Residential Developers and Building Amendment Bill (No.4)

Building Amendment Bill (No.4) had its first reading in parliament on 1 May 2012. The bill, if passed, will significantly enhance the consumer protection measures for building work. This article focuses on the consumer protection insofar as residential developers selling off the plan are concerned.

Buyers currently have a set of implied warranties that a developer of a residential property gives under the Building Act 2004. These include warranties that the building work will be carried out in a proper and competent manner, in accordance with the plans and specifications and that the work will be completed within a reasonable time, if no time is stated.

Under the new proposals, in addition to damages, buyers will have a statutory right to cancel if the breach of warranty cannot be remedied or if it is a substantial breach. A substantial breach occurs if:

  • A reasonable client fully acquainted with the nature and extent of the breach would not have entered into the contract;
  • The building work is unfit for the purpose stated or is of such nature and quality that it cannot be expected to achieve the desired result stated in the contract; or
  • The building work is unsafe.

Consumers will still have the protection of the Fair Trading Act 1986, the Consumer Guarantees Act 1993 (or whatever these statutes become given consumer law generally is also under review) and at general law e.g. negligence.

In addition they will have whatever rights properly derive from the contract, including the rights to cancel contained in the Contractual Remedies Act 1979. This new right to cancel will be in addition and it is not something a developer will be able to contract out of.

Another example of the current policy to enhance consumer protection in the development sector and another right of cancellation that a developer’s funder is going to need to take a view on.

This Bill has been referred to the Local Government and Environment Committee. Submissions are due on 11 June 2012 – if anyone wants to make a submission then please e-mail. A report is due out from that committee on 1 September 2012.

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