Building legislation offers little extra consumer protection

October 2003

 

With the new Building Bill only four weeks old, the government has issued a discussion document, indicating that it is planning amendments to build on the Bill's protection of consumers.

Born of the leaky homes crisis, it is natural that the government would want to ensure that disputes over problem homes are solved as smoothly and as fairly as possible.

However, the proposals and issues raised by the discussion document may do little more to protect consumers - and quite a lot to complicate the issue for developers.

There are three key suggestions raised by the discussion document that warrant attention - and perhaps even a submission:

• a proposal that developers obtain code compliance certificates for homes prior to settlement of the sale;
  
  
• a proposal that the statutory home warranties introduced by the building bill apply to developers as well as to licensed building practitioners; and
  
  
• a proposal that developers would require licensed "liable persons".

Code compliance certificates

The discussion document suggests that developers be required to obtain code compliance certificates before the settlement of a sale.

It is acknowledged that such a requirement would need to accommodate situations where both the developer and the buyer wished to complete the sale prior to completion.

The proposal that the developer obtain a code compliance certificate is not in itself unreasonable - it is the implementation of the proposal that will matter, particularly the extent of the definition of a "household unit" and whether developers will retain the ability to obtain interim code compliance certificates for stage completion of a building comprising multiple household units.

Extension of warranties to developers

The Building Bill introduces draft statutory implied warranties, to be implied into all building contracts for household units.

Mainly, these cover the standard of goods supplied, the services performed and the fitness for purpose of those goods and services.

These warranties are intended to apply for a period of ten years and are passed on to subsequent homeowners during that period.

The Bill, as tabled, does not allow homeowners to pursue developers to remedy defects in their homes - homeowners would still be forced to pursue a range of builders and sub-contractors - and the government wants to change this.

In the discussion document, the government suggests that, after amendments, developers would also be responsible for a home's fitness for purpose and standard of construction, through the ten-year statutory warranty period.

While it is fair to expect a developer to sell a quality home, the government is also aware that simply applying such a warranty will not increase a builder or developer's ability or willingness to fix any home defects and their proposals in this area are concerning.

Much of the discussion document examines overseas remedies, such as requirement in some Australian states that builders carry builders' warranty insurance, or home warranty insurance which is widely used in the UK.

However, insurers are reluctant to provide such products in New Zealand until the Building Act, Building Code and their regulation are upgraded.

The government anticipates that as the provisions in the Building Bill result in improvements to building work, insurers will become more willing to supply home warranty insurance at an affordable price.

However, in the current market environment, the government has proposed another mechanism to improve the perceived ability and willingness of developers to fix defective homes - through the licensing of "liable" persons.

Licensing of "liable persons"

In another move to make it easier for homeowners to identify those responsible for home defects, the government has suggested the creation of a "liable person" to ensure that companies offering statutory warranties can meet their financial commitments under the warranty.

The discussion document also suggests that the board of any company offering home warranties must contain a licensed building practitioner on its board, allowing the option of such directors to be "struck off" if they didn't fix a leaky home.

This seems to be a heavy-handed approach, especially as most of the recent leaky home problems have been caused by the failure of a particular building product or its faulty installation, rather than deficiencies in a developer's project management.

Licensing developers in this way would not increase their ability to fix the problem. The only practical way that a developer could assure the Ministry of its financial ability to fix any problems that did arise would be to have home warranty insurance - which, as already discussed, is a difficult option in the current legislative environment.

Making comments

The government has invited comments on the discussion document, to be received by 15 October 2003.

The discussion document can be read in full at www.med.govt.nz/, under Building Act Review.

First published in the New Zealand Herald, 3 October 2003.

Advice and information

If you would like to know more about the Building Bill and the discussion document, or would like advice on making a submission, please contact the Bell Gully Construction and Projects Group listed below.

AUCKLAND

Mark Crosbie
Partner

Tim Storey
Partner