Product warranties — clearing up their ‘aura and mystique’

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There is a great deal of aura and mystique surrounding the use of product warranties within the residential construction industry.

Suppliers and manufacturers often use them as an effective means of enticing home owners to select one product over another for use in the construction of their home.

The idea of this is that if the manufacturer is willing to stand by a product for a lengthy period of time, it must be reliable and of good quality.

However, there is comparatively little understanding around what a product warranty actually is, what they mean for the home owner, and the extent to which they affect the builder’s potential liability to the home owner, if at all.

Do they absolve the builder of responsibility for the product? And what happens if a warranty is in place and the product subsequently fails?

Product warranties are express written guarantees from a manufacturer, installer or supplier that the product will “last” for a defined period of time and, if not, they will repair or replace it, and/or compensate for any damage.

They are entirely voluntary, with the party offering the warranty determining the parameters of the warranty, in terms of time and any limitations or exclusions that apply.

A product warranty may cover both the product and its installation, often on the basis that the product has been properly installed by an approved person.

It is important that builders and home owners know and understand the extent of any product warranty on offer, including its limitations, and any maintenance or installation obligations it imposes.

For example, product warranties do not, of themselves, guarantee compliance with the durability requirements (Clause B2) of the Building Code.

A warranty will be considered when assessing durability, but other factors will also be relevant, including whether the product meets the requirements of any applicable New Zealand Standards.

In addition to this, a warranty may be voided where the product fails because it was used for the wrong purpose, installed other than in accordance with the relevant specifications, or was not maintained as required by the warranty itself.

It is also critical to understand that any protection afforded to a home owner under a product warranty does not release the builder of its existing obligations under the Building Act 2004 and/or the building contract regarding the standard of workmanship, and the quality of materials used in the building work.

For example, under the “implied warranties” of the Building Act, which are deemed to be written into every residential construction contract in New Zealand, sections 362I(1)(a)(i) and 362I(1)(d)(i) require building work to be carried out in a proper and competent manner and with reasonable care and skill.

Section 362I(1)(b)(i) states that all materials supplied for the building work must be suitable for the purpose for which they will be used. Builders do not have a choice as to whether they offer those warranties or not.

In practice, the protections of a product warranty sit alongside, rather than in place of, a builder’s obligations under either the building contract or legislation.

Product warranties are effectively contracts between a home owner and (most commonly) a manufacturer and are, therefore, independent to the relationship between the builder and the home owner.

This means that if a product carrying a product warranty is used in the building works and fails or is faulty, the home owner has the right to pursue either the manufacturer (under the product warranty), the builder (for breach of contract, or in negligence) or both.

Ultimately, it is the home owner’s right to decide who they pursue — and, often, it is simply easier to ask the builder (with whom they have an existing relationship) to fix the problem.

The product warranty simply gives the home owner another avenue in the event of the failure of a warranted product.

In determining who should bear the cost of repairing or replacing a product under warranty, as an initial step, it is important to work out whether the product has actually “failed” and, if so, why.

This will assist in working out whether the product warranty (and therefore, the party who gave the warranty) will respond to cover the cost, and whether the builder has its own obligation to step in and remedy the defect.

For example, there will be no obligation to repair or replace a roof which has a 15-year warranty covering the paint surface against “flaking, peeling and perforation” if the roof’s red colour fades to orange after two years, but is otherwise functioning as a roof is supposed to, unless colour fade is expressly stated in the warranty.

In that case, both the manufacturer and the builder would assert that the roof is operating as required under the Building Code (ie, to shelter the house).

The product has not failed, and the manufacturer’s warranty and the builder’s obligations to the home owner do not come into question.

However, where a product with a product warranty has been installed incorrectly, used for the wrong purpose, or damaged by the builder or persons under the builder’s responsibility, and has failed as a result, liability will almost certainly rest solely with the builder, particularly where there are specific limitations or exclusions in the product warranty document.

As a final point, and perhaps as a word of warning, builders should always think carefully about offering and providing their own workmanship warranties.

Such warranties should only be given in circumstances where the contractor has a good understanding of the reasonable life expectancy of the product and any maintenance requirements associated with it, and should draw these matters to the home owner’s attention.

Without that information you may unknowingly extend your obligations further than not only the implied warranties in the Building Act, but beyond what is reasonable in the circumstances.

Providing an express workmanship warranty of eight years on a product that you might reasonably expect to replace after 10 years in any event might sound attractive to a home owner, but makes very little commercial sense from the perspective of the builder.

It potentially exposes the builder to a level of liability which they might not otherwise have had.