David Gilbert: Building legislation offers little extra protection

COMMENT

With the new Building Bill only four weeks old, the Government has issued a discussion document, indicating that it is already planning amendments to the bill's protection of consumers.

After the leaky homes crisis, it is natural that the Government would want to ensure that disputes over problem homes are solved as smoothly and as fairly as possible.

However, the proposals and issues raised by the discussion document may do little more to protect consumers and quite a lot to complicate the issue for developers.

The Government has invited comments on the discussion document, to be received by October 15.

There are three key suggestions raised by the document that warrant attention and even a submission:

* That developers obtain code compliance certificates for homes prior to settlement of the sale;

* That the statutory home warranties introduced by the Building Bill apply to developers as well as to licensed building practitioners; and

* That developers would require licensed liable persons.

Firstly, the document suggests that developers obtain code compliance certificates before the settlement of a sale.

It is acknowledged that such a requirement would need to accommodate situations where both the developer and the buyer wished to complete the sale prior to completion.

The proposal that the developer obtain a code compliance certificate is not in itself unreasonable - it is the implementation that will matter, particularly the extent of the definition of a household unit and whether developers will retain the ability to obtain interim code compliance certificates for stage completion of a building comprising multiple household units.

The extension of warranties to developers also poses problems.

The Building Bill introduces draft statutory implied warranties, to be implied into all building contracts for household units.

Mainly, these cover the standard of goods supplied, the services performed and the fitness of those goods and services.

These warranties are intended to apply for a period of 10 years and are passed on to subsequent homeowners in that period.

The bill, as tabled, does not allow homeowners to pursue developers to remedy defects in their homes. Homeowners would still be forced to pursue a range of builders and sub-contractors and the Government wants to change this.

In the document, the Government suggests that, after amendments, developers would also be responsible for a home's fitness and standard of construction, through the 10-year statutory warranty period.

While it is fair to expect a developer to sell a quality home, the Government is also aware that simply applying such a warranty will not increase the ability or willingness of builders or developers to fix any defects and its proposals in this area are concerning.

Much of the discussion document examines overseas remedies, such as a requirement in some Australian states that builders carry builders' warranty insurance or home warranty insurance, which is widely used in Britain.

However, insurers are reluctant to provide such products in New Zealand until the Building Act, Building Code and their regulations are upgraded.

The Government expects that as the provisions in the Building Bill result in improvements to building work, insurers will become more willing to supply home warranty insurance at an affordable price.

However, in the current market environment, the Government has proposed another mechanism to improve the perceived ability and willingness of developers to fix defective homes through the licensing of liable persons.

In another move to make it easier for homeowners to identify those responsible for home defects, the Government has suggested the creation of a liable person to ensure that companies offering statutory warranties can meet their financial commitments under the warranty.

The document also suggests that the board of any company offering home warranties must contain a licensed building practitioner, allowing the option of such directors to be struck off if they don't fix defects.

This seems to be a heavy-handed approach, especially as most of the recent leaky home problems have been caused by the failure of a building product or its faulty installation, rather than deficiencies in a developer's project management.

Licensing developers in this way would not increase their ability to fix the problem. The only practical way that a developer could assure the ministry responsible of its financial ability to fix any problems would be to have home warranty insurance which is a difficult option in the current legislative environment.

* David Gilbert is a senior associate of Bell Gully's Construction and Projects Group