Liability overhaul introduces ‘last resort’ warranty suspension mechanism

MBIE outlines contingency following scrutiny of homeowner risk under proposed proportional liability reforms

Homeowners could face gaps in protection under proposed changes to the Building Act, which intend to move construction in New Zealand to a proportional liability model and make it mandatory for professionals involved in building work to hold a builder’s home warranty. The reforms aim to rebalance how responsibility for defective building work is shared, moving away from New Zealand’s long-standing joint and several liability model.

Officials have confirmed to Under Construction that there is a mechanism to suspend mandatory home warranties if the insurance market fails to support them. The contingency came to light via reporting by the NZ Herald, which revealed the Government is planning to allow the requirement for mandatory professional liability insurance to be suspended for up to four years.

The Ministry of Business, Innovation and Employment (MBIE) says the measure is intended as a safeguard, as part of a broader shift to proportionate liability expected to be introduced through legislation in 2026.

“A suspension mechanism is intended as a contingency in the event of significant market disruption,” said Michael Warren, MBIE Manager Systems and Markets Policy said.

“This will allow the sector to continue operating lawfully if private providers face temporary constraints.”

Suspension a ‘last resort’

He said any suspension would be “a last resort, time-limited, and subject to robust scrutiny”.

During any suspension period, warranties already in place would remain valid, and homeowners could still choose to take up available cover voluntarily.

“Builders, building consent authorities, and professionals would remain accountable for their share of damages under proportionate liability during any period of suspension,” Warren said.

Shift toward proportionate liability

Under the current system, parties with deeper financial resources – often councils – can be found liable by the courts and ordered to pay damages to cover the full cost of defects, even where their involvement was limited.

Warren said this has contributed to inefficiencies across the sector.

“The current joint and several liability settings have contributed to inefficiencies in New Zealand’s building system, including delays in the delivery of building work and risk averse practices,” Warren said.

“Joint and several liability can place a disproportionate burden on parties with deeper pockets, such as councils, who may be required to meet the full cost of defect claims even where their involvement was limited.”

Proportionate system doesn’t absolve fault

The proposed move to proportionate liability would instead allocate responsibility based on each party’s contribution to a defect.

“Proportionate liability means responsibility is allocated according to each party’s contribution, improving fairness and accountability across the building system,” Warren said.

He said the change is intended to “improve sector efficiency, confidence and performance” while aligning with wider reforms that shift risk back onto those responsible for building work.

MBIE said liability in defect cases would ultimately be determined by the courts, based on the evidence in each case.

“The Court will apportion liability based on the facts and evidence of each case,” Warren explained. “Over time, case law will develop, providing further guidance on how responsibility is assessed across different roles in the building system. The specific outcome in any case will depend on the evidence before the Court.

“Where fault lies clearly with one participant, the system allows liability to rest entirely with them,” Warren said.

Role of warranties and insurance

Mandatory home warranties and professional indemnity insurance are expected to underpin the new system.

“Where a liable party is absent or insolvent, consumer protection measures such as mandatory home warranties and professional indemnity insurance help ensure there are mechanisms in place to respond to defects,” Warren said.

The Government announced in November that both warranties and insurance would become compulsory for residential building work, with policies expected to cover defects for up to 10 years.

MBIE said it is “confident the market can support them”, noting that existing providers are preparing for the changes.

The ministry also plans to monitor the sector during the transition, including early registration of warranty providers to ensure they have the financial capability to meet long-term claims.

The Building Amendment Bill, which includes the proposed changes to liability and consumer protections, is expected to be progressed in 2026.