Although the risk of future leaks is much lower in these projects, there will inevitably be occasions where even a consented repair job won’t turn out to be watertight in the long run. It therefore only makes good sense to protect yourself.
There are five main ways of doing that.
Your first protection is limitation periods — the law imposes time limits within which people must commence legal proceedings. For claims based on something that happened on or before December 31, 2010, if a claimant is going to bring a claim based on an alleged breach of contract, he has six years from the date when he says the relevant term of the contract was breached.
For claims based on negligence (ie, carelessness which caused someone loss that was reasonably foreseeable), the claimant has six years from the date on which the loss or defect became reasonably discoverable.
For claims that are based on acts or omissions after December 31, 2010, where the claimant is seeking a payment of money, the limitation period is six years from the relevant act or omission.But even after the six years have expired, if the claimant discovers (or should have discovered) that he has a claim, he has a further three years from then to file his claim.
However, where the claim relates to building work, no claim can be brought more than 10 years after the act or omission upon which the claim is based.
Second, you can protect yourself against liability to the current owners by inserting special clauses in your building contract, which clearly define your scope of work.
The special clauses should provide that you are only hired to do the work shown in the plans and specifications, not to comment on them, nor to point out any potential defects either in the repair work or in the rest of the house that is not affected by the repairs.
The third way of protecting yourself is to have an insurance policy that covers you against the risk and consequences of your own errors and omissions (mistakes).
The first relevant insurance policy is known as a guarantee (or surety) that is offered, for example, by members of the Registered Master Builders Federation and Certified Builders Association.
These products protect the owner rather than the builder, and most do not cover weathertightness work. However, a “WaterTight Warranty” is now available.
The second relevant insurance policy is known as Errors & Omissions (“E&O”) cover, or “professional indemnity”. Unlike the surety products, this protects the builder rather than the owner.
It covers you where you or your employees, contractors, subcontractors or suppliers have made a mistake, or put faulty components or materials into the building.
The fourth way of protecting yourself is by way of limited liability companies and trusts.
The whole idea of a limited liability company is to protect your personal assets from business risks. However, you cannot abuse the privilege of limited liability. For example, you cannot keep liquidating your company and replacing it with a new one for each leaky home job you undertake.
Second, a limited liability company offers no protection against claims brought against you personally if you had “hands on” involvement in the remediation work (ie, you worked on-site or issued instructions about how to do the remedial work).
The necessary safeguard in such a situation (which is typical in small owner-operator businesses) can be provided by a trust. When you put an asset (such as your house) into trust and you become a trustee, you hold that particular asset as a custodian or guardian for the people who really own it, namely the beneficiaries.
For that reason, your own creditors can’t touch that asset, unless they can prove your trust is a sham, or you put your assets into trust for the purpose of defeating your creditors.
So your trust has to be genuine, and it obviously pays to create your trust when everything is rosy, rather than when the creditors are breathing down your neck.
The fifth, and possibly the cheapest and most effective way to avoid future liability for leaks, is to be thorough in your work rather than economical.
These are the types of projects where overkill is more appropriate than economising. Hopefully you will be able to factor that degree of thoroughness into your pricing.
Note: This article, provided by Geoff Hardy and Gagan Tangri of Madison Hardy, a commercial law firm specialising in construction law, is not intended to be relied upon as legal advice.
Please note that the views and opinions expressed are those of Madison Hardy, and do not necessarily reflect the opinion or position of the Ministry of Business, Innovation and Employment – Building and Housing group, or Building Today.
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