The Government has announced that New Zealand will move to a proportionate liability system for building defects. It’s the most significant building legislation reform in decades. But like any framework, it only works if the missing chair is never left empty, and that means mandatory home warranties.
Proportionate liability, paired with mandatory home warranties, can not only protect homeowners but also lift industry standards by keeping poor operators out of the market.
From ‘last man standing’ to fair share
For decades, New Zealand has relied on joint and several liability, often called the “last man standing” rule. If one party can’t pay their share, whoever remains, often the local council, must cover the rest.
That has left councils and ratepayers carrying costs in the billions. It has also made councils reluctant to approve innovative or overseas products, knowing they could end up liable for the full cost if something goes wrong.
Proportionate liability flips that. Each party is responsible only for its share.
The problem for builders and home owners
Other professionals, i.e. engineers, architects and surveyors, carry professional indemnity insurance. Small and medium-sized building companies that deliver most of our residential homes cannot access this cover.
Some in the insurance sector, have argued that the Government will need to support the model with a government-backed alternative. However, this ignores one key point: through an industry-backed guarantee model, builders with a poor track record could be restricted from operating in the market.
An industry-backed guarantee and insurance model adds an extra layer of accountability. If a builder can’t get cover from an insurer or a trade association, that should be a red flag. Insurers and associations do their due diligence, if they won’t back a builder, homeowners probably shouldn’t either. In practice, this means poor-track-record operators could be filtered out before they ever reach the market, lifting standards across the board.
Under joint and several liability, if one party disappears, the others still standing must pick up the cost. In practice, that has made councils the default payer of last resort. Proportionate liability removes councils from that unfair position, but without warranties, the risk doesn’t disappear. It lands back on home owners.
The leaky homes crisis is a stark reminder. Repair costs were often over $300,000 per home, leaving thousands of homeowners unable to afford fixes and forced to live for years in damp, mould-ridden houses. The result was widespread respiratory illness, stress, and long-term health problems. The full cost of the leaky homes crisis was estimated to be up to $47 billion according to Peter Dyer’s Rottenomics.
Why mandatory warranties matter
Home warranties attach to the building work itself, not the builder. If the builder retires, closes, or goes into liquidation, the warranty remains in place, with another builder stepping in if needed.
At New Zealand Certified Builders Association (NZCB), our Halo Guarantee provides 10 years of cover. Of our 2300 residential SME builder members, fewer than ten live claims are active at any one time. Eight out of 10 disputes are resolved directly by the builder. If not, the association steps in to ensure the work is fixed by a qualified builder.
While 100% of Certified Builders can offer the guarantee, only 40% currently do. Across the wider industry, just 19% of builds are backed by a guarantee. Without making it mandatory, proportionate liability risks leaving too many home owners unprotected.
Lessons from Australia
Australia has nearly 30 years of experience with proportionate liability, showing us what works and what fails, examples the Government says it has closely studied.
New South Wales, Tasmania and Western Australia allow parties to contract out of proportionate liability. Developers and insurers often do exactly that, pushing risk back onto councils or home owners. In essence, shifting back to joint and several liability. If that opt-out model were to be adopted here, the Government would not be achieving its stated aims.
Queensland takes a stronger line. There, contracting out is not allowed. Responsibility sticks where it should. On top of that, every licensed builder must pay into the Home Warranty Insurance Scheme, administered by the Queensland Building and Construction Commission (QBCC). This scheme covers home owners if a builder goes bust, disappears, or leaves major defects. If the builder cannot pay their share, the QBCC steps in.
Building a stronger foundation
New Zealand does not need to reinvent the wheel. The government is exploring home warranties to support the move to proportionate liability. There are two types of home warranties available in the New Zealand market: insurance company-provided Building Warranty Insurance, and robust industry-backed 10-year Home Guarantees.
Industry-backed home guarantees are the more established of the two product types, such as the Halo Guarantee from NZCB, or the Master Build Guarantee. Both are proven, provide quick resolution for homeowners, and are cost-effective – for a typical $500,000 build, a Halo Guarantee costs around $1500 and secures a decade of protection.
Insurers and trade associations can collectively provide home warranties for most of the country’s residential builders.
Conclusion
Chris Penk is right, we don’t want the empty-chair problem. Proportionate liability is the concrete. Mandatory home warranties are the reinforcing steel. One without the other leaves the whole system shaky.
Mandatory home warranties protect home owners, they set the standard for who gets to operate in the market. If a builder can’t secure a guarantee through an insurer or trade association, that’s a clear warning sign. Mandatory guarantees help ensure the only builders at the table are those with the competence and reliability to stay there. That is how we avoid the empty chair and build a system home owners can truly trust.
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