The contract document

It is extremely important to have a written and signed contract – consider our checklist of what to include in the contract.

Importance of the contract

You should have a written contract with your builder. The builder, as main contractor, will organise the contracts with the subcontractors. However, if you are managing the project yourself under a labour-only contract with the builder, you will have to arrange contracts with each of the contractors, for example, the plasterers, painters and plumbers.

Contracts don’t have to be written to be legally binding but when all the terms and conditions are clearly spelt out and recorded in writing, it means there is less room for argument about who is responsible when something goes wrong.

Some people rely on the written quote, or a list of tasks given to them by the builder, as the contract. This is fine provided everything goes according to plan. But if something goes wrong, these bits of paper are unlikely to provide enough detail about the rights and responsibilities of the builder and yourself.

Form of contract

Many building companies and individual builders will have their own form of contract. There is also a New Zealand Standard form of contract (NZS 3902:2004 House Building Contract) that has been independently developed by Standards New Zealand and is available for purchase.

Even if you decide to use another form of contract, it might be useful to compare it to the NZ Standard to make sure the one you are being offered is fair and reasonable.

There are also a number of other standard contracts available from these organisations:

Certified Builders Association of NZ, (CBANZ).
Registered Master Builders Federation, (RMBF).
NZ Institute of Architects, (NZIA).

The CBZNZ and RMBF contracts are only available to members, but you can buy a copy of the NZIA contract. It is likely that your builder is familiar with them or has a copy. Don’t accept them at face value, you may want to negotiate changes to some of the clauses.

Implied warranties in building contracts

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.

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 are the warranties?

The building work will be done properly, competently, and in accordance with the plans and specifications.
All the materials used will be suitable and, unless otherwise stated in the contract, new.
The building work will be consistent with the Building Act and the Building Code.
The building work will be carried out with reasonable care and skill and completed within the time specified, or a reasonable time if no time is stated.
The household unit will be suitable for occupation at the end of the work.
If the contract states any particular outcome and the owner relies on the skill and judgement of the contractor to achieve it, the building work and the materials will be fit for purpose and be of a nature and quality suitable to achieve that result.

These warranties apply to all contracts for building work involving household units, whether written or verbal. They also apply to the sale of one or more household units by a residential property developer. It is not possible to contract out of them.

For example, under the Building Act, if the builder substitutes lower quality wallboard than is stipulated in the specifications without your agreement and this causes damage to the property, this is a breach of contract. The implied warranty states that work will be done in accordance with the plans and specifications.

Putting it right

If you believe any of the warranties have been breached, you can take the tradesperson to court for breach of contract. You can do this whether you are the person who employed the tradesperson, own the property, or in some circumstances if you are a subsequent owner of the property (depending on the time involved).

Proceedings for a breach of the implied warranties may be taken in the District Court or High Court depending on how much money is involved. Clear evidence will be needed to support the claim. To be successful in Court, you will have to show you have suffered loss or damage as a result of the actions of the tradesperson. The Court can award the consumer compensation for the breach.

Hold on to your paperwork

It is a good idea to keep copies of your contract for your own reference and for subsequent purchasers, so that if something goes wrong later on there is a paper trail to work out who is responsible. This is particularly useful for the person who buys your house and doesn’t know who to contact when the house develops problems at a later date due to poor workmanship. The warranties may still be able to be invoked, depending on how much time has passed.

Alterations to contracts

To make changes to a contract, you can rule out by hand what you want to delete and write in the changes. You and the builder will both have to initial the changes. Be careful of what effect the changes might have on other clauses. Clauses in a contract are often interrelated. Finally, make sure that changing the contract won’t affect any guarantees. If you have any doubts seek legal advice.

Contract checklist

Whatever form of contract is used, make sure it includes:

The names and addresses of you and the builder.
What the job entails and what the builder is required to do to comply with the contract - the easiest way to do this is to attach the plans and specifications to the contract.
Details of the builder’s insurance (contract works and public liability).
Who pays for the building consent and other council fees.
Start and finish dates.
Who hires the subcontractors and ensures they have appropriate insurance cover.
Who supervises the subcontractors.
Whether the work is covered by a guarantee, and details of the guarantee.
How variations will be handled.
The retention/withholding sum – a percentage, usually 10%, is kept back until all work is completed, but note that a guarantee agreement may require full payment to be made on completion of work.
Penalties for delay by the builder (which you negotiate).
The price.
The payment schedule – what you pay and when.
A maintenance clause which requires the builder to fix defects that arise within a specified time after the house is completed.
A requirement that the builder will fix any damage caused by themselves or their subcontractors.
A clause that defines practical completion
A requirement that someone remains supervising the site until practical completion.
A requirement that the builder leaves the site neat and tidy.
Procedures for disputes.
A list of all the documents that accompany the contract, such as the plans and specifications, the guarantee and the insurance cover.

The contract should also state your obligations to:

Allow the builder access to the site.
Provide working drawings that meet Building Code standards.
Provide secure storage for the builder’s equipment and materials (this one is negotiable).
Make progress payments when due.

Get a lawyer to check the contract to make sure everything is covered. Don’t forget that both you and the builder must sign it, date it and initial each page.