Implied warranties – what do they imply?

Keep up to speed with implied warranties and what changes are on the way

As building industry regulations continue to change, PlaceMakers is doing its best to keep its builders in the know through reading Under Construction and offering skills maintenance seminars across the country.

During PlaceMakers’ three-month seminar tour, presented by John Tait, there were several questions raised around implied warranties – and what they actually implied. To ensure everyone is in the know, we’ve re-capped the information below.

Implied warranties as of 2004

On 30 November 2004, mandatory warranties to protect homeowners took effect; these apply to builders, specialist tradespeople and developers. These warranties apply whether you write them in the contract or not, and you can’t change your contract so they don’t apply. If you are the main contractor on the job, and have employed the subcontractors, warranties for their workmanship are covered in your contract.

What are the warranties?

• The building work will be done properly, competently and in accordance with the plans and specifications.
• All the materials used will be suitable and, unless otherwise stated in the contract, new.
• The building work will comply with all laws including the Building Act and the Building Code.
• The building work will be carried out with reasonable care and skill and completed within the time specified, or a reasonable time if no time is stated.
• The household unit will be suitable for occupation at the end of the work.
• If the contract states any particular outcome and the owner relies on the skill and judgement of the contractor to achieve it, the building work and the materials will be fit for purpose and be of a nature and quality suitable to achieve that result.

Implied warranties as of 2013

The Building Amendment Bill (No.4) was passed into law on 20 November and is now the Building Amendment Act 2013. While the changes to implied warranties regime referred to in this Act have not yet come into effect, it’s worth being aware of the changes it will incur – it expands the implied warranties regime for residential building contracts so that they are also implied into every sale and purchase contract entered into by an on-seller.

As before, these warranties are mandatory – it is not possible to contract out of them. They apply to all residential contracts entered into after the Act comes into force by Order in Council (probably later in 2014).

Rules regarding defects

At the moment, the Building Act doesn’t specify a defect notification period, though it is found in every standard form contract and the period typically ranges from 30 days to three months from when the work was completed.

A key change to the current implied warranties regime will be that, if there is notification of a defect in the building work within one year of the work being completed, the building contractor is required to fix the defect within a reasonable time.

During this period, the onus of proof is on the building contractor – that is, the client merely needs to claim a defect exists and does not need to prove a breach. It will be for the building contractor to prove their innocence if they dispute this.

Keep it simple

To avoid problems with implied warranties, you should:

• Include in your contract a clear mechanism for determining when the building work is completed, in order to determine when the one-year defect notification period starts.
• Provide clients with documentation, setting out detailed maintenance requirements for the building work. This will assist in excluding your liability, where the defect relates to lack of maintenance.*
• Ensure your arrangements with subcontractors enable you to claim against them, if their actions cause a breach of these implied warranties.
• Check your insurance policies to ensure that you are covered for these implied warranties.
• Ensure your business is properly structured, to take account of this potential liability.
• Don’t attempt to contract out of these implied warranties or advise a client that they don’t apply – that will be a breach of the Fair Trading Act.

*Check out BRANZ’s new Maintenance Schedule on Page 6 to help homeowners with their maintenance. 

This article is a general overview and should not be relied on as legal advice