PART 3: GUIDE TO LAND TRANSACTIONS AND DEVELOPMENT
Posted by Deanna Clark on January 20 2021 in News
This three-part guide comprises sections on the following subject matters:
PART THREE: BUILDING AND CONSTRUCTION
Building Act / Building Code
The Building Act 2004 (Building Act) establishes the regulatory framework for New Zealand’s building control systems, including the rules for the construction, alteration, demolition, and maintenance of buildings.
The Building Act also contains provisions to ensure that existing buildings are incrementally improved. These provisions concern sanitary facilities, access and disability facilities, and provisions in relation to buildings deemed most vulnerable to earthquakes.
The Building Act is supported by regulations including the Building Code and the Building (Residential Consumer Rights and Remedies) Regulations 2014 (Regulations) which set clear performance standards of building work in New Zealand. The Building Code covers fire safety, durability, moisture control, energy efficiency, services, and structural stability.
In most cases, the Building Act requires that building consent for any proposed construction or alteration of buildings or structures be obtained from the relevant local authority in which the building is located. Even if the building work does not require consent, it must still meet the minimum performance requirements of the Building Code.
In most cases, physical works cannot begin until a building consent (and other relevant consents, such as resource consents (if necessary)) has been issued. Therefore, it is important to apply for a consent in good time to avoid unnecessary delays. Applications are made to the local authority in which the property is located.
If the proposed building work is critical to the integrity of the home or building, it may be restricted building work. You must use a Licensed Building Practitioner (LBP) to design or carry out restricted building work. An LBP must do or supervise this work. This is to ensure a property is structurally sound and weathertight.
Generally restricted building work applies to bigger or more complex jobs and includes work that both:
- requires a building consent; and
- affects a home’s:
- primary structure;
- weathertightness; or
- certain fire safety design matters.
Once the work has been completed in accordance with the terms of the building consent, an application to the local authority will need to be made for the issue of a code compliance certificate. A code compliance certificate gives the owner of the property, and future owners, an assurance that the building work was done to the appropriate standards and in accordance with the building consent. If a code compliance certificate has not been issued for the works undertaken, there may be adverse consequences such as inability to obtain insurance or increased cost of insurance, difficulty in obtaining funding for the property, potential issues arising upon the sale of the property and so on.
A written contract is required for all building work of value higher than $30,000 or more (inclusive of GST).
The written contract between the parties must contain certain prescribed information.
Standard form construction contracts have been developed for use by parties entering into construction contracts in both the commercial and residential sectors. In New Zealand, there are two main providers of standard form commercial construction contracts. These include the New Zealand Standards (there are various forms of standard contract depending on the nature of the works) and the New Zealand Institute of Architects' (NZIA) standard form.
It is common for a number of further terms to be specified in the form of contract in order to allocate risk. It is important that these terms of contract are reviewed by a lawyer prior to entering into the contract.
Construction Contracts Act 2002
If you have entered into a contract for construction work, your contract is covered by the Construction Contracts Act 2002 (CCA) which provides a statutory process for dealing with payments and disputes arising under a construction contract.
Adjudication of Disputes
In the event of a dispute between the parties to a building or construction contract, the CCA includes provisions for the matter to be resolved by way of adjudication (if the parties so choose). Adjudication is a dispute resolution process which is intended to result in a quick and enforceable decision made by a neutral third party. There may also be other dispute resolution procedures provided for in the contract itself such as arbitration.
Prescribed Disclosure Requirements
In recent years, new laws have been introduced in respect of residential construction contracts which provide greater consumer protection for the person engaging the builder and increased disclosure requirements.
Before signing a residential building contract, a builder must provide the owner with the “prescribed disclosure information” as required by the Building Act and the Regulations. This form must include certain information as required by the Regulations, in particular information and contact details for the builder, details of the insurance policies and information about any guarantees or warranties.
