MBIE News

There is a large number of updates from MBIE on this subject. Check back for regular industry updates. 

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Changes to the Building Act

The Building Amendment Act 2013 became law on 1 November 2013. Some changes came into force immediately and some came into effect on 1 January 2015.

The changes that became effective immediately include changes to the types of work that do not require building consent. More low-risk work is exempt from building consent and there are limits on potentially high-risk work.
Schedule 1 of the Building Act (the Act) has been split into three parts:

• Part (1) building work that anyone can do
• Part (2) sanitary plumbing and drainlaying, which must be carried out by people authorised under the Plumbers, Gasfitters and Drainlayers Act 2006
• Part (3) building work where design is carried out or reviewed by a chartered professional engineer.

The Ministry of Business, Innovation and Employment (MBIE) online guidance contains examples of these exempt works: http://www.dbh.govt.nz/bc-no-consent.

Remember, even if building work does not require a building consent, the work must comply with the Building Code.

Other immediate changes include: higher penalties for work done without proper consent; more power to restrict entry to buildings that are near other dangerous buildings; more power to hold building consent authorities to account; and changes to the way dams are defined and measured.

Consumer protection measures

Changes that came into effect on 1 January 2015 include new measures to protect consumers who are building a house or making major renovations to their home.

Written contracts have become a legal requirement for all residential building work over $30,000 (including GST, and including work undertaken by sub-contractors), and building contractors can be fined if they don’t comply.

The legislation also sets out the minimum provisions that all contracts must contain – these reflect standard building contracts, but check your own contract to make sure it covers all required provisions. If there isn’t a written contract, or your contract doesn’t include all the provisions, there are standard contract provisions that will apply.

Prior to signing a contract, building contractors will also have to give consumers:

• A prescribed checklist that provides a step-by-step guide on the build process (this will be available from the MBIE website), and 
• A statement disclosing information about their skills, qualifications, licensing status, and business record.

At the end of the build, building contractors must also provide information on insurances and maintenance.

There is a new 12 month ‘defect repair period’ when building practitioners will have to fix any defects they have been told about, without question or additional charge. MBIE is developing guidance to assist identifying what is a ‘defect’.

RADICAL CHANGES FOR RESIDENTIAL BUILDING COME 1 JANUARY

If you are a residential builder, and you only read one article I ever write, then read this one. Because on 1 January, assuming the Government stays true to its word, new laws are going to come into force that are going to have a bigger impact on your business than licensing did. BY GEOFF HARDY, AN AUCKLAND COMMERCIAL LAWYER

The changes on 1 January will be “bigger” because licensing created a lot of extra paperwork for you, but it did not actually increase your liability, other than by exposing you to the risk of being disciplined by the Building Practitioners Board. These new laws, which are part of the Building Amendment Act 2013, not only increase your liability but they also increase your paperwork substantially, and for many of you they completely alter the terms on which you contract with your clients.

These new laws for many of you completely alter the terms on which you contract with your clients.

THE NEW RULES

So what does the Building Amendment Act 2013 do? Well among other things, it does this:

1. For all residential building work costing $30,000 or more, if your customer is the homeowner, it will be compulsory to have a written building contract signed by your customer.
2. If your written building contract (or your quote, if that is all you have) does not contain all the clauses the Act requires it to contain, the gaps that are missing will automatically be filled by the Government’s clauses.
3. If you do not get a written building contract signed at all, then you get all the Government clauses by default.
4. Even before the homeowner agrees to hire you, you have to hand over a checklist that will be written for you by the Government urging the homeowner to carefully consider the risks they are letting themselves in for. Even if the building work is likely to cost less than $30,000, you still have to hand this checklist over if the homeowner asks for it.
5. At the same time you also have to hand over a document, that you will have to write beforehand, that tells the potential customer all about you, your company, the insurance you carry, and the guarantees and warranties that apply to your materials and workmanship. That includes any product warranties that are likely to be issued.
6. And at the conclusion of the project, you have to provide to the customer and the Council, copies of all ongoing insurance policies, guarantees and product warranties, and the maintenance requirements for every component of the work that has a durability period. This applies to all residential projects regardless of how much the building work cost.
7. If you don’t do any of those things, then you can be spot fined $500 on each occasion.
8. More importantly, it will most likely be something for which you can be disciplined by the Building Practitioners Board.
9. Your defects liability period will automatically be a minimum of 12 months, and if the homeowner says your workmanship or materials were defective, it is up to you to prove otherwise, failing which you have to fix it up at your expense and possibly pay damages.
10. On top of that 12 month warranty, you already give to the current and future owners of the home, a range of 10 year warranties under the Building Act. If the owner establishes that your workmanship or materials weren’t up to scratch, and you can’t prove that you weren’t at fault, then you have to fix it up at your expense and possibly pay damages. Furthermore, if the defect is serious, you might not even be given the opportunity to fix it up. Instead, the owner can get another builder to do so, and recover any additional cost from you.

I suspect there are many of you overwhelmed by all the recent reforms, and are unaware that this is just around the corner.

These changes have been in the pipeline since as early as 2010 so it is not as if they have just been sprung on the industry. I have been writing articles and presenting conference papers on the subject for the past 5 years, and merchants like ITM and trade associations like Certified Builders and Master Builders have been informing their customers and members for some time. But despite that, I suspect there is a huge percentage of the residential building industry that is overwhelmed with information overload, or a bit shell-shocked by all the recent reforms, and are unaware that this is just around the corner.

WHAT TO DO ABOUT IT

What are the practical steps you can take in order to be ready for 1 January? Two things mainly – get to know your obligations under the new laws, and gather together the documents you will need to have in place by the New Year. Remember that some of these requirements apply regardless of whether the building project is going to cost $30,000 or more.

As far as learning the law is concerned, you can get plain-english, user-friendly newsletters from the websites of MBIE, your merchant, your trade association, or my firm Madison Hardy. In addition, MBIE, your merchant, and your trade association will be conducting educational meetings over the next few months, as will many of the larger building franchises and group home building companies no doubt.

To be ready, do these two things: Get to know your obligations under the new laws, and gather together the documents you will need to have in place by the New Year.

As far as the documents are concerned, there are four of them, and they are:

1. The checklist you have to hand over to potential residential customers.
2. The disclosure statement you have to hand over to potential residential customers.
3. The written building contract you will have to get your residential customer to sign.
4. The insurance policies, guarantees and warranties, and maintenance requirements you have to tell your customer about at the end of the project.

Where do you get those from? On the MBIE website you will be able to get the checklist and the template for the disclosure statement. Your merchant, franchisor, group home building company, trade association or insurance broker should be able to help you with those, as well as the end-of-project documents. But as far as your building contract is concerned, if you don’t belong to Certified Builders or Master Builders or the bigger franchises or group home building companies, don’t risk it. Take it to construction law experts such as my firm Madison Hardy and make sure it is compliant once and for all.

Geoff Hardy has 38 years’ experience as a commercial lawyer and is the senior lawyer in the Auckland firm “Madison Hardy”. He guarantees personal attention to new clients at competitive rates. His phone number is (09) 379 0700, fax (09) 379 0504, and e-mail geoff@madisonhardy.com. This article is not intended to be relied upon as legal advice.

INSURANCE 101 FOR BUILDERS

With the new rules coming into force next year, we take the time to explain some of the most common insurance and guarantee options for builders, and highlight some of the common exclusions.

New Building Act rules that come into force from 1st January 2015 will require builders to declare to customers the insurance and guarantees they have, including limits and “relevant exclusions”. As it stands it’ll be up to individual builders to decide which exclusions are relevant. But should you be expected to know this, and what if you get it wrong?

 It should be noted that these guarantees are purely to protect the customer.  They provide no benefit to the builder, other than differentiating you from builders who can’t offer them.

Builders will be required to declare the insurance and guarantees they have

The best way to assess your specific insurance needs is to conduct a risk assessment of your situation. An insurance broker (preferably one with experience of the construction sector) is a good place to start.

Once the new regulations come into force you will be expected to disclose to your clients the relevant exclusions in your insurance. We recommend taking advice now to ensure you get this right from day one.

This article is not exhaustive and there are other policies to cover different risks. In addition, individual policy wordings from different insurers may vary. You should refer to the specific exclusions in your own policy wordings and discuss your situation with an insurance professional if you are unsure.

Builtin New Zealand is a specialist in insurance for the construction industry. For more information visit www.builtin.co.nz, email Ben Rickard at ben@builtin.co.nz or call him on 0800 BUILTIN.

Jump back to any of these topics:

• Changes to the building act
• Geoff Hardy - Radical Changes to the Building Act
• Insurance 101 for Builders
• Certified Builders Toolbox Seminar Series
• The customer journey - A homeowner's experience
• Earthquake repair videos from MBIE