Those who get new homes built or do major renovations will soon be required to buy warranties on the building work.
Building and Construction Minister Chris Penk is changing who is liable for defective building work under an overhaul of the Building Act.
For decades, all parties involved in a build have been jointly liable for problems. If one can’t pay, whoever is still standing – usually the local council – picks up the tab.
Under the proposed change, those responsible pay their share only.
The challenge is that the new regime effectively shifts liability on to those in the building industry, whose pockets aren’t as deep as local councils’ (ie ratepayers’).
So, to avoid a builder being unable to compensate a home owner for playing their part in a defective build, the Government is going to require all new residential buildings three storeys or under, and renovations $100,000 and over, involving restricted building work and a building consent, to be covered by a minimum one-year defects and a 10-year structural warranty.
Currently only about 46% of new builds are covered by a home defects warranty, such as those offered by Master Builders, Certified Builders and Stamford Insurance.
Penk’s office said warranties usually cost between 0.3% and 0.6% of the total cost of a build.
“Home warranty schemes are already widely available across New Zealand, and the sector has assured me it can scale to meet new demand, allowing consumers to shop around to find coverage best suited to their build,” Penk said.
However, because the sector provides very limited cover for buildings four storeys or higher, warranties won’t be mandatory for these builds. This is the same as in Australia.
Penk said, “My officials will closely monitor the impact of proportionate liability on commercial and high-rise construction once the change comes into force to assess whether the market is effectively managing risk in this part of the system.”
Warranty providers will need to register with the Ministry of Business, Innovation and Employment (MBIE).
Providers will need to demonstrate they can meet actuarial and operational requirements and stand by their claims for a 10-year period, verified through an independent audit.
Unlike insurance companies, these providers won’t need to meet capital requirements set out by the Reserve Bank.
Because builders aren’t the only ones who could be culpable for a defective build, the Government is also going to require architects, engineers and other professionals to hold professional indemnity insurance.
This way, if they are liable for a problem, they can use their insurance cover to pay for the claim.
About 90% of designers and engineers in New Zealand already have professional indemnity insurance.
Again, the idea behind making professional indemnity insurance and building warranties compulsory is to ensure whoever is culpable for defective work can access the funds required to compensate the home owner.
Under the current “joint and several liability” regime, builders can shut up shop and pawn off the liability to someone involved in the build who has deeper pockets – ie the local council that consented the build.
For the new “proportionate liability” regime to work, home owners need to be confident that whoever is responsible for defective work can pay for it.
Professional indemnity insurance and home warranty changes will be progressed alongside other reforms through the Building Amendment Bill, which is expected to be introduced in early 2026.
Once the legislation is passed, likely in the third quarter of 2026, there will be a one-year implementation period before proportionate liability and the new requirements come into effect.
To further strengthen the system, the Government is increasing the penalties builders can be issued by the Building Practitioners Board for disciplinary matters.
The penalties haven’t changed since the scheme began in 2007.
Once the law is updated, the maximum fine a Licensed Building Practitioner can face will double to $20,000 and the maximum time they can be suspended for will double to two years.
Penk said: “Together, these measures provide strong protections that underpin building system reforms, safeguard building owners, boost consent productivity, enforce accountability, and make building faster, easier and more affordable.”
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.