The contract document

A written contact protects your interests and sets out your rights and obligations.  It also gives your building contractor an incentive to build right first time.

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 if 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.

What should the contract include?

A written contract should include the following:

• the name and address of both you and your builder
• a full description of the work, including materials and products to be used
• who pays for the building consent and other council fees
• a statement that the building contractor is responsible for making sure that building work meets Building Code requirements
• dates when the work will start and be completed
• warranties detailing what is covered and for how long
• information about how any disputes will be resolved
• a clear payment schedule that lays out when and how much you will be charged (structure your payments so they are aligned to the cost of completing each stage of your project - avoid a large up-front payment).

Take time to read the contract – don’t sign it straight away. You may want to negotiate changes to some of the clauses.

Remember: A contract is only enforceable when both you and the contractor have signed and dated it. Remember to initial every page and keep a copy.

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.

Implied warranties in building contracts

All residential building work is covered by the warranties set out in the Building Act. Your building contractor may have written these warranties into the contract, or be offering an additional guarantee. Check the contractor’s warranty or guarantee against the implied warranties to ensure they at least match. Ask your contractor how their guarantee or warranty works.

What are the implied 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.

Disputes under $15,000 can be settled by the Disputes Tribunal. Disputes Tribunals are not like the formal courts. There are no lawyers or judges. A trained referee will hear the dispute and any ruling they make is binding and can be enforced by the courts. If the disputed amount is between $15,000 and $20,000 you can still go to the Disputes Tribunal if the other party agrees.

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 if 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.

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.