The Regulations also require that a checklist, prepared by the Ministry of Business Innovation and Employment, be handed to the owner upon signing the building contract. This is also in a prescribed form and includes information on how the works will be structured, managed, what should form part of the written contract and how disputes are to be resolved.
The Building Act sets out a number of implied warranties that apply for up to 10 years from the completion of the works. These implied warranties cannot be contracted out of and include warranties to the effect that:
- The works must be carried out:
- in a proper and competent manner;
- with reasonable skill and care;
- in accordance with the plans and specifications;
- in accordance with the building consent; and
- be completed by the date shown in the contact.
- All materials used in the works must:
- be suitable for the purpose of which they will be used; and
- be new (unless otherwise agreed).
- The dwelling is to be suitable for occupation on completion of the building work.
- The building work and the materials must be reasonably fit for that purpose or be of such a nature and quality that they might reasonably expect to achieve that result.
There are certain prescribed remedies that the owner is entitled to if the builder breaches these implied warranties. These include a requirement to remedy the breach themselves, compensation and/or cancellation of the contract. There is also the possibility of the owner taking legal action for breach of contract.
Once the 12-month defect period (refer below) has ended it is for the owner to prove that the issue is in fact a defect which these warranties will apply to.
The builder will not be liable under the Building Act for any defect or breach of implied warranty to the extent that the defect or breach is caused by something which is outside human control, as a result of an act or omission by someone other than the builder or persons the builder is responsible for, a failure of the owner in carrying out normal maintenance and/or a failure to carry out repairs as soon as practicable after the defect has become apparent.
The Building Act also provides that an owner of a building or land in respect of which building was carried out may take proceedings for a breach of these warranties whether or not that person was a party to the contract. This means that any future purchaser of a dwelling might have a claim against the builder in the event of a breach of an implied warranty.
Completion of the Works - Prescribed Information
The Regulations provide that certain information that must be provided to an owner upon completion of the work. This includes:
- A copy of every insurance policy in respect of the building work and which is current at the date of completion of the work.
- A copy of any guarantees or warranties that apply to the materials or services that form part of the works. This must include details as to whether the guarantees and warranties are transferrable, how to make claims and whether they will need to be signed and returned to the issuers in order to be valid.
- Information about the processes and materials that must be used to maintain elements of the building work if maintenance is required to meet the requirements of the building cost or if the validity of guarantee or warranty might be affected.
12 Month Defect Repair Period
The Building Act sets out that an owner has an automatic 12-month defect liability period. The parties cannot contract out of this.
An owner must give a builder notice of any defective work within the period of 12 months following the date the works are complete. The builder must remedy any defect within a reasonable period of time from the date of notification.
It is presumed that any such notified defect is to be remedied by the builder. If the builder does not agree that it is a defect, the builder must prove that the issue/defect has been caused through no fault of their own (or the products that have been used in the works).
A builder is required by law to fix any defective building work. It is the main contractor’s responsibility to repair and remedy any defects even where the work might have been carried out by subcontractors.
If you would like help…
This article is the third part of a three-part guide to undertaking land transactions, land development and building and construction in New Zealand. This guide is intended to assist overseas people and / or persons inexperienced in these areas to provide general and high-level information. It is not intended to provide comprehensive information on all aspects of the relevant law and/or to a specific set of factual circumstances.
We have made every effort to ensure the accuracy of this publication, however, it should not be relied upon as a basis for making business decisions as circumstances, business conditions, government policy and interpretation of the law may change.
If you would like help with your business activities or if you have any questions in relation to the matters set out in this publication, please contact us.
Richard Hatch | Partner | Richard.Hatch@shieffangland.co.nz
Deanna Clark | Special Counsel | Deanna.Clark@shieffangland.co.nz
Aidan Tattley | Solicitor | Aidan.Tattley@shieffangland.co.nz
This paper gives a general overview of the topics covered and is not intended to be relied upon as legal advice.