The ins and outs of the FAP

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The Financial Assistance Package (FAP) recently released to help fix leaky buildings (ie, where the Government contributes 25% and the councils another 25%) has been operating for a short time — and I understand tens of millions of dollars have been contributed so far.

While it is early days, and it may be some time before the success of the scheme is known, there has been a lot of work done in developing a training/induction seminar for builders looking to get into this work.
After all, according to a PriceWaterhouse report, there is anything up to 89,000 homes affected so it is a major work opportunity at a time when there is a dearth of work about. No doubt many builders may be considering this opportunity.

We urge anyone contemplating repairing leaky buildings to attend the seminar and obtain a much deeper understanding of the issues, including those relating to dealing with stressed home owners, health and safety considerations, building techniques, how the FAP process works and, of course, managing the risks of leaky building remediation.
To that end, part of the induction seminar includes an excellent session and synopsis on these risks by Auckland law firm Madison Hardy, along with a caution that this type of work is more risky than the average building project.

So why is that?
Leaks are notoriously hard to stop and, given the experiences of most leaky home owners, there is a higher likelihood your work will come under scrutiny again should leaks reappear as home owners are less forgiving and prone to seek redress.
Defects caused by leaks can have significant consequential effects, including structural defects and health and safety hazards. Home owners invariably win disputes as the Building Code provides that buildings must not leak — so someone will be held accountable.

Some jobs are riskier than others, so you need to be mindful of this. You should be very wary of home owners wanting a quick and cheap “patch-up job”, where they argue a building consent is not needed (which is probably incorrect anyway).
While you may be able to protect yourself through the contract to this owner, subsequent owners are not bound by that, and you open yourself up for being sued by them for negligence.

Low-risk jobs have a number of features that you should look out for. Often a thorough investigation on the cause of the leaks and a comprehensive repair plan has been developed by an experienced building surveyor.

Those recommendations have been incorporated into the plans and specifications by an architect or designer. The local council is involved via the consent/inspection process and will insist on the soundest of building practices that meet the current Building Code.
However, things can always go wrong, and you should protect yourself as much as you can — indeed, be it a weathertightness remedial job or any building project. There are a number of ways of doing that:

Limitation periods
You need to be aware of the limitation periods whereby a claim can be brought against you (recent changes to the Limitations Act affect general claims made on or before December 31, 2010, and have a 15-year longstop).
However, the Building Act has a shorter 10-year long stop, so for WHRS claims they must relate to work carried out less than 10 years ago before January 1, 2012. So the first thing you should determine is if any such claim is “out of time” or “statute-barred” — and seek legal advice.

Special clauses in your building contract
Inserting special clauses in your building contract that narrowly define your responsibilities may assist in protecting you, at least against the current owner you have contracted with. If they are reasonable and do not conflict with the Consumer Guarantees Act or implied warranties in the Building Act they should be upheld.
Essentially, such clauses define your scope of works very carefully so as to avoid any impression you are assuming the role of a designer, or that you are guaranteeing the specified works will be effective, or that you will blow the whistle if you notice anything else that might be wrong.

Insurance
As with any building project you should have the necessary insurances. This would normally include contract works insurance (for a renovation, this is usually taken out by the owner as an extension to their existing policy) and public liability insurance.
Neither of these insurances protects you against the consequences of your own errors and omissions (called professional indemnity (PI) insurance), and it is very difficult to get for builders, but we are aware that a number of companies are looking into it.

However, there are guarantees (such as the Master Build Guarantee) that can protect the owner against some of these concerns, and the Government, under the Building Act changes, is looking to make it compulsory for builders to disclose if a home warranty is available to the home owner before a contract is entered into.

Companies and Trusts
It is sensible to take advantage of any protection that the law allows you. Limited liability companies are an example of that type of protection. Not only can it provide you some protection but gives you certain tax advantages, and you can sell the company as a going concern.
However, if your company does a leaky building remediation job and the repair isn’t successful then many think the building owner would only have rights against your company and not yourself personally. But that is not the case.

If the job was reckless then you can be personally liable. The test revolves around your involvement “on-site” and the extent to which you oversaw or influenced the work.
So for many small owner-operators, exposure to personal liability is significantly higher than for shareholders, directors and head office employees of larger companies.
Trusts are a way of protecting your personal assets (eg, your house), but the trust has to be genuine and not a sham to defeat your creditors. In the past it has been a slow process to transfer your assets into a trust, but from October 1, 2011, it can be done overnight.
Do a good job

The best protection you can bring to bear is to do a thorough and competent job. If you keep detailed records and don’t cut corners you will avoid any future liabilities. Do not give in to the owner’s pressure to “economise” as it is just not worth it. After all, it will be your head on the chopping block in later years, not theirs.

Finally, I wish you all a very Merry Christmas and Happy New Year, and trust Santa will be kind to you — and to the entire construction sector by bringing us work, and lots of it!