Last year the Government announced some significant changes for New Zealand’s building industry. These changes are now a step closer, as the legislation to implement these changes, the Building Amendment Bill, has been introduced to Parliament.
The Bill:
- scraps the current joint and several liability regime, and replaces it with proportionate liability;
- requires mandatory professional indemnity insurance for design professionals;
- requires mandatory residential home warranties for residential building work with a total value of $100,000 or more;
- allows councils voluntarily to consolidate their Building Consent Authorities (BCAs) functions with each other; and
- provides for a fast-track consenting process for residential buildings with solar electricity generation or sustainable attributes.
The Bill will be referred to select committee this week, allowing the public to have their say on these proposals.
Joint and several v proportionate liability
The current and longstanding joint and several liability regime means that all defendants who have found to erred in their work (usually those who have had a role in the design and/or construction of a property and the consenting authority) are jointly liable for the entire cost of repairs incurred by a plaintiff (usually the building owner). Where one defendant is insolvent, the others will need to cover that defendant’s share.
The effects of the rule have been particularly pronounced, and a source of concern, due to the proliferation of ‘leaky building’ claims in the early 2000s. Defendants who are likely to be insured (architects, engineers, and project managers) and local councils are often left as the ‘last ones standing’, despite often having quite varying levels of responsibility for the plaintiff’s loss.
In contrast, proportionate liability means that each defendant would only be held responsible for the work they carried out or the decisions they made or approved. The rule means that a plaintiff can only recover a portion of its loss from each defendant, and so would have to join every potential defendant to recover the total loss. If a defendant is unavailable or insolvent, the plaintiff will bear their portion of the loss, unless they can look to other forms of recovery, such as insurance.
If the Bill is passed, proportionate liability will come into force one year later. This means that for building project work for which a building consent is required, any claims relating to that work will be subject to proportionate liability if the building consent is issued more than one year after the amendments are passed. For building project work that is exempt from requiring a building consent, proportionate liability will apply to building project work that is started on or after the first anniversary of the amendments being passed.
Mandatory professional indemnity insurance and home warranties
The change to proportionate liability can create significant risks to property owners in the event of a defendant’s (or multiple defendants’) insolvency.
To manage this risk, the Bill requires mandatory residential home warranties to be obtained for residential building work with a total value of $100,000 or more, if the work includes restricted building work and requires a building consent.
The warranty must provide minimum coverage of at least one year for building work that is defective and ten years for structural defects. The Ministry of Business, Innovation, and Employment (MBIE) will establish a registration regime to register home warranty contract providers.
There will also be mandatory professional indemnity insurance required for design professionals (such as architects, designers, engineers, and surveyors) who contribute, through advice or other services, to the design or certification of compliance of building work. Many design professionals already have comprehensive professional indemnity insurance, but this would ensure universal coverage.
The Bill also includes a power temporarily to lift the home warranty and professional indemnity insurance requirements, in circumstances where these products are unavailable or unaffordable (for example, due to major market disruption or insurer withdrawal).
Consolidation of Building Consent Authorities
The Bill simplifies the legislative framework to enable greater flexibility in how Building Consent Authorities (BCAs) function. The changes will enable voluntary consolidation and collaboration across the BCA system, without requiring BCAs to change how they currently operate.
Fast track for residential buildings with solar electricity generation or sustainable attributes
The Bill aims to increase voluntary uptake of solar electricity generation and sustainable residential buildings by providing a faster building consenting process. It provides for a fast-track building consent pathway for residential buildings of up to 3 storeys that meet specified performance criteria for solar electricity generation and sustainability. Building consent authorities must process these applications within 10 working days, compared with the existing standard of 20 working days.
Sustainable residential buildings include buildings with one or more of the following attributes: energy efficiency, low embodied carbon, water efficiency, and climate resilience.
The next steps
The Bill will be referred to select committee, and everyone will have the opportunity to comment. We will provide a further update when the select committee reports back to Parliament with any recommended changes.
If you have any questions about the new proportionate liability scheme, or about liability for building defects generally, please contact a member of our insurance litigation team.
