A proposed law would end joint liability, make home warranties compulsory and require designers to carry insurance

When building work goes wrong, a homeowner can currently pursue any one of the parties responsible for the full cost of putting it right. That’s joint and several liability. The Government’s explanatory note says that’s put a disproportionate burden on councils and other solvent parties, even when their part in a defect was minor.

The Building Amendment Bill would change that. It’s before Parliament’s Transport and Infrastructure Committee, which is due to report back by the end of December, so the detail could still shift.

As introduced, it moves building claims to proportionate liability, where each party pays only its own share of the loss. That would apply when more than one party contributes to defective building work and a claim goes through the courts, adjudication or arbitration.

The gap, and how the Bill fills it

The catch for homeowners is plain. If the firm responsible for most of a defect has gone out of business, its share may not be recoverable from anyone else. The explanatory note acknowledges that claimants “can no longer seek full recovery if a liable party is absent or insolvent”.

To cover that gap, the Bill would make home warranties compulsory for new houses and small-to-medium apartment buildings, and for renovations worth $100,000 or more including GST, where the work includes restricted building work and needs a building consent. A warranty would have to cover defective work for at least a year and structural defects for 10 years, and the Ministry of Business, Innovation and Employment would register the providers.

Defined design professionals, including architects, designers, engineers and surveyors who contribute advice or other services to the design or compliance of building work, would need professional indemnity insurance for qualifying projects worth $100,000 or more, including GST. New offences would apply for failing to meet either requirement.

For residential buildings up to 10 metres high, contracts could no longer exclude or limit liability for defective work. Non-residential buildings and anything taller keep their current contracting practices.

Proportionate liability would apply to work consented from a year after the Bill becomes law, or to work that does not require consent and starts from that date. A project being planned now could fall either side of that line.

The Bill also includes a safety valve. If warranties or insurance become unavailable or unaffordable, for example because insurers pull out of the market, the requirements could be suspended for up to two years at a time.

Questions worth asking now

When the bill for a defect is split between the parties, who you hire matters more. These are worth asking before you sign.

· Can you offer a home warranty, and who stands behind it?

· Does the designer or engineer on this job hold professional indemnity insurance?

· Which parts of the work are restricted building work, and which licensed building practitioner is responsible for them?

· Who else will work on the project, and are they licensed or registered for what they’ll do?

A professional with a proven track record and the paperwork to demonstrate compliance is a sensible choice under today’s rules. Under the proposed changes, checking those credentials could become even more important.