The contract document

The contract

You must have a written contract for any building work that costs more than $30,000, including GST. New consumer protection measures in the Building Act, which came into force on January 1 2015 include this rule.

The contract will be with whoever is the main contractor for the work. This could be a builder or other tradesperson depending on the nature of the work. The contractor must give you a disclosure statement telling you about their skills, qualifications, licensing status and the insurance or guarantees they provide, plus a copy of the checklist required by the Act before the contract is signed.

Additional consumer protection includes a new 12-month defect repair period. The contractor must fix any defect you tell them about. Your contractor must also tell you about any ongoing maintenance requirements.

The changes to the Act also provide new ways to take action when implied warranties have not been met. Builders or contractors can be fined if they don’t comply with the law. This includes not providing a disclosure statement.

The Ministry of Business Innovation and Employment has prepared a standard checklist on their website. This covers the legal requirements and has more information on contracts.

Subcontracts and small contracts

The main contractor will organise the contracts with the subcontractors. However, if you are managing the project yourself under a labour-only contract with a builder, you will have to arrange separate contracts with each of the subcontractors, for example, the plasterers, painters and plumbers.

For work that costs less than $30,000, a written contract is not mandatory (a handshake can be legally binding) but it’s much less risky if you have all the terms and conditions clearly spelt out and recorded in writing. Then, if something goes wrong, it means there is less room for argument about who is responsible.

For smaller jobs, you could also rely on the written quote or a list of tasks supplied by the contractor as the contract. This is fine provided everything goes according to plan. But if something goes wrong, these bits of paper are unlikely to provide enough detail about the rights and responsibilities of the contractor and yourself.

Form of contract

Many building companies and individual builders will have their own form of contract. There is also a New Zealand Standard form of contract (NZS 3902:2004 House Building Contract) that has been independently developed by Standards New Zealand and is available for purchase.

Even if you decide to use another form of contract, it might be useful to compare it to the NZ Standard to make sure the one you are being offered is fair and reasonable.

There are also a number of other standard contracts available from these organisations:

• Certified Builders Association of NZ, (CBANZ)
• Registered Master Builders Association, (RMBA)
• NZ Institute of Architects, (NZIA)

The CBZNZ and RMBA contracts are only available to members, but you can buy one of two NZIA contracts (one is for small works) from the organisation's website. It is likely that your builder is familiar with them or has a copy. Don’t accept them at face value, you may want to negotiate changes to some of the clauses.

In your contract

The Building Act says all contracts for building work costing $30,000 or more must include the following:

• Names, physical and postal addresses (including the address for the delivery of notices) of both parties, and all relevant contact details (e.g. phone numbers and email addresses).
• The address or location description of the site where building work will be carried out.
• The date(s) the contract was signed by both parties.
• The expected start and completion date and how any delays will be dealt with.
• The contract price or the method by which the contract price will be calculated (e.g. fixed hourly rate with materials invoiced separately by supplier).
• A description of the building work that your contractor will complete including the materials and products to be used (if known).
• Which party will be responsible for obtaining building consents, and any other approvals required to carry out the building work.
• Who will be carrying out and/or supervising the work.
• How notices and certificates will be given by one party to the other.
• The payment process; including dates or stages for payment and how payments will be invoiced, made and receipted.
• How defects in the building work will be remedied, including reference to the implied warranties in the Building Act Sections 362I to 362K
• The dispute resolution process to be followed if there is a disagreement.
• How variations to the building work covered by the contract will be agreed before work continues.
• An acknowledgement that the client has received the checklist and disclosure statement from the contractor.

You should get legal advice about the contents of your contract and make sure you understand all parts of it. If you don’t follow the contract, it may cause problems if there’s a dispute later in the project.

For example, not paying progress payments by the due date is likely to breach your contract. Make sure you agree on a clear payment schedule that lays out when and how much you will be charged, with payments aligned to the cost of completing each stage of your project. Always avoid large up-front payments.

Alterations to contracts

To make changes to a contract, you can rule out by hand what you want to delete and write in the changes. You and the builder will both have to initial the changes. Be careful of what effect the changes might have on other clauses. Clauses in a contract are often interrelated. Finally, make sure that changing the contract won’t affect any guarantees. If you have any doubts seek legal advice.

Implied warranties in building contracts

All residential building work is covered by the implied warranties set out in the Building Act. Your building contractor may have written these warranties into the contract, or be offering an additional guarantee. Check the contractor’s warranty or guarantee against the implied warranties in the Act to ensure they at least match. If your contractor offers additional warranties – ask them how they work and about any extra costs.

What are the implied warranties?

• The household unit will be suitable for occupation at the end of the work.
• The building work will be done properly, competently, and in accordance with the plans, specifications and the Building Consent.
• All the materials used will be suitable for their intended purpose and, unless otherwise stated in the contract, new.
• The building work will be consistent with the Building Act and the Building Code.
• The building work will be carried out with reasonable care and skill and completed within the time specified, or a reasonable time if no time is stated.
• A 12-month defect-repair period: This means the contractor must fix any defect you tell them about within the first 12 months after completion.
• After 12 months, the contractor is still liable for repairs for 10 years from the date of completion, but you may have to prove to the contractor that there is a defect.
• If the contract states any particular outcome and the owner relies on the skill and judgement of the contractor to achieve it, the building work and the materials will be fit for purpose and be of a nature and quality suitable to achieve that result.
• These warranties apply to all contracts for building work involving household units, whether written or verbal. They also apply to the sale of one or more household units by a residential property developer. It is not possible to contract out of them.

Examples:

• Under the Building Act, if the contractor substitutes lower quality wallboard than is stipulated in the specifications without your agreement and this causes damage to the property, this is a breach of contract. The implied warranty states that work will be done in accordance with the plans and specifications.
• Under the Building Code, clause B2, if the builder uses materials that do not meet the 15-year performance life requirement to construct the outer walls, there is a breach of the implied warranty – i.e. To be consistent with the Building Code. There are 5-year requirements for easily accessed building elements, e.g. internal wall linings; 15-year requirements for moderately difficult to access elements, e.g. sub-floor plumbing; and 50-year requirements for difficult to access components, e.g. floors, walls and related fixings.
  

If a breach during the construction period is substantial (i.e it meets the definition of substantial in the Act), you can cancel the contract with your contractor immediately.

What’s a defect?

To help homeowners decide when there is a problem that should be fixed under the 12-month defect repair period, MBIE has written a Guide to tolerances, materials and workmanship in new residential construction, available here.

If you are not sure whether that crack in the stucco, that uneven patch in the floor, or the wall with a bow in it are defects that you can insist get fixed – check the guide.

Everything from roof to sub floor is covered. That rusty nail in the guttering that’s left a stain? Yes, it’s a defect. So is the rubbish blocking a sub-floor vent. The guide tells you how much “bend” is allowed in a wall, how wide a crack can be before it’s a defect and much more.

The Guide to tolerances covers aesthetic issues (e.g. what is considered a reasonable slope in a floor, or what is an acceptable appearance for a newly painted wall) in new builds and additions. It does not cover tolerances for repairs, renovations, or alterations within existing buildings, though in some circumstances it could be used for guidance.

It applies at any price, whether or not other consumer protection measures and the $30,000 threshold apply.

The guide was written with advice from industry to support the implied warranties in the new consumer protection measures, which came into law on 1 January 2015.

Builders can use the guide to ensure their clients understand and agree on acceptable levels of tolerances, materials and workmanship for new residential building work. Contractors and clients also have the option of mutually agreeing to their own expectations, preferably within their written contract.

Putting it right

If you believe any of the warranties have been breached, you can take the tradesperson to court for breach of contract. You can do this whether you are the person who employed the tradesperson, own the property, or in some circumstances if you are a subsequent owner of the property (depending on the time involved).

Proceedings for a breach of the implied warranties may be taken in the District Court or High Court depending on how much money is involved. Clear evidence will be needed to support the claim. To be successful in Court, you will have to show you have suffered loss or damage as a result of the actions of the tradesperson. The Court can award the consumer compensation for the breach.

Disputes under $15,000 can be settled by the Disputes Tribunal. Disputes Tribunals are not like the formal courts. There are no lawyers or judges. A trained referee will hear the dispute and any ruling they make is binding and can be enforced by the courts. If the disputed amount is between $15,000 and $20,000 you can still go to the Disputes Tribunal if the other party agrees.

Hold on to your paperwork

It is a good idea to keep copies of your contract for your own reference and for subsequent purchasers, so that if something goes wrong later on there is a paper trail to work out who is responsible. This is particularly useful for the person who buys your house and doesn’t know who to contact if the house develops problems at a later date due to poor workmanship. The warranties may still be able to be invoked, depending on how much time has passed.

Get a lawyer to check the contract to make sure everything is covered. Don’t forget that both you and the builder must sign it, date it and initial each page.