Avoid disclosure dilemmas

Under changes introduced to the Building Act 2004 last year, builders and others in the construction industry must disclose certain information before beginning certain work – it’s important that you understand your obligations

From January 2015, mandatory disclosure requirements apply to construction, alteration, demolition or removal works on a residential unit where:

• The client requests disclosure documents; or
• The price for the works exceeds $30,000.00, including GST.

In these situations, you will need to supply the client with a Prescribed Checklist and Prescribed Disclosure Information. Both of these are pre-printed forms that can be found online and on the MBIE website.

Who do the changes affect?

The disclosure obligations apply to any contractor who has a contract with a homeowner. This could include a variety of residential projects, such as:

• Where you are the main builder of a new house (subcontractors do not need to comply).
• Where you are refurbishing a kitchen or a bathroom.
• Where you are completing site works, such as drainlaying or earthworks, as part of a project.
• Where you are demolishing or re-locating a residential building.

When do I need to give disclosure?

The Prescribed Checklist and Prescribed Disclosure Information must be provided to your client before you enter into the building contract, or before they accept your terms and conditions.

Failure to do so is an infringement offence and you could be liable for a fine not exceeding $2,000. Perhaps more importantly, it won’t look good for your business if you are seen to disregard the disclosure requirements.

What do I need to supply?

The Prescribed Checklist does not require you to add any information, as its purpose is to give your prospective client basic information about the building process. It is worth reading before you pass it onto your clients, so that you can anticipate any questions.

The Prescribed Disclosure Information requires more input from you. It should not be considered a ‘box-ticking’ exercise. False or misleading statements or failing to include something that is material could make you liable on conviction to a fine not exceeding $20,000.

Key details that need to be provided in the Prescribed Disclosure Information are:

The type of legal entity that you operate under – ie, a partnership, limited liability company or sole trader.

• Details of the key contact person who will manage or supervise the building work, including their relevant qualification, skills and experience together with their Licensed Building Practitioner number.

• Details of the types of insurance policies you have in relation to the project (contract works, public liability, and/or professional indemnity). Details of the relevant exclusions on each policy must also be inserted.NOTE: We are finding that many builders are not completing these insurance questions correctly, which is understandable given they are about insurance policies. We recommend you ask your insurance broker to complete the form. They likely only need to complete it once in any insurance year, so you can use it as a template unless there are policy changes. As an aside, the contractor is unlikely to cover the contracts works insurance where works are being completed on an existing house.

• Information about any guarantees or warranties that you will provide to your client.NOTE: Again, this question is not being answered properly in many of the contracts we deal with. It asks for the type of warranty or guarantee, the period of the warranty, and the limits or exclusions on cover. It should be fairly straightforward extracting the information from the guarantee or warranty documents that you intend on providing.

  If you are stuck, we would recommend discussing the question with the company providing the guarantee or warranty. Some contractors simply insert “usual sub-trades warranties”, which gives very little information away. Clued-up home owners will want to know and will compare your offering to other contractors.

What do I need to disclose once a project is finished?

As soon as practicable after completion of the works, you must provide the following information to your client:

• A copy of each insurance policy that is current on completion.

• A copy of any guarantees or warranties that apply to materials or services that comprise the building work, including whether they can be transferred, how to make claims under them, and whether they need to be signed and returned to the issuers in order to be valid.You should be able to obtain this information from the relevant clauses of the guarantee or warranty. Any problems, call the issuer. We suggest you email the client and refer them to each clause. Of course, make sure you obtain guarantees and warranties from sub-contractors before they leave the site for good.
• Information about maintenance that your client must carry out in order to meet the durability requirements of the building code, or in order to keep a guarantee or warranty valid.  This information should be contained in the guarantee, warranty or paperwork that comes with a product.

There is no prescribed form for the post-contract disclosure, so we recommend you email a letter to the client attaching the information.

Failure to comply is an offence and you could be fined up to $2,000.

The new disclosure rules add further administrative burdens for contractors. They will be time consuming at the start but much easier once you’ve completed a few. It is important to get it right, given the fines involved. Proper disclosure will also be good marketing for your business.

KAHU SIMMONDS

Kahu is a partner in the commercial team at Saunders Robinson Brown. He deals with the firm’s construction work and regularly advises builders and owners on building contracts and related matters. Kahu can be contacted on 03 977 2639 or kahu.simmonds@srblaw.co.nz.