Contracts and consumer protection

The Building Act and regulations set 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 – you can also find guidance in BRANZ Bulletin 590 Contracts in the building industry.

MBIE has sponsored access to view and print a PDF of the standard NZS 3902:2004 free of charge. You can access the free version here.

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.

You can find more information from the MBIE website.

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Fair Trading Act

Building contracts and building work are also covered by the Fair Trading Act. The Act applies to everyone in business, and outlaws deceptive conduct and false representations. 

In late 2017 the former director and owner of a concrete company was fined $151,875 under the Fair Trading Act. The company said it was supplying Australian-made Hebel aerated cladding panels when it was in fact supplying products from a Chinese manufacturer. The company supplied the panels for at least 83 properties between 2007 and 2010.

The Fair Trading Act also covers unfair contract terms. This relates to clauses in standard form consumer contracts (contracts that consumers have to accept on a take-it-or-leave-it basis).

The Commerce Commission can 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. This relates to contract fine print, not the main subject matter. 

The Commerce Commission has useful information for the construction and property industry here.

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Consumer Guarantees Act 

The Consumer Guarantees Act applies to services provided to homeowners by the building industry. Service providers must: 

  • perform their services with reasonable care and skill
  • complete work in a reasonable timeframe
  • make sure their service is fit for any purpose the client told them about
  • charge a reasonable price if no price or pricing formula has been previously agreed.

If a client is unhappy with the job a builder (or other service provider) has done because it does not meet one or more of the guarantees, they can ask them to fix it at no cost to them. If the service provider refuses or takes an unreasonably long time, the client can: 

  • get someone else to fix it and claim the cost from the service provider
  • cancel the contract and refuse to pay for work done.

If the client has already paid for work, they can ask for some or all of their money back, depending on whether some of the service provided was satisfactory. 

In addition, if work done has caused damage to other property, the client can claim compensation (known as consequential loss) for that damage. 

For more information, see www.consumerprotection.govt.nz/guidance-for-businesses