Renovation responsibilities

While renovations and refurbishment projects may not always be on the same scale as building an entire home, your responsibilities and liabilities are the same for every project you complete, large or small.

Under the Building Act 2004 (the Act), you have to comply with the following obligations with respect to any job – whether it’s commercial or residential, a new build or a renovation.

1. All builders are required to ensure that the building work they complete complies with the related building consent and the plans and specifications. In most cases, refurbishment or renovation projects will involve work that comes within the definition of “building work” under the Act.
2. All builders must ensure that the building work complies with the Building Code.

Where you carry out renovation or refurbishment work on houses, you will have additional obligations – but only where you have a contract with the homeowner (they won’t apply if you are a subcontractor and don’t have a contract with the homeowner).

Your obligations are:

• You must have a written contract with the owner if the price for your work is more than $30,000 including GST, or if they request one. You can be fined for failing to do so. You will also need to disclose certain information to the owner before they sign the contract (see ‘Avoid disclosure dilemmas’ on page 20 of Under Construction Issue 57, which provides a summary of those obligations).
• You will need to comply with implied warranties for your work, whether your contract includes them or not. These essentially require you to complete the work with reasonable care and skill and in a proper and competent manner. You can find the list at section 362I of the Act. You cannot require the owner to agree to exclude those warranties.
• If the homeowner notifies you of a defect within 12 months of completing the work, you will have to return to the property within a reasonable time to fix the defect. You cannot shorten or exclude the 12-month defect period in your contract with the owner. If you do not believe a defect exists, the onus is on you to prove it doesn’t; once the 12-month period is over, the onus transfers to the homeowner to prove a defect exists.
• You will be responsible for ‘reasonably foreseeable’ losses that result from defects. An example would be where you install an upstairs bathroom in a way that causes a water leak. As well as fixing the problem, you would be required to pay for damage caused by the water leak, such as a damaged ceiling or carpet below.
• The obligations listed above flow from the Act. You will also have separate obligations in the contract with the building owner. 

Defective works liability

As most builders are aware, liability for defects exists beyond the 12-month defect period – it exists for up to ten years from the date you complete the work and possibly longer, depending on when the owner discovers the defect.

That is a very long time to consider an ongoing risk to your business, but you need to take all jobs within this timeframe into account, particularly high-risk projects that include potentially problematic work, such as structural works, replacing windows or installing bathrooms.

NOTE: The ten-year defect period, during which you can face a claim, is not limited to the one homeowner. Any homeowner living in the home during that time can make a claim against you, if you break any of the obligations set out above.

What can you do to reduce your risk?

The main ways to control these risks are:

1. Do great work and be extra vigilant in checking the quality of the work. Quality control is essential, even if it takes time.
2. Where you use subcontractors, ensure your contracts with them require their work to be completed to the required standard.
3. You should also discuss with your broker whether you can insure the ten-year risk.
4. Guarantees issued by a Builders Association may also re-direct problems from you to the guarantee provider.

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.

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