Are there gaps in the new building liabilty system?

Monday, 24 November 2025

Homeowners will have to buy warranties for new builds of up to three storeys and for renovation work of $100,000 or more.

Builders won’t need professional indemnity insurance under the Government’s new building liability system, but homeowners will have to take out warranties on new builds and major renovation work.

In August, the Government announced the biggest reforms to the building consent system since the Building Act came into force in 2004.

That included scrapping the joint and several liability system for dealing with building defects and replacing it with a proportionate liability model.

Building and Construction Minister Chris Penk said the existing system left councils hesitant to sign off on building projects because they risked being held fully liable for defects they did not cause.

“Under proportionate liability, each party will only be accountable for the work they undertook. This will speