New consumer protection measures introduced by the Building Act 2004 ensure building work on homes is now automatically covered by warranties to guarantee good workmanship.T

This applies to all residential contracts entered into from 30 November 2004.

These warranties apply whether they are written into the contract or not, and the contract can’t be changed so that the warranties don’t apply.

What is the role of implied warranties?

The new implied warranties bring the building industry into line with other industries in terms of consumer protection.

The new Building Act 2004 is about ensuring consumers are protected when they engage in a building project. Though much of the Act focuses on ensuring quality inputs into the building process, it is impossible to completely eliminate risk. The introduction of implied warranties for residential building contracts ensures homeowners are better protected in the event of building failure.

It has been noted before that New Zealanders know less about buying a house than they do about buying a second hand car, and that the used car market has better regulation in terms of safety and quality performance, ongoing warranty and consumer protection.

Though some trade organisations, such as the Registered Master Builders Federation and Certified Builders, offer guarantees of workmanship, it is not compulsory. In addition, the protections consumers automatically receive when they purchase other goods and services do not always apply to building work. The Consumer Guarantees Act does not apply to goods supplied for building work, the Fair Trading Act deals with misleading conduct only, and the Construction Contracts Act is about payment arrangements. 

Work in developing the new Building Act revealed a need to clarify the responsibilities and expectations between homeowners and building practitioners, and improve contract documentation. The introduction of mandatory warranties was considered to be an effective means of achieving this.

The warranties specify some bottom line standard terms about workmanship that apply to all domestic building and construction contracts whether written in or not.   These are basic protections that consumers are entitled to expect. The implied warranties make it clear to all parties at the beginning what the protections are. 

For the industry, the introduction of implied warranties could be viewed as an increase in potential liability. Good building practitioners should not feel threatened by these warranties. They should welcome the clarity they provide of their responsibilities to their customers.
 
The introduction of implied warranties does not resolve the issue of ‘fly by nighters’ and phoenix companies. This is an issue that is not just relevant to the building industry and the Ministry of Economic Development is currently working on addressing it through changes to other legislation. That said, the Department of Building and Housing has a watching brief to see how the warranties are applied, if people are working through shelf companies to avoid these basic consumer rights, and whether measures specific to the building industry are required to address this.

For more information see Implied warranties in building contracts.