Contracts and consumer protection

The Building Act sets out specific requirements around building contracts and contractors ‘putting things right’ for clients. These requirements don’t just apply to builders, but to work done by any tradesperson.

For residential building work of $30,000 (including GST) or over, you must:

  • have a written contract
  • give clients a checklist and provide certain information about your business before entering into the contract.

The checklist and disclosure information must also be given if the client asks for it, even if the work is below $30,000.

There are certain things the contract must include – default clauses apply if the contract doesn’t contain the required information.

In residential contracts, the following warranties are implied and are taken to form part of the contract:

  • The building work will be carried out competently, in accordance with the contract plans and specifications and the consent. 
  • Materials will be fit for purpose and will be new unless otherwise stated in the contract. 
  • The work will meet all legal requirements. 
  • The work will be done with reasonable care and skill and completed by the date (or within the period) specified in the contract or, if no date or period is specified, within a reasonable time. 
  • If it is to be occupied on completion of building work, the unit will be suitable for occupation on completion. 
  • If the contract states a particular purpose for the work or the owner wants a particular result, the building work and materials used will be reasonably fit for purpose or be of a nature and quality to achieve that result.

Building practitioners can’t contract out of this. It applies to the work of the builder or tradesperson and anyone – employees and subcontractors – they are responsible for.

Although implied warranties were already part of the Building Act 2004, the Building Amendment Act 2013 introduced new remedies for breaches of implied warranties.

A good solution will be to use one of the standard contract forms available from Registered Master Builders Association, Certified Builders Association, NZ Institute of Architects or NZS 3902:2004 Housing, alterations and small buildings contract or specialist trades contracts – and keep an eye out for the newly updated BRANZ bulletin on construction contracts.

The consumer checklist gives the client information about the process, their role and their rights. You can find details from the Ministry of Business, Innovation and Employment website.

The disclosure statement gives information about the contracting company. 

After the work is completed, other information must be given to the client, including details of insurance the contractor holds, copies of guarantees/warranties that apply and maintenance requirements. (You can find help with maintenance requirements on the BRANZ website www.maintenanceschedules.co.nz.)

There are regulations specifically covering consumer protection. They are available online at the New Zealand Legislation website.

Putting it right

Under the Building Act, from the date that building work is complete there is an automatic 12-month period for the client to identify defective work. The contractor must remedy any defects notified by the client. This applies to all building work.

MBIE has produced a Guide to tolerances, materials and workmanship in new residential construction 2015. This guide covers acceptable levels of workmanship that could be useful if there is a dispute with clients. It deals largely with the visual appearance of things rather than Building Code compliance. You can download the guide from the MBIE website here.

The changes are part of the Building Amendment Act 2013. You can find more information from the MBIE website.

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Unfair contract terms

New provisions around unfair contract terms, added to the Fair Trading Act, came into force on 17 March 2015. They relate to clauses in standard form consumer contracts (contracts that consumers have to accept on a take-it-or-leave-it basis).

The law change gives the Commerce Commission the ability to go to court to challenge clauses that they think create a significant imbalance between the rights of companies and consumers. Unfair contract terms could be unenforceable, even if the consumer has signed a contract knowing that they were in it. The new powers relate to contract fine print, not the main subject matter. 

The Commerce Commission has created a user-friendly website about consumer law for the construction industry.