Update on the Building Amendment Bill (No 4)

The Building Act 2004 recently had an overhaul with the Building Amendment Act 2012 coming in to force in March. The next major changes to the Act are expected via the Building Amendment Bill (No 4), although it is unknown at this point when the Bill is likely to come in to force. 

The Bill seeks to introduce a number of changes to the Act, however, it is considered most significant for its introduction of more comprehensive consumer protection mechanisms, such as pre-contract disclosure by building contractors of certain information, imposed minimum contractual terms for residential building contracts over a certain value (to be prescribed by regulation) and implied warranties and remedies for breach. 

The Local Government and Environment Committee has recently released its report on the Bill, suggesting that it be passed with a number of amendments to clarify issues identified in submissions. Some of the key recommendations are set out below. 

Responsibilities of product manufacturers

The Committee has recommended that responsibilities of product manufacturers be included in the Act alongside the responsibilities of other parties, (such as designers and builders). If this occurs, product manufacturers would be liable if a product does not comply with the building code when they have said that it will comply, “if installed in accordance with the technical data, plans, specifications, and advice prescribed by the manufacturer”. 

The aim in defining responsibilities of certain parties involved in the construction of residential properties is to reduce council liability so that they are less risk averse and the building consent process is less bureaucratic. It is unlikely to have the desired effect, however, given the longstanding rules regarding joint and several liability. Under those rules consumers can often recover the total amount of any claim from the council and leave the council to pursue other liable parties for reimbursement. So, regardless of a council’s overall liability, they are still exposed, (at least initially), for the total amount of any claim. 

Form and content of disclosure information

The Committee has recommended that clauses be included in the Bill containing more detail regarding the form and content of checklists and disclosure information to be provided by a building contractor in certain circumstances. These requirements are essentially to assist consumers with what to consider before entering into a residential building contract. As well as reasonable recommendations, (such as a builder’s skills, experience and legal status), the recommendations also include a builder’s dispute history, and, if a limited liability company, the role and ‘business history’ of each director. 

Although it is easy to see the rationale for disclosing this type of information, (i.e. to uncover any "skeletons in the closet"), the recommendations are considered to be too broadly drafted. If they are prescribed without further limitation, full disclosure will be required, regardless of relevance, which, particularly with business history, could mean a lot of unnecessary information having to be disclosed. 

Minimum contractual terms

As well as the minimum requirements for residential building contracts over a certain value to be in writing and dated, the committee has recommended that further detail be included in the Bill regarding the minimum contractual terms that might be prescribed by regulation. The recommended clauses state that the terms might include the process for varying the contract, the payment process and dispute resolution. 

The committee has also clarified that the minimum terms will not override existing contracts or interfere with parties’ freedom to contract. However, the latter cannot really be said to be true given that the minimum terms will apply by default if the prescribed information is not included, even though that might have been the intention. 

Clarification of other matters

The suggested amendments also clarify the following: 

What work is covered by the consumer protection provisions?

Design work and work carried out by a subcontractor for a head contractor is not covered. 

What type(s) of contract(s) can be cancelled for breach of one of the implied warranties?

Only residential building contracts can be cancelled as opposed to contracts for sale. 

What are the available remedies for breach of one of the implied warranties?

• Remedial work by the contractor, or, if they won’t/don’t/are unable to carry out the work; 
• Remedial work by another contractor; or 
• Cancellation of the contract. 

Law Commission review

Other issues were also raised in submissions that the Government does not intend to address in the Bill. These include joint and several liability in the construction industry and whether a mandatory home warranty insurance scheme should be introduced. These issues have been referred to the Law Commission for review. 

If you would like further information please contact Daniel Shore on 07 958 7477.