Building a house can be an incredibly exciting time, however, it can also lead to disagreements or disputes.¹
The relationship between you and your builder/contractors is defined by the contract that you have both agreed to. Disputes may arise when the parties have different understandings about the terms of the contract, or when a part of the contract is not followed. Common causes of disputes are:
- Different expectations between yourself and the builder about the quality of the materials and workmanship;
- Changes to the build after obtaining consent, accepting the initial quote, or signing the contract; or
- The build being late.
What protections do I have during the construction process?
There are several legal protections available to customers during the construction process. The primary source of protection is your contract, as any breach of the contract provides grounds for legal action. Also, various statutes exist that supplement the contract’s protections.
Building Act 2004
Under the Building Act, all residential building work is covered by implied warranties. These warranties apply automatically to building contracts of any cost (both written and oral), and cannot be excluded. They last for 10 years from the act that caused the loss / damage, and can be relied upon by future buyers. As provided by the Building Act, the implied warranties are:
- All building work will be done properly, competently and according to the plans and specifications in your approved consent;
- 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 home will be suitable for occupation at the end of the work; and
- If the contract states any particular outcome and the homeowner 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.²
Some contractors will augment the standards of the implied warranties. For example, builders associated with Master Build Services offer a ‘Master Build Guarantee’ that provides enhanced coverage.
The Building Act also provides a 12-month defect repair period. If any defects emerge in the building work within 12 months of the work’s completion, the builder has an obligation to fix them.
Consumer Guarantees Act 1993
The Consumer Guarantees Act applies to services in the building industry that are not covered by the Building Act’s implied warranties. It provides that:
- Tradespeople work with reasonable skill and competence;
- Tradespeople need to fix work that does not meet this standard at their own expense; and
- The building owner can get another tradesperson to fix the work at the expense of the original tradesperson, where the original tradesperson cannot or will not fix the work within a reasonable timeframe.³
Fair Trading Act 1986
Although it is not often applicable, the Fair Trading Act may be relevant where a contractor has been misleading about their products or services.
Is there a specific form of dispute resolution I must follow?
Some building contracts contain dispute resolution clauses. The process provided in that clause must be followed if any dispute arises between the parties. Where no specific clause exists, the Construction Contracts Act 2002 implies a default dispute resolution process into the contract. This process requires:
1. A party considering a matter to be in dispute must serve notice on the other party advising them of the nature of the dispute.
2. The parties must use their best efforts to resolve any dispute through good faith negotiations.
3. If the dispute is not resolved within 10 working days, either party may serve written notice on the other party referring the dispute to mediation.
4. The parties must agree to a mediator. Where no agreement is reached within 5 working days, a mediator must be appointed by the President of the Arbitrators and Mediators Institute of New Zealand.
5. Each party must pay its own costs associated with the mediation.
6. Both parties must continue to perform their obligations under the contract as far as is practicable during the dispute resolution process.
The decision to refer the dispute to mediation under the default rules is optional, and parties are welcome to explore alternative dispute resolution methods.
What other dispute resolution options are available?
Disputes can be resolved in various ways, with different processes better suited to different disputes. Before pursuing any option, it can be useful to seek advice to better understand the dispute, particularly where a lot of money is at stake. This advice can be both technical (to understand the issue itself) and legal (to understand potential resolution options, and their costs).
Self-resolution should always be attempted before escalating any dispute. It saves time and money, and preserves the relationship between the parties by resolving the dispute at an early stage. When attempting self-resolution, it is important to understand the specific facts that are at issue, to communicate with the other party in a constructive manner, and to record any agreement that is reached in writing.
Mediation is where both parties attempt to reach an agreement with the help of a third-party mediator. It is inexpensive compared with other options, and shares many benefits with self-resolution of a dispute. However, it does not guarantee any resolution, and can only work where the parties are willing to cooperate. Legal advice may be useful prior to mediation. For more information on mediation, please see our article here.
Adjudication is a special process available to all building contracts under the Construction Contracts Act. An adjudicator will be selected by the parties who will make a binding decision (enforceable in court) on the merits of the case. Adjudication is a fast-tracked process, which resolves disputes quickly so that construction work can continue. In most cases, legal advice should be sought before pursuing adjudication.
Arbitration is essentially a private court process, where an arbitrator issues a binding decision (enforceable in court) on the party’s dispute. It is quicker and cheaper than a court proceeding, and it gives the parties some control over the process of the arbitration. For more information on arbitration, please see our article here.
If the amount at dispute is no more than $15,000 (or $20,000 if both parties agree) it can be heard by the Disputes Tribunal. The Tribunal is overseen by a trained referee who adjudicates the dispute and issues binding decisions (enforceable in court). It is appropriate for minor, non-technical disputes. Neither party can be represented by a lawyer in this forum, however, depending on your case it may be worthwhile to receive legal advice before your hearing.
Taking a dispute to the District or High Court (the court will depend on the value of the dispute) should be considered a last resort. Trials are generally expensive and time-consuming. However, they can provide a well reasoned and legally enforceable decision on a dispute. Legal advice is necessary before pursuing a claim with the courts.
¹ This article primarily deals with disputes with your builder, however, disputes with other participants in the building process can also occur. If you have a dispute with an architect, local council or other party, please make an enquiry for more information on how to resolve that dispute.
² Implied warranties and defects. (2017, May 17). Building Performance, Retrieved from https://www.building.govt.nz/projects-and-consents/why-contracts-are-valuable/implied-warranties-and-defects/
³ Activate your consumer rights. (2016, March 21). Building Performance, Retrieved from https://www.building.govt.nz/resolving-problems/resolution-options/activate-your-consumer-rights/