The residential building contract is an agreement between two or more parties to complete building work in exchange for some consideration. Such contracts can take a number of forms, they can be written or verbal, but if the essential elements of a contract exist then they are enforceable by law. In most residential building contracts the terms and conditions of the arrangement are specifically stated. This provides certainty in respect of crucial details such as price, expected start and completion dates, and any dispute resolution process. However, some terms of the agreement are also implied despite not being written or expressly stated. All residential building work is covered by implied warranties. They apply for up to 10 years regardless of whether you have a written contract or what the contract terms are, and regardless of the cost of your building project. This is established by the Building Act 2004.
The implied warranties
The implied warranties are set out in section 362I of the Building Act. They require that:
All building work will be carried out in a proper and competent manner; and in accordance with the plans and specifications set out in the contract; and in accordance with the relevant building consent:
All the materials used will be suitable for the purpose for which they will be used; and unless otherwise stated in the contract, will be new:
The building work will be carried out in accordance with, and will comply with, all laws and legal requirements, including, without limitation, the Building Act 2004 and its regulations:
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 home will be suitable for occupation at the end of the work.
If the contract states the particular purpose for which the building work is required, or the result that the owner wishes the building work to achieve, so as to show that the owner relies on the skill and judgement of the other party to the contract, that the building work and any materials used in carrying out the building work will be reasonably fit for that purpose; or be of such a nature and quality that they might reasonably be expected to achieve that result.
It is important to note that these warranties also cover subcontractors. Therefore, as a builder it is important that you make all subcontractors aware of the required standards. For example, any amendments to the plans a subcontractor may be forced to make should be communicated to the builder. This means that party benefiting from the service can be informed so that the amendment can be agreed to. It is common for variations to occur during a construction project. It is important the owner’s instructions or agreement to variations proposed by the designer or building contractor are recorded to avoid differences in expectations and potential disputes.
Remedies for breach of implied warranty
Just like any issue between the builder and other party, most breaches of the above warranties can be resolved through negotiation and compromise. However, if the particular issue covered by the implied warranty cannot be resolved through mediation there are a number of remedies available.
If the breach can be remedied…
The party may require the building contractor to remedy the breach (including repairing or replacing defective materials supplied by the building contractor or the building contractor’s subcontractor).
If the building contractor, after being required to remedy the breach, refuses or neglects to do so, or does not succeed in doing so within a reasonable time, the party may have the breach remedied by someone else and recover from the building contractor all reasonable costs incurred in having the breach remedied; or cancel the contract.
The party may obtain from the building contractor damages for any loss or damage to the client resulting from the breach (other than loss or damage through reduction in the value of the product of the building work) that was reasonably foreseeable as liable to result from the breach.
If the breach cannot be remedied…
The party may obtain from the building contractor damages in compensation for any reduction in value of the product of the building work below the price paid or payable by the client for that work; or cancel the contract.
Therefore, the type of breach and its surrounding circumstances will dictate the remedy available, but as detailed above an awareness of the warranties is crucial as the remedies can often be substantial. None of the above limits or derogates from any remedy for defective building work expressly provided for in a residential building contract.
Remedy of defect notified within 1 year of completion
As well as the implied warranties, there is a 12 months defect repair period. If any defects are identified in the building work within 12 months of the completed build date, then the builder has an obligation to fix them. This also covers a person who on-sells the property within that 12 month period. The affected party may obtain from the building contractor or the on-seller damages for any loss or damage to the client resulting from the defect (other than loss or damage through reduction in value of the product of the building work) that was reasonably foreseeable as liable to result from the defect. If a building owner believes they have identified a defect, they should immediately talk to their building contractor about the issue and how to resolve it. If the defect is suspected or known to be a Building Code compliance issue, the next step should be to contact the relevant council that issued the building consent or code compliance certificate.
It is important to recognise that the builder and building owner relationship is governed by more than just the terms and conditions agreed and recorded in the written contract. There are expectations that derive from consumer protection laws that have been enshrined in the Building Act 2004, and are consequently implied into those arrangements. It is important that all the interested parties work together to achieve mutually beneficial outcomes. Compliance with these provisions is mandatory. If you require any assistance in relation to your rights and obligations, please contact GTODD LAW.