The Government has announced proposed changes to the Building Act 2004 to reduce delays, improve consistency, and lower costs across the sector.

These changes include:

• reforming the liability model;

• implementing a yet-to-be-determined scheme to protect homeowners (for example, insurance or home warranties); and

• enabling voluntary consolidation of Building Consent Authorities (BCAs) to reduce duplication and inconsistency.

The liability model reform would involve replacing the current ‘joint and several liability’ system with ‘proportionate liability’. Under joint and several liability, each party is responsible for the whole of the loss they have caused regardless of how many other parties are also liable or how small a part they may have played. While apportionment between jointly and severally liable defendants is possible, often parties with deep pockets – like BCAs – end up shouldering more than their fair share when they are the last party standing or solvent enough to make a meaningful contribution. This is avoided in a proportionate liability system, because the court apportions a share of the total loss to each liable party based on fault.

The Building and Construction Minister, Chris Penk, has acknowledged that the move to a proportionate liability model is intended to “ease the cost burden on ratepayers for defective building work”, “put the responsibility where it belongs” and, as a consequence, reduce risk aversion in the consenting and code compliance certificate processes that the Government says leads to delays and extra cost.

Our view: A welcome step

The problem of BCAs shouldering more than their fair share of the cost of remediating defective building work is real and, with the courts increasingly holding BCAs to an apparently higher standard of care, this (justifiably) leads to risk-aversion in the consenting and code compliance certificate processes.

A change to liability settings is a great idea in theory – and would bring New Zealand into line with Australia which has had a proportionate liability system since the early 2000s – but the success of the proposed reform will depend on the development of robust alternative protections for building owners who otherwise may be left without an effective remedy. For example, when apportioning liability between jointly and severally liable defendants, the Courts tend to allocate 10 to 20 percent of the loss to BCAs with the balance allocated to the parties more directly involved in the defective building work (designers, developers, builders and specialist trades). If the same approach is taken to apportioning liability to BCAs, then owners would shoulder between 80 and 90 percent of the loss themselves unless they can recover it from those other liable parties (and, again, it is the absence or inability of these parties to meaningfully contribute to a settlement or judgment sum which leaves BCAs shouldering more than their share of the loss in a joint and several liability system). The Government has acknowledged this risk and is currently exploring options such as mandatory home warranties and professional indemnity insurance to address it. However, these protections are critically important – if they are able to be achieved – and must be developed in tandem with the liability reform to ensure that owners are not left with an undue risk of less than full recovery.

Last year, Matthew Ferrier and Oscar Read from our Construction Disputes team explored the need for, and pathway to, reform in their article, Reforming council liability in defective building cases ([2024] NZLJ 315), published in the New Zealand Law Journal. In that article, they drew on the Australian experience to show that the success of moving to a proportionate liability model is highly dependent on protective policies that ensure homeowners are not left without recourse. While there is a role for the private sector in delivering those protections, we anticipate that government backing will remain essential. We will be watching closely for further announcements or consultation on what form those protections might take.

This article was co-authored by Oscar Read, a Solicitor from our Construction and Infrastructure team.