Building law update: New consumer protection laws for residential construction contracts

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The Ministry of Business, Innovation & Employment (MBIE) recently announced a number of new consumer protection measures in the residential construction sector.

The new measures are contained in the Building (Residential Consumer Rights and Remedies) Regulations 2014 (the Regulations).

The Regulations have been introduced following the Building Amendment Act 2013 (the Amendment Act), both of which came into force on January 1, 2015. The Amendment Act is the result of a comprehensive review of the Building Act 2004.

The new measures 

The new consumer protection measures introduced by the Regulations and the Amendment Act include:

The price thresholds are based on the total price for all work being done by the building contractor, regardless of whether it is covered by one or more contracts. Any attempt to break the required work into separate, multiple, lower-priced contracts to get around the changes will, therefore, be ineffective.

Subject to the price thresholds noted above, the Regulations apply to “residential building contracts”. The definition is sufficiently broadly drafted so that the new protections apply not only to work undertaken at owner-occupied properties, but also to a rental property portfolio.

The Regulations will, therefore, protect both home owners and residential landlords undertaking construction work on their residential properties.

Prescribed checklist and prescribed disclosure statement 

The checklist prescribed by the MBIE contains various issues for a client to consider before engaging a builder on a construction project.

The building contractor needs to supply a copy of the checklist to the client. The prescribed disclosure statement requires the builder to supply details of various project-specific matters relating to the proposed work to the client, including:

The prescribed disclosure statement will need to be completed by the building contractor on a project-by-project basis. A template document is available from the MBIE web site.

A building contractor who knowingly provides false or misleading information, or who knowingly leaves out information they are required to provide in the disclosure statement, is liable to a fine of up to $2000.

The checklist prescribed by the Regulations and prescribed disclosure statement must be sent to clients if the proposed work meets the pricing threshold, or on request by the client, before the parties enter into a construction contract. The prescribed MBIE checklist must not be altered in any way by a contractor.

The checklist and disclosure statement requirements do not apply to subcontractors engaged by the main contractor, regardless of the value of the work.

Minimum content 

The Regulations set out minimum requirements for the content of contracts for building work costing more than $30,000 (incl GST). This includes:

Default clauses 

The Regulations prescribe default clauses which will be considered to be part of a construction contract in the following circumstances:

The default clauses cover such aspects as: 

Post-completion information 

The Regulations set out the information and documentation that a building contractor must provide to a client on completion of the building project. This includes: 

Other relevant provisions 

Aside from the consumer protection provisions of the Regulations, the Amendment Act itself sets out implied terms that apply to all residential building work, regardless of whether or not there is a written contract and what the contract terms are.

The implied provisions are wide-ranging in nature, and cover such aspects as: 

The detailed content of these provisions is beyond the scope of this article, but is noted here for completeness. In particular, the introduction of a one-year defects liability period is, potentially, quite onerous for building contractors.

Conclusion: Actions for building contractors

The new Regulations are intended to provide protection for consumers (both owner-occupiers and residential landlords) procuring work on residential building projects.

Key to the success of these provisions will be whether consumers and contractors are aware of their respective rights and obligations under the Regulations.

Building contractors should take the opportunity to review their current contracting arrangements to ensure compliance with the new Regulations.

Whilst the financial sanctions for non-compliance may not be particularly onerous (particularly when viewed in the context of higher-value projects), the impact on reputation may be considerably greater.

Contractors should consider the benefits of a written construction contract for all projects, regardless of whether this is required by the Regulations. Certainty is generally in the interests of both parties.

Even if the proposed work falls under the pricing threshold specified in the Regulations, clients may still request a checklist and MBIE-prescribed disclosure statement from the building contractor. Contractors might consider offering this information as a matter of course on all projects.

Contractors may prefer to prepare their own “in-house” template prescribed disclosure statement including, for example, their company logo.

This is permitted by the Regulations, but any document prepared must be in accordance with the form prescribed by the Regulations. Particular care should be taken when completing the prescribed disclosure statement.

The MBIE has published a useful guide on the new Regulations and the Amendment Act — Contractors: Do Your Home Work (2014). A copy is available on the MBIE web site.

McCaw Lewis has a number of construction law experts who can assist in ensuring your contracting arrangements comply with the new laws. If you have any questions please contact Jonathan Aquilina, Associate, on 07 958 7460 or email jonathan.aquilina@mccawlewis.co.nz.