Plans for a new era of accountability in construction 

In this article we take a look at the Government's building reform plans, including proposed safeguards and issues still to be resolved. However, the devil will be in the detail.

In August 2025, the Government announced plans for major building industry reforms. Those reforms included a proposal to replace existing joint and several liability for building defects with proportional liability. One of the stated aims of these reforms was to encourage Councils to be less risk averse, but reducing their exposure for building defects claims. We wrote about that proposal here and flagged potential shortfalls for building owners if proportional liability was introduced. 

On Monday, the Government announced its plans for safeguarding building owners against that risk. They include mandatory professional indemnity (PI) insurance for building designers, mandatory home warranty schemes and increased disciplinary penalties for licensed building practitioners (LBPs). The Building Amendment Bill is expected to be introduced in early 2026, with the new liability framework and consumer protections coming into effect approximately one year later, likely in 2027.

Proposed safeguards

A shift to proportional liability will reduce Councils’ exposure to loss from defective buildings. But building owners face a shortfall if their builder is insolvent, or their design professionals have insufficient insurance. The Government’s latest announcement seeks to address that shortfall risk for homeowners through three measures:

1. Building owners must purchase warranties for all new residential buildings up to three storeys, and for renovations costing $100,000 or more if they involve restricted building work and a building consent. These warranties must cover general defects for at least one year, and structural issues for ten years.
2. PI insurance will be mandatory for all design professionals, including: architects, engineers, designers and some building surveyors. 
3. Disciplinary penalties for Licensed Building Practitioners will increase. Maximum fines will double from $10,000 to $20,000, and license suspensions could last up to 24 months. 
4. The goals of the Government’s reforms are:
   1. To reduce the unfairness of Council ratepayers ultimately bearing a disproportionate share of the cost of correcting building defects, since Councils are often the last defendant standing or the one with the deepest pockets;
   2. To introduce protective measures for residential owners of standalone houses or small apartments so those owners can reliably recover repair costs from those most at fault. 

Issues to still resolve 

• Details matters: While compulsory warranties, insurance requirements, and stronger fines provide some theoretical protection for homeowners, the effectiveness of these measures will depend heavily on how they are designed and enforced. Important practical details include the cost and availability of warranties and insurance cover, and the ease with which homeowners are able to make claims. 
• Insurers’ and developers’ position: In an absence of any legislative requirements for minimum cover, it is likely the insurers will have the final say as to how much PI insurance cover they will provide to consultants. Developers will have to think about how much PI insurance they want their consultants to carry, bearing in mind that the cost of insurance will likely be built into the consultants’ fees.
• Builders’ position: Licensed building practitioners are not required to carry insurance under the proposed amendments. But builders doing work for which warranties are mandated will need to ensure they remain in good standing with warranty providers. They should also consider what will happen if they are held liable for the cost of fixing any defects not covered by a warranty.
• Consultants’ position: Most design consultants already hold PI insurance. So far, there are no details on how the (existing) issue of ensuring consultants have sufficient insurance cover will be addressed.
• Apartment owners: Apartment owners in buildings over three storeys are not covered by the announced proposals and could face a shortfall. Much of New Zealand’s defective building litigation addresses these kinds of buildings. 
• Commercial or mixed-use-developments need clarity: By drawing a sharp line between residential and non residential buildings, the reforms diverge from past Supreme Court rulings . Clear legislative wording will be critical to address mixed use (eg part residential, part commercial buildings) and to clarify where liability for commercial building defects lies. 
• Further defects: The drafting of the amendment bill will need to address the situation where the warranty is called on. If remedial work is carried out under the warranty, the legislation will need to address whether the warranty period is then extended to cover these works or not.
• Subsequent owners: It is unclear whether proposed warranties would be transferrable to subsequent owners. If they are transferable, clear and simple transfer processes would be required. 
• Potential effect on construction costs: Currently, the cost of obtaining optional warranties from Master Build and the like is stated to be around 0.5% of the total build cost. It remains to be seen what effect the mandatory PI insurance and warranties will have on construction costs. 
• Transition period: With a one-year transition period likely, it is unclear whether the industry will be able to adapt in time. In New South Wales, the transition period for similar reforms had to be extended. The one year period may well be a tight timeframe.
• Lightweight penalties: Fines and maximum suspensions for LBP will be doubled, but these penalties still seem lightweight given the potential harm caused by LBPs who fail to work to standards.

Get in touch 

Navigating these reforms will require careful attention to detail and a clear understanding of how liability, warranties, and insurance interact in practice. We will be across the details as more reform is announced. 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 Greer Collinson and Meredith Seeto for their assistance in preparing this article.