Building reform – key changes affecting consumers and the building industry
Earlier this year, the Government announced significant reforms to New Zealand’s building sector to both replace the joint and several liability regime with proportionate liability and consider options for improving consumer protection. More details on these proposals have now been released.
From joint and several to proportionate liability
The current joint and several liability regime means that all defendants are jointly liable for the entire cost of building repairs. Where one defendant is insolvent, the others will need to cover that defendant’s share. This means that councils and other parties could be held fully liable for building defects, even when their involvement was minimal.
Moving to proportionate liability means each party will now only be responsible for the work they undertook. While this reduces unfair burdens on councils, it introduces new risks for homeowners if a liable party becomes insolvent.
The move to proportionate liability will be progressed through a Building Amendment Bill. This is expected to be introduced to Parliament in early 2026. Once the legislation is passed, there will be a one-year implementation period before proportionate liability takes effect.
Mandatory professional indemnity insurance
The Building Amendment Bill will also require professionals who contribute to building design, by providing architecture, design, engineering and certain building surveying services, to hold professional indemnity insurance. This insurance will ensure that there are funds available to pay any damages that these professionals become liable for, even if they become insolvent. Regulations will clarify the professions or roles to which the professional indemnity requirement applies, following the passage of the Bill.
There will be little practical change from this requirement: already more than 90 per cent of designers and engineers in New Zealand hold professional indemnity insurance voluntarily, usually as a condition of membership of their professional organization or to meet contractual requirements.
The requirement for professional indemnity insurance will not apply to builders.
Residential building warranties
All new residential buildings of three storeys or less, and all home renovations costing $100,000 or more and involving restricted building work and a building consent, will require a home warranty. The warranty must provide a minimum one-year defect period and a ten-year structural warranty. These requirements are in line with the already existing Master Build Guarantee, New Zealand Certified Builders’ Halo Residential Guarantee, and Stamford’s Building Warranty Insurance.
The cost of the warranty is usually a one-off payment of between $1,200 and $2,750 for the entire ten-year term. Currently only around 46 per cent of new builds are covered by a warranty.
All home warranty providers will be required to register with MBIE. Providers will need to demonstrate that they can meet actuarial and operational requirements and stand by their claims for a 10-year period, verified through an independent audit.
Licensed Building Practitioner scheme
At the same time, the Licensed Building Practitioner (LBP) scheme is being strengthened. The LBP scheme is the main way of ensuring that someone undertaking restricted residential building work is competent, skilled, and accountable. Trades covered by the scheme include builders, carpenters, roofers, designers, plasterers and bricklayers.
The maximum penalties the Building Practitioners Board can impose for disciplinary matters have not changed since the LBP scheme began in 2007. The Government has announced that these penalties will be updated:
- The maximum fine that can be issued to an LBP for a disciplinary offence will increase from $10,000 to $20,000.
- The maximum suspension period that can be issued to an LBP for a disciplinary offence will increase from 12 months to 24 months.
These changes will be progressed through a separate Bill, which is also expected to be introduced in early 2026. The new penalties are expected to be in force before the end of next year.
What’s next
These changes are likely to come into force next year. Building practitioners who are not already a member of Master Builders or New Zealand Certified Builders should consider how they will provide the required warranty, and building professionals who do not already have professional indemnity insurance should prepare now for the new requirements.
Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.
