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Locked in: Terms that can’t be removed or avoided

18 Jul 2025, Employer Advice, Legal Advice, Navigating Legal Requirements

Presenting at PlaceMakers LBP Seminar in Mount Wellington on 19 June, Duncan Cotterill Senior Associate Dion Morley explained the contractual terms that builders can’t remove or avoid 

In short, the terms that can’t be removed or avoided are: 

  • Defects liability period. 
  • Implied warranties. 
  • Minimum contractual requirements. 
  • Pre-contract disclosure. 

Defects liability period 

The 12-month defects liability period applies to builders and on-sellers in relation to work done on a household unit and includes the work carried out by subcontractors. 

During the defects liability period, a building owner can notify the contractor of any problems in writing. If the work is defective and able to be remedied, it is up to the contractor to arrange and manage the repairs. 

The liability period only covers defective work and has limited exemptions – such as causes of damage independent of human control, any act or omission (including accidental damage) by someone other than the building contractor, a subcontractor or any other person for whom the building contractor is responsible. 

Failure of the building owner to carry out normal maintenance and failure to carry out repairs as soon as practicable after the defect becomes apparent are also limited exclusions. 

Implied warranties 

All residential building work is covered by implied warranties for up to 10 years, regardless of whether you have a written contract or what the contract terms are, and regardless of the cost of the building project. 

The implied warranties are: 

    • All building work will be done properly, competently and according to the plans and specifications in your approved consent. 
    • All the materials used will be suitable and, unless otherwise stated in the contract, new. 
    • The building work will be consistent with 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 home will be suitable for occupation at the end of the work. 
    • If the contract states any particular outcome and the homeowner 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. 

These warranties apply automatically to all contracts for building work on a residential house, whether written or verbal. 

For example, if a builder substitutes lower-quality wallboard than specified in the building plans without having the homeowner’s agreement, and this causes damage to the property, this breaches the written or verbal contract. 

A breach of an implied warranty can be remedied by repairing or replacing the defective products. If the builder is unable to do so in a reasonable time, the client can have the breach remedied by another or cancel the contract. The client can also recover damages for other losses or damages resulting from the breach. 

If the breach can’t be remedied, the client is entitled to compensation for any reduction in value and damages for any additional loss. Substantial breaches also entitle the client to compensation. 

A substantial breach is one in which a reasonable client, fully acquainted with the nature and extent of the breach, would not have entered into the contract if they knew the outcome, or the building work is unfit for the purpose stated in the contract, or is of such a nature and quality that it cannot be expected to produce the desired result in the contract, or the building work is unsafe. 

Minimum contract requirements 

You must provide a written contract for work valued over $30,000, including GST. The minimum contract requirements are: 

    • It must be in writing. 
    • It must be dated. 
    • It must comply with s362G, which allows the government to issue regulations creating additional requirements. 

Regulations prescribe that the contract must contain the following: 

    • Name of the parties. 
    • Contact details for parties. 
    • Address for the building work. 
    • Date of contract. 
    • Description of the building work (including materials, persons involved, supervisors, and responsibility for council consents). 
    • Expected start date or expected completion date. 
    • Contract price, or how it will be calculated. 
    • Number of payments under the contract (and details around timing and amounts of each payment). 
    • Terms prescribing invoicing, payments and receipts. 
    • Notice provisions. 
    • Variations and delays. 
    • Defects (including reference to implied warranties). 
    • Dispute resolution procedures and acknowledgement that they have received the checklist. 

If you do not include the above in the contract, it is assumed that: 

    • The builder is responsible for all approvals, including building consents.  
    • Any request the builder considers to trigger a variation must be notified to the client within 10 working days.  
    • Payments will be on a monthly basis, relating to the value of work completed in the preceding month.  
    • Disputes can be settled by way of a mediation, which is deemed to be agreed by both parties.  
    • All notices must be in writing, and may be sent by hand, fax, email or post.  

If the contract is verbal, there are further agreed terms. 

Pre-contract disclosure 

Pre-contract disclosure is information that must be provided before the contract is entered into. It’s designed to give the client an understanding of the builder carrying out the work, as well as the company structure.  

It must also notify the client of any issues that happened in the past, demonstrate the builders’ skill and qualifications and provides guidance to the client of the matters they should consider before entering into the contract.  

This should include: 

    • Legal obligations of both parties. 
    • An outline of the risks associated with advance payments. 
    • A summary of their dispute resolution options. 
    • A list of sources for further information.

Prescribed information that needs to be included in any pre-contract disclosure includes: 

    • Contact information about the builder. 
    • Key contact person (including qualifications and experience). 
    • Insurance policy information. 
    • A builders’ guarantees and warranties (over and above implied warranties). 
    • Any limits or exclusions to cover under the guarantees and warranties. 

A building contractor is also required to provide clients with a checklist that includes information such as guidance on agreeing project structure and management. You can find the checklist here. 

Building contractors can be fined up to $2,000 for failure to provide the prescribed disclosure information and/or the prescribed checklist – or a fine of up to $50,000 for an individual or $150,000 for a company for knowingly providing incorrect (or incomplete) information in the prescribed disclosure. 

 

If you have any questions or would like to discuss the legal guidance above, contact Dion Morley on dion.morley@duncancotterill.com

Photo by Scott Graham on Unsplash  


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