Having a contract with the people you engage to build your house or do other work around your home is extremely important. Some general rules about contracts and what to do if there is a breach.
General rules about contracts
There are some general rules about contracts which are legally understood and apply to any type of contract. See the section on contract law on consumer.org.nz.
The important thing about any contract, whether it is to buy a section or engage a designer or tradesperson, is to enter into a proper agreement that covers all the possible aspects of the arrangement and that you get it in writing.
Legally, contracts relating to the sale of land, disposition of any interest in land (including leases) and charges or mortgages over land, must be in writing and signed by the parties to the contract.
Warranties implied in building contracts
In the Building Act 2004, certain warranties are implied in all building contracts, whether specified in the contract or not. These include the expectation that the work will be done competently and using suitable materials.
Breach of contract by the builder scenario
Suppose your builder has substituted cheaper wallboard than that stipulated in the specifications, without getting a variationsigned by you, as required in the contract. This is a breach of contract. What can you do about it?
In reality, there are almost always differences between products and by substituting the wallboard the builder is essentially making a design decision and any responsibility the designer has for the performance of the wallboard passes to the builder. So, if you are not happy with its final Ďfitness for purposeí you could apply to the Courts for an award of damages. If you have already paid the builder, you could sue for the difference in cost, or for the cost of ripping out and replacing the substituted wallboard. You must be able to satisfy the Court that you have suffered loss and you will be required to quantify that loss.
If you havenít yet paid you will be in a stronger position. You could refuse to pay the difference between the cost of the wallboard you asked for and the savings the builder made by using a cheaper product. Or you could negotiate for the builder to replace the wallboard before you pay up.
Breaches by the subcontractor
What happens when you think a subcontractor, say the roofer, has done a poor job? You should approach the main contractor, usually the builder. This is essentially a breach of the builderís contract with you. Donít go directly to the subcontractor. If things arenít fixed to your satisfaction you could sue the builder who could, in turn, sue the roofer for breach of their contract.
What happens if your main contractor has gone into liquidation? Can you seek redress from the roofer directly? There is no contract between you and the roofer, so you canít take action for breach of contract. But you may be able to sue for negligence. And you may be able to take action under the Consumer Guarantees Act.
To be successful in a claim for negligence you would have to prove that the roofer owed you a duty of care to do the work to a satisfactory standard, which they breached, and as a consequence you suffered some loss (which was not too remote). For example, you may have needed to pay someone else to fix the problems. Whether the subcontractor does owe you a duty of care depends on the facts which will be decided by the Court.
Liability of the builder
The liability of the builder was discussed in the Courts in the case of Riddell v Porteous (1999). The Riddells built a house hiring a builder, Mr Porteous, under a labour-only contract. The Riddells later sold the house to the Bagleys who discovered rot in the deck due to leaking. It was found that the deck had not been built according to the building permit. The Bagleys sued the Riddells for the expense of fixing the problem. The Riddells sued the builder for breach of his contractual obligation to build the house in compliance with the permit and fit for its intended purpose. The Riddells also sued the council for negligence in not carrying out the final inspection.
The Court held that the builder was in breach of his contractual obligations to the Riddels, therefore Mr Porteous was liable for the cost of the remedial work that the Bagleys were claiming from the Riddells. He was entirely in charge of the building contract despite the fact he was being paid on a labour-only basis.
In relation to the council, the Court held the council was liable to the Riddells for negligence in not carrying out the final inspection.