A written contract is now mandatory for building work costing over $30,000. It protects your interests and sets out your rights and obligations. It also gives your building contractor an incentive to build right first time.
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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.
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.
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:
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.
The Building Act says all contracts for building work costing $30,000 or more must include the following:
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.
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.
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.
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.
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.
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.
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.
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