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.

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.

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, within a reasonable timeframe, any defects notified by the client in writing. This applies to all building work regardless of value.

If building materials turn out to be faulty, the contractor must replace them. If the contractor disputes the defects, it is up to them to prove that the defect wasn’t their fault or the fault of their subcontractors.

In many cases the defects may be a problem with the appearance of something. To help determine what is acceptable and what is a defect, MBIE has produced a publication, Guide to tolerances, materials and workmanship in new residential construction 2015. You can download a PDF of the guide here.

The homeowner can also take action for up to 10 years after building work is completed if implied warranties set out in the Building Act have not been met (see the bullet point list of implied warranties above). This applies whether or not there is a written contract or what the contract says. An owner of the building affected by a breach of warranty can take action even if they were not a party to the original contract. Where there is a dispute over a defect identified after the 12-month period has ended, it is up to the owner to prove there is a defect.

If a breach of warranty can be fixed, then the owner can ask the contractor to fix it. This includes repairing or replacing defective building materials, including any supplied by the contractor’s subcontractors.

If a breach can’t be fixed or is substantial, the owner can ask the building contractor for a payment of damages that compensates for the reduced value of the building work.

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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 here www.consumerprotection.govt.nz/guidance-for-businesses/complying-with-consumer-laws/