Statutory Warranties Under the Building Act
New Zealand’s Building Act 2004 implies statutory warranties into every contract for residential building work. These warranties cannot be excluded by contract and apply regardless of what the written contract says. Understanding what you’re legally required to warrant — and managing the implications of those warranties — is essential for residential contractors.
The implied warranties include: that the work will be carried out in a proper and competent manner; that all materials used will be suitable for the purpose; that the building will be fit for habitation when completed; that the building will be weathertight; and that the work will comply with the Building Code.
Defect Liability Periods
The implied warranties in the Building Act effectively create a defect liability period of 10 years for structural and weathertightness defects. This reflects the timeframes in which weathertightness problems — the “leaky building” issue that caused billions of dollars of damage in New Zealand from the 1990s to 2010s — can manifest. Contractors should be aware that liability for significant defects can extend well beyond the practical completion of a project.
The Weathertight Legacy
New Zealand’s leaky building crisis fundamentally changed the regulatory and contractual landscape for residential construction. The Weathertight Homes Resolution Services (now largely wound down) processed thousands of claims, and the legal liability attached to builders, designers, and councils for weathertightness failures created the regulatory environment that exists today. Understanding this history — and the continued importance of weathertight construction practice — is important context for any residential builder.
Managing Warranty Risk
The long tail of potential warranty claims makes insurance important for residential builders. A Licensed Building Practitioner indemnity insurance policy provides cover for warranty claims arising from work carried out under the LBP licence. Maintaining continuous insurance — even after completing a project — is important because claims can arise years after construction is complete. Contractors who allow their insurance to lapse may find themselves personally exposed to claims for defects discovered after their policy has ended.