Protection measures now in force

MBIE releases new consumer protection rules and guidance for builders and homeowners regarding consumer protection measures 

New consumer protection measures, included in the Building Amendment Act 2013, came into force on 1 January 2015.

According to MBIE, the new measures have been adopted in response to consumers having little ability to distinguish between practitioners who have a good business history and repeatedly turn out quality building work, and those who use low-skilled labour, take shortcuts and do not stand behind their work. This type of behaviour creates an imbalance in the sector, as poorly performing practitioners often experience competitive advantage over their better-performing counterparts.

MBIE suggests that this is largely due to consumers often selecting building contractors solely on the basis of price alone, with little value placed on a practitioner’s overall credentials and in-service track record. The ministry seeks to rebalance this lack of transparency through the implementation of the new consumer protection measures.

What’s changed?

The changes will require building contractors undertaking residential building work valued at more than $30,000 to have written contracts, provide information on their relevant skills, experience and qualifications and disclose their insurance and warranty cover. If the building work is valued at less than $30,000, the above information is required only if specifically requested by the homeowner. For all building work, building contractors must provide maintenance information, particularly if this could affect the validity of a guarantee or warranty.

The Building (Residential Consumer Rights and Remedies) Regulations, found on legislation.govt.nz, includes revised Schedules 1, 2 & 3.

Schedule 1: lists the prescribed disclosure information in detail, which includes information about the building contractor, the key contact person, insurance policies and any guarantees or warranties.

Schedule 2: outlines the prescribed checklist, which a building contractor is required to provide to the homeowner if;

• The building work is going to cost $30,000 (including GST) or more; or
• The homeowner requests the checklist and the prescribed disclosure information.

The checklist, available on MBIE’s website, outlines the steps homeowners should take to ensure a smooth building process. The steps include detailed information on getting informed, agreeing on project structure and management, hiring competent building contractors, agreeing on price and payments, getting a written contract, establishing clear lines of communication and resolving disputes.

Schedule 3: defines the implied terms associated with residential building contracts, known as default clauses. The default clauses cover many aspects of a building project, including that the contractor is responsible for obtaining all consents and approvals on behalf of the client, and that the contractor may not submit a final payment claim until the Code Compliance Certificate has been provided. It also covers variations, payments, subcontractors, dispute resolution and notices.

These clauses only apply if there is no written contract, or no clause on the same topic in your contract. In other words, a default clause won’t override an existing clause in your contract on a similar topic.

NOTE: It’s not recommended to rely on the default clauses as the terms and conditions of your contract, as they may not be favourable to your situation or appropriate for your particular building project.

The Government has also released Building (Infringement Offences, Fees and Forms) Amendment Regulations 2014, which includes updated infringement offences and fees.

The regulations prescribe three new infringement offences related to the new consumer protection measures for the actions below:

• Failing to provide a prescribed checklist or the prescribed disclosure information to a client, before entering into a contract for residential building work.
• Failing to have a written contract for residential building work where the price is $30,000 or more.
• Failing to provide information or documentation that is required to be provided to a client and a territorial authority on completion of residential building work.

While the new regulations are motivated by protecting consumers, MBIE says the new measures will also help protect builders, particularly those who haven’t been using written contracts. Most disputes come back to what’s written in the contract.

Defect repair period

Implied warranties, which cover almost all aspects of building work, still apply to all residential building work for up to 10 years, regardless of whether or not there is a written contract or what the contract terms are. Until now, if the homeowner (or subsequent owner if the house has been sold) identified a defect during this period, he/she would have to prove that it was a defect.

However, the Building Act has been amended to introduce a 12-month reverse-onus warranty for residential building work. During this time, the homeowner will have 12 months from completion to notify the building contractor in writing of a defect, in which case the building contractor must fix it within a reasonable time. The completion date is when all the physical building work agreed to by you and the owner has been finished.

If there is a dispute, it is your responsibility to prove that any defects are through no fault of your own (or the products you’ve used). This applies to all contracts between a homeowner and a building contractor – not just contracts over $30,000.

New guidance released

Additional guidance – one for homeowners and one for builders – has now been released. All resources are available for download from www.doyourhomework.co.nz and Under Construction will feature its content over the next few months.