Implied warranties for residential building work have
now been greatly expanded.
These changes will impose greater liability on you, if you
a residential building contractor;
a house-building company;
a developer offering house-and-land packages;
someone (on seller) who, for the purpose of
builds a dwelling yourself;
arranges for a dwelling to be built; or
buys a dwelling from someone who built it or arranged for it to
The Building Amendment Bill (No.4) was passed into law under
urgency on 20 November, and is now the Building Amendment Act 2013.
This Act imposes consumer protection obligations on anyone building
or selling household units. It expands the implied warranties
regime for residential building contracts so that they are also
implied into every sale and purchase contract entered into by an
These warranties are mandatory – it is not possible to
contract out of them. They apply to all contracts entered into
after the Act comes into force by Order in Council (likely to be
The warranties are that:
the building work is carried out properly, in accordance with
the plans and specifications in the contract and the building
materials used are suitable for their purpose and new (unless
otherwise stated in the contract);
the building work complies with the Building Code and all other
the building work will be completed by the date specified in
the contract (or, if no date is specified, within a reasonable
the household unit is suitable for occupation on completion of
the building work;
the building work and any materials are reasonably fit for any
purpose stated in the contract for which they are required.
Remedies for breach
A key change to the current implied warranties regime is that,
if there is any defect in the building work within one year of the
building work being completed, the client can require either the
building contractor or the on-seller to remedy the defect.
During this period, the onus of proof is on the building
contractor and on-seller -- that is, the client merely needs to
claim a defect exists and do not need to prove a breach. It will be
for the building contractor or on-seller to prove no such defect
exists if they dispute this.
In our view, this effectively imposes a mandatory defects
liability period of one year in all residential building
After the initial one-year period, if there is a defect, the
require the building contractor to remedy the breach;
if the building contractor fails to do so in a reasonable time,
have the breach remedied by someone else and recover the reasonable
costs of doing so from the building contractor;
recover from the building contractor damages for reasonably
foreseeable loss resulting from the breach.
Building contractors and on-sellers will have liability to not
only the original owner of the household unit for breach of the
implied warranties, but also any subsequent purchaser of the
property, whether or not they were party to the original
Code compliance certificates
The Bill also contains a new provision where it is an offence,
with a penalty of up to $200,000, for an on-seller to settle a sale
of a residential unit without a code compliance certificate being
issued for the building work.
It is possible to contract out of this requirement with the
purchaser's agreement, but the contracting out agreement must
be in a particular form prescribed by the regulations.
We recommend that you:
include in your contract a clear mechanism for determining when
the building work is completed in order to determine when the
one-year defect remedy period starts;
provide clients documentation setting out detailed maintenance
requirements for the building work. This will assist in excluding
your liability where the building work isn't maintained
ensure your arrangements with subcontractors (if a building
contractor) and contractors (if an on-seller) enable you to claim
against them if their actions breach these implied warranties:
check your insurance policies to ensure that you are covered
for these implied warranties;
ensure your business is properly structured to take account of
this potential liability;
don't attempt to contract out of these implied warranties
or advice a client that they don't apply - that will be a
breach of the Fair Trading Act.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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