Legal avenues for resolving building disputes are leaving consumers out of pocket. We look at your rights and options.

Whether you’re paying for minor alterations or building your dream home, you’ll probably get good odds on something going pear-shaped. That’s not the worst of it. If you’ve had work done that’s not up to standard, your options for getting it fixed are limited – unless you’ve got deep pockets.

Your rights

When things go wrong with building work, there are 2 main laws that can help you.

The Consumer Guarantees Act (CGA) requires work done by tradespeople to be carried out with reasonable skill and competence. If it’s not, the CGA says you can ask the person who did the job to fix it at no cost to you. If they can’t or won’t fix it, then you can employ someone else and claim the cost from the original tradesperson.

The CGA applies to services provided by the building industry but not to buildings and building materials – they’re covered by the Building Act.

The Building Act requires tradespeople to provide warranties that work will be done competently using suitable materials. These warranties form part of every contract for residential building work, regardless of whether the contract refers to the warranties or not.

Enforcing your rights

It’s when it comes to enforcing your rights that things get tricky. There are industry bodies that’ll investigate complaints about their members but many tradespeople don’t belong to these bodies (see "Industry schemes", below). So where next?

Adjudication
This is an option if a dispute arises under a construction contract. The Construction Contracts Act 2002 introduced a formal process for adjudicating on building disputes. The Act covers all types of construction work – from building a home to altering or decorating one.

If you go down this route, a qualified and independent adjudicator looks at the issues and makes a decision on what should be done. It’s designed to be relatively quick: you should have a decision within 25 working days.

However, it can be costly. Parties to the dispute have to pay the adjudicator’s costs. These can vary hugely – from several thousand dollars to tens of thousands – depending on the scale and complexity of the dispute. On top of this, you’ll have to meet any other costs you incur such as legal fees.

You and the other parties can agree who will act as the adjudicator. If there’s no agreement, there’s a process for having an adjudicator selected – but you may be charged a fee ($400 to $500) for this.

Mediation and arbitration
These are other forms of dispute resolution that can be used to resolve problems arising under a construction contract. But unlike adjudication, which is a statutory process, you and the tradesperson have to agree to use these options and also have to agree on a mediator/arbitrator.

At $2000 to $4000 a day mediation is less costly than arbitration. But there’s no guarantee you’ll get a resolution: the mediator’s role is to facilitate discussion, not make a decision. You’ll get a binding decision from arbitration but you’ll also pay more: arbitration can cost tens of thousands of dollars.

Disputes Tribunal
The Disputes Tribunal is an option for relatively minor matters. As Barry and Marian Wilson found (see "Case studies", below), cases involving complex issues about how a floor is laid may not be easily dealt with.

Another drawback is that the Tribunal can only hear claims up to $15,000 – or up to $20,000 if both parties agree. For many disputes this will be far too low.

Weathertight Homes Tribunal
Owners of leaky homes can take their case to the Weathertight Homes Tribunal. The Tribunal deals with claims on dwellings built or altered within the previous 10 years.

Making a claim can be a complex business – and you’re likely to need a lawyer. In one recent case, the successful claimants’ legal costs were estimated to be $60,000.

The Tribunal has limited power to award costs so the expense of hiring expert help may have to come out of your own pocket.

Court action
Going to court is the last resort. Ministry of Justice figures show there are long waiting times for civil hearings. In the High Court, it can take up to a year for your case to be heard.

Legal costs are also high: the expense involved in taking a civil action can be out of proportion to the scale of the dispute.

Industry schemes
In an effort to plug the gaps, some trade organisations (such as the Registered Master Builders Federation and Master Painters New Zealand) have set up schemes to deal with complaints about their members.

You can use these schemes to try to resolve disputes; but these trade bodies have no formal enforcement powers.

Building guarantees can offer some redress if things go wrong. The two major building trade organisations – Certified Builders Association of New Zealand and the Registered Master Builders Federation – offer these guarantees for work done by their members.

They cover loss of deposit, defects and non-completion of work (although only up to set limits). There are also a number of exclusions under each guarantee.

Home warranty insurance

Across the Tasman, home warranty insurance is compulsory (except in Tasmania) but it’s been problematic. The Australian system requires builders to take out insurance for all residential building projects; the homeowner is the beneficiary of the insurance policy.

However, in all states except Queensland it acts as “last resort” insurance – which means consumers can only make a claim if the builder is dead or insolvent (or has disappeared).

Queensland rules
This proviso doesn’t apply in Queensland, which has “first resort” insurance. The state’s consumers can claim for losses arising from non-completion or shoddy work regardless of whether the builder is alive, dead or otherwise missing from action.

For any residential building work of over $3301 in value, builders in the state are required to obtain insurance from a statutory body called the Building Services Authority (BSA). Current insurance premiums range from $160 (for work less than $20,000) up to $3000 (for work over $400,000).

Queensland’s system is government-backed and is seen as offering much higher levels of protection than in other states where private insurers provide cover.

As well as running the insurance scheme, the BSA is responsible for disputes resolution and builder licensing. Builders in the state must be licensed to carry out work valued over $1100. Licence fees and other fees for service fund the BSA.

Among its powers, the BSA can require rectification of defective or incomplete building work. If the contractor fails to do this, insurance cover kicks in and the authority will pay to remedy any outstanding problems.

If the BSA has to pay out, it can pursue the contractor for costs and also has the power to prosecute – fines of up to $25,000 are possible.

Lessons for us
We think Queensland’s system has merit. Compare it with our system: we’ve had a licensing scheme for builders since 2007 but it’s voluntary and the Department of Building and Housing says sign-up hasn’t been high.

In May 2009, just 566 licensed building practitioners were registered. By contrast there were 38,000 licensed electrical workers.

“First-resort” home warranty insurance may also be part of the solution.

Australia’s experience suggests it needs to be government-backed. An Australian senate inquiry in 2008 found private insurers did not want to participate in a first resort scheme because they considered the risks too high.

The same report described the “last resort” insurance offered by private insurers as so minimal that it shouldn’t be called insurance.

Our view

  • If you suspect there’s a problem, you need to act quickly – ideally before work’s signed off. It’ll be cheaper and faster if you can sort out issues informally. But this won’t always be possible.
  • Consumers need better protection against shoddy building work. Mandatory builder licensing would be a start.
  • We’d also like to see a disputes body similar to Queensland’s Building Services Authority to eliminate the maze of tribunals, schemes and courts that Kiwi consumers have to navigate. Building wrangles are often complex and technical. There should be a specialist body to deal with them

Report by Jessica Wilson.