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The following article was written by Jessica Marshall from our Construction Law team.

DOWN TOOLS: CHANGES TO RESIDENTIAL BUILDING LAWS AFFECT ALL TRADESMEN

From the beginning of this year new laws have come into effect which have a huge impact on residential building. These changes increase the potential liability of residential builders and tradesmen to their customers, as well as substantially increasing the amount of paperwork. The new rules also provide greater transparency and information for potential clients.

From 1 January 2015 for building work over $30,000 (including GST) you must:

 Have a written contract.

 Provide clients with a checklist and disclose certain information before entering into a contract.

 Provide clients with certain information post-completion of the works.

Written Contract

The minimum content required for a written contract includes full details of both parties, expected start and completion dates, contract price, process for dealing with delays and variations and defects, who is responsible for obtaining building consents and approvals and the payment process.

Default provisions will apply if you do not have a written contract in place, or if your contract does not contain the minimum requirements. These default provisions include requiring the contractor to obtain the necessary consents and also govern the contractor’s relationship and liability for its subcontractors.

Checklist

The pre-contract checklist can be downloaded and printed from the Ministry of Business, Innovation and Employment (MBIE) website (www.mbie.govt.nz). Alternatively the contractor can supply the link to the checklist to the client. This is a government issued checklist and is intended to make the client fully aware of any potential risks going into a project. And if the value of work is under the $30,000 threshold, but the client still requests the checklist, the contractor is required to provide it.

Disclosure Statement

The disclosure statement tells the potential customer all about the contractor, including the contractor’s company, the insurance policies they carry in relation to the work (such as contract works and public liability insurance), details of the key personnel working on the project and the guarantees and warranties that apply to their workmanship and materials. This information must be accurate. A contractor can be convicted and fined up to $20,000 for making false or misleading statements or for material omissions in their disclosure.

Post-Completion Information

At the conclusion of the project, the contractor must provide the customer with copies of all ongoing insurance policies in relation to the work, any guarantees or warranties applying to the materials or services and the maintenance requirements of any component of the work to ensure Building Code durability requirements are met.

Penalties

There are on the spot infringement fees of $500 for non-compliance with the new contract, disclosure or checklist requirements.

There is also the potential for the contractor to be disciplined by the Building Practitioners Board.

12 Month Defects Liability Period

An automatic 12 month defect repair period will now apply to all residential building work. During this timeframe the contractor must remedy any defects notified by the client, unless the contractor can prove otherwise. If the defects are not remedied then the client may be able to have the work done by someone else and pass on that cost to the original contractor.

The new 12 month defect repair warranty is additional to the 10 year warranties already required under the current Building Act.

What Documents Do You Need

To recap, the key documents a contractor must provide to a client where the contract works are priced at over $30,000 (including GST) are as follows:

  1. Checklist
  2. Disclosure statement
  3. Written building contract
  4. Insurance policies, guarantees and warranties and maintenance requirements post-completion

If you’ve got these in place, then you’ve nailed it.

If your attitude is "She’ll be right", then it’s now time to "get it right".

The following organisations offer a range of standardised contracts: Registered Master Builders Association, Certified Builders Association of New Zealand, New Zealand Institute of Architects and Standards New Zealand. If you are not familiar with these contracts, then do not risk the potential infringement penalties. Make an appointment with us and we can assist you to prepare a bespoke template contract for your business which is compliant with the new rules and which you can then tailor to suit each project.

The new rules are intended to increase professionalism within an industry that has of more recent times suffered a dent in its reputation as poorly equipped "cowboys" enter the industry, particularly in post-earthquake Canterbury. The advantage of these new rules for both the contractor and client is that they aim to provide greater transparency, meaning neither party should face nasty surprises, ultimately leading to greater customer satisfaction.

Be the sharpest in the shed. Speak with us today.

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