The much anticipated Building Amendment Bill (Bill) has arrived. The Bill proposes significant changes to the current Building Act. These include changes to how liability for defective buildings is shared. The Bill also introduces new insurance requirements for building professionals, and new warranties for houses and small apartments.

These changes are significant for Councils, construction professionals (including builders, designers and engineers) and homeowners. The Bill follows two earlier announcements by Building and Construction Minister Chris Penk about a shift to proportional liability which we summarised here.

The changes to liability settings, insurances and warranties will only apply to work carried out under building consents that are issued after the Bill becomes law. It is therefore likely to be at least two years before these changes start to take effect.

Proportionate liability

The new regime is designed to ensure that a defendant is only liable for their own relative share of fault in a defective building. This represents a significant departure from the current joint and several position - in which a plaintiff can recover all of their loss from one defendant, regardless of that defendant’s actual contribution to the loss relative to other parties. The change will likely reduce the disproportionate amount that Councils have traditionally borne for defective building work, as they are often the only remaining solvent defendant. The explanatory note to the Bill says it is intended to correct risk-averse behaviour by Councils which has increased costs and delays in delivering building work.

The Bill proposes to limit liability of a defendant to a just and equitable proportion of the loss or damage claimed having regard to the extent of the defendant’s responsibility for the loss or damage. This wording closely mirrors Queensland’s Civil Liability Act 2003. A court or adjudicator will determine what is a just and equitable proportion in each case. It will be interesting to see how the courts in New Zealand ultimately approach that exercise, and the extent to which they will be guided by previous cases here and in Queensland.

Importantly, the Bill does not provide any avenue for redress for a building owner if a party that is liable for their loss is insolvent and/or uninsured. In that case, the building owner will presumably be left to bear that party’s share of their loss. 

Mandatory insurance

The Bill will make professional indemnity insurance mandatory for design consultants such as architects, designers, engineers, and building surveyors, where building work is valued at $100,000 or more.

Many questions still remain around this proposed mandatory insurance. We will need to await the proposed new regulations to find out which other service providers will be required to hold insurance, and what the minimum required insurance cover will be.

The Bill states that details of professional indemnity insurance must be disclosed before commencing design or other services, with fines of up to $2,000 for failing to disclose insurance details and fines of up to $150,000 for failing to hold insurance or making false or misleading disclosures. The Bill does not impose any duties on councils or other authorities to check that compliant insurance coverage is in place.

The Bill permits the Government to temporarily suspend the insurance requirements for up to two years. This creates risk for building owners, because it could result in a liable party not being required to hold insurance cover. In such a scenario, a building owner may not be able to recover losses apportionable to that uninsured party, and nor could they recover them from other defendants because of the changes to proportionate liability outlined above.

Building warranties

The proposed home warranty scheme also leaves many details to regulations. However, what is clear from the Bill is that:

• Building warranties will only apply to detached individual houses or small-to-medium apartment buildings not exceeding 10m in height. Larger buildings, or mixed-use buildings (for instance a shop on the ground floor and apartment above) are excluded.
• The minimum warranty periods are one year for all defects, and 10 years for structural defects (starting from a time to be set in the regulations).
• There are fines of up to $150,000 for doing building work without a warranty, or for making misleading statements or omissions about a warranty. There are also fines for home warranty providers who fail to hold appropriate registration.
• Building Consent Authorities have a new duty to ensure that a home warranty is in place as a condition of issuing a building consent.

When will changes come into effect?

The Bill has not yet had its first reading in Parliament. From there, it will advance through the select committee stage, where interested parties may make submissions. It is currently unclear whether the Government will be able to pass the Bill into law before the upcoming election. 

Once enacted, the Bill proposes that the proportionate liability, insurance and warranty schemes will come into force a year after the Bill becomes law. They will only apply to work carried out under building consents issued after these schemes come into law. For work consented before that date, the current liability regime will continue to apply. 

Get in touch 

Understanding how the Bill will be applied, and what “just and equitable” will look like in practice will require careful consideration. If you would like tailored advice or have questions about how these changes could affect you, please contact one of our experts. 

Special thanks to Meredith Seeto for assistance in preparing this article.