspects as:

• The building contractor’s compliance with the Building Code;
• The requirement for good workmanship;
• The timely completion of work; and
• The remedying of any defects notified within one year of completion.

Considerations for clients

Before embarking on a residential construction project, clients should familiarise themselves with their rights as consumers under the new Regulations and the Amendment Act.  The MBIE website contains a useful consumer guide – Building or Renovating? Do Your Homework (2014) – for those considering undertaking residential building work.

For work above the price threshold, a client can now expect to receive from a builder:

• A written building contract containing prescribed minimum content;
• A checklist;
• A completed disclosure statement; and
• A pack of information following completion of the work, including applicable insurance details, product guarantees/warranties and maintenance advice.

Even if the proposed building work falls under the price threshold specified in the Regulations, it is still recommended that the client and builder have a written contract to help avoid later misunderstandings, and clients may still request a checklist and MBIE-prescribed completed disclosure statement from the building contractor.

Jonathan is an Associate in our Commercial Team, specialising in Building Contracts, and can be contacted on 07 958 7460.