Tim Bates of Auckland law firm TM Bates & Co summarises recent announcements about the end of joint and several liability principles in favour of proportionate liability.
The key changes recently announced by Building and Construction Minister Chris Penk can be summarised as follows:
• Removal of joint and several liability in favour of proportionate liability.
• Professionals contributing to building design, such as architects and engineers, will be required to hold professional indemnity insurance.
• Home warranties for all new residential buildings three storeys and under, and renovations $100,000 and above, will be mandatory, covering a one-year defect period and a 10-year structural warranty.
• Maximum disciplinary fines for Licensed Building Practitioners (LBPs) will be increased from $10,000 to $20,000, and the maximum suspension period from 12 months to 24 months.
Out of all of the above, the mandatory home warranties appear to be the most significant of the changes (noting that the introduction of proportionate liability has been well telegraphed previously).
It needs to be remembered that the Building Act 2004 currently provides statutory warranties/guarantees for residential construction. So the mandatory home warranties are in addition to this to better protect the homeowner.
As for the mandatory requirement for professionals to hold professional indemnity cover, the reality is most professionals working in the construction space are required by their requisite bodies to do this. So this change is unlikely to make any significant difference, but it will compel those few professionals that refuse to take insurance to now secure it.
The doubling of fines and suspensions for errant builders will certainly cause some alarm amongst the building profession. Whilst there are certainly cases brought before the Building Practitioners Board where the standard of construction has fallen well below ordinary levels of competence, there are still many cases that more quickly identify as the result of a breakdown in the relationship between builder and client.
The fact that an adverse ruling could take away a builder’s livelihood for as long as two years is career threatening, and will not be welcomed by the profession. Especially in what is already a difficult economic environment. Long live the builder!
Never fear though — these changes will take some time to implement. The home warranty and professional indemnity insurance changes will be progressed alongside other reforms through the Building Amendment Bill, expected to be introduced in early 2026.
Once legislation is passed, there will thereafter be a one-year stand down period before proportionate liability and the new requirements take effect. It seems the increased disciplinary penalties for LBPs will be progressed through a separate Bill, with changes expected to take effect in 2026.
In terms of the mandatory home warranties, these will apply only to residential construction involving Restricted Building Work that requires a building consent.
Each provider must register with the Ministry of Business, Innovation and Employment (MBIE), meet minimum regulatory requirements, and can be either guarantee-based or insurance-based.
In addition, the Building Act will introduce new offences should there be non-compliance with home warranty and professional indemnity insurance obligations for professionals.
Comment
Whilst the Minister has come out swinging, and all the major new publications have actively published the announcements, at face level the changes seem unlikely to result in better housing, and better protection for homeowners.
Whilst councils may no longer be found “carrying the can” when other negligent parties fall by the wayside, does this potentially leave a homeowner without any recompense where parties fold?
Whilst on the face of it the intention might be for the mandatory warranties to pick up any holes in responsibility, if these warranty wordings are put together by useful underwriters, we may find that they do not cover the homeowner’s losses.
I also remain concerned about increased fine and suspension powers provided to the Builders Disciplinary Board, where its processes are already far removed from what we would typically expect from a full judicial process.
Note: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by TM Bates & Co or Building Today to anyone who relies on the information in this article.
