Building Disputes
Orchiston Architects Ltd  An architecture firm with specific expertise in building disputes

Mandatory Contracts under the Building Act

  • Overview
  • The minimum requirements in law
  • Suggested minimum contract terms (the “Basic Building Contract”) 

The Building (Residential Consumer Rights and Remedies) Regulations 2014  set out the default construction contract requirements for all building work (but not its design) over the value of $30,000 GST included. These will apply if the contract is inadequate or uncertain. 

In the event of a dispute, a contractor may discover that they are required to do more than they thought:  these notes might help avoid that surprise. They will also help clients/owners understand what they are entitled to from the contractor, and for the contractor to understand the information they should seek from the client.  

Overview 

  • Before signing a contract, the contractor must provide the client with a checklist to inform the client about the building process.
  • Before signing a contract, the contractor must provide the client with a disclosure statement to inform the client about the contractor.
  • The Regulations set the minimum requirements and default terms for the rights obligations and responsibilities of the client and the building contractor.
  • On completion of the building work, the contractor must provide documentation as described in the Regulations                                                                            

The minimum requirements in law

 1.       Checklist

Before signing a contract, the contractor must provide the client with a checklist to inform the client about the building process.

The required Checklist (and relevant guidance) is on the MBIE site HERE. 

Comment:

  • It would be useful if the contractor provided this with the quote or estimate, or at an early stage in pre-contract negotiations.
  • The prudent client will download a copy of the checklist before starting a building project or contacting a building contractor.
  • The checklist informs the client that they will need more information than just a quote before the contract is signed. 

2.       Disclosure statement. 

Before signing a contract, the contractor must provide the client with a disclosure statement to inform the client about the contractor.

The required Disclosure Statement (and relevant guidance) is on the MBIE site HERE. 

Comment:

A contractor may not want to (or be able to) supply some of the information required by the disclosure statement until it is clear there is a real prospect of being contracted for the project. It is likely that a quote will need to be "tagged" to indicate that further information will be required (to be supplied by the client and/or the contractor) before a contract can be entered into, because:  

  • there could a breach of the Regulations if the client unconditionally accepted the untagged quote, 
  • some of the required information may only become available at a later date
  • there may not be sufficient information about project funding and payment.
  • the scope and terms of the project may require further clarification.
  • For many projects, the information about warranties and insurances required for the disclosure statement will be reliant on information provided by the client (or their designer) instead of the building contractor.
  • Whilst in theory it would be nice to know the details of warranties before work starts, in most cases that is just not practical because changes in suppliers, subcontractors, and material selections are often made during the progress of the work.  The only practicable solution is to note in the disclosure statement those items which will be subject to warranties and guarantees as known at the time, and to complete and update the details at the end of the job.

There is no legal description of the information required to be provided by the client to the contractor.  In most cases, before entering into contract, the contractor needs to know the all the information about the client (and designers/architects/project managers) as is required to be provided by the contractor in the Disclosure Statement, except that the information about guarantees and warranties would instead be: 

  • Names and contact details for person(s) authorising payments in relation to the building work.
  • A declaration (and if necessary proof) that the funds are available to meet the costs of the building work and that there is adequate security for them.
  • A description of any payment procedures which may affect cashflow to the building contractor, such as approval processes involving lawyer/bank/project manager/architect/designer

3.       Written Contract

Before building work commences, the client and the contractor must agree to a written contract which includes at least the items described at Section 6 of the Regulations.  If there is no written contract, or it is oral, or unclear, or does not include all the items at Section 6, the “Implied Terms” described in Schedule 3 of the Regulations will apply.

The “Implied Terms” described in Schedule 3 of the Regulations are on the NZ Legislation site HERE.

Comment:

The Regulations are specifically for consumer protection.  For the reasons below, the implied contract terms are not usually enough to establish a fair contract based on reality or the needs of a particular project.  You can obtain a suitable "neutral" contract that complies with the Regulations from Standards NZ or the NZIA , and various industry bodies also have complying contracts written around the interests of their members.

Or you could use the "Basic Building Contract" available on this website HERE, and which shows the changes required if the implied terms in the Regulations are to become a fair and workable contract.

Reasons for NOT entering into a contract based solely on the Regulations:

  • they only focus on consumer protection, 
  • they do not provide sufficient assurance to a building contractor for their risks in undertaking the project 
  • they do not adequately deal with the realities of the following building projects:  alteration work;  where the design is undertaken by the client or a designer appointed by them;  where the project management is undertaken by the client or someone appointed by them;  where the building consent and/or other necessary approvals are not directly controlled by the building contractor;  where the building consent and/or other necessary approvals are varied during the course of the work; where some of the work is directly controlled or done by the client;  where work is required to proceed despite a client’s indecision or other delay; work where code compliance is dependent on work done by other than the building contractor; almost any project which is not a new design/build/handover where the building contractor has exclusive control over those roles.
  • they do not adequately deal with the changes which often arise during the building work
  • they don't adequately deal with other legislative or practical requirements.
  • they don't reference other documents or persons likely to be required to form a contract or build the project.

4.       Completion Documentation

On completion of the building work, the contractor must provide to the client the information and documentation required for signoff on building code compliance as described at Section 9 of the Regulations, as follows:

(a) a copy of every policy of insurance—

(i) that the building contractor holds in relation to the building work; and (ii )that is current (ie, subsisting) on completion; and

(b) a copy of any guarantees or warranties that apply to materials or services that comprise the building work, including information about

(i) whether the guarantees or warranties are transferable: (ii) how to make claims under the guarantees or warranties: (iii) whether the guarantees or warranties need to be signed and returned to the issuers in order to be valid; and

(c) information about the processes and materials that must be used to maintain elements of the building work if 

(i)maintenance is required to meet the durability requirements of the building code; or (ii) the validity of any applicable guarantee or warranty could be affected by how and whether maintenance is carried out.

Comment:

On completion, the details of warranties and guarantees in the disclosure statement should be updated, and new guarantees and warranties added if they are relevant to ongoing compliance.

The maintenance documentation is limited to that required for ongoing compliance.  Where drawings and specifications are prepared by designers or architects, or where work requires a building consent, it is to be expected that it would already be in the contract documents. For all other items, the building contractor should rely on the information provided by suppliers or manufacturers.  

BRANZ provides a service for maintenance checklists, available HERE

In addition,  Records of Work are required to be provided by LBPs for Restricted Work done by them.

The supply of warranties, guarantees, and maintenance information;  and of Records of Work are statutory obligations independent of contract requirements, and the documents cannot be with-held  as “leverage” to obtain payment or to resolve a contractual dispute.

Failure to provide any or all of the information (checklist, disclosure, contract, completion documentation, Records of Work) could result an infringement offence and a fine of $500, and also possibly a complaint made to the Licensed Building Practitioners’ Board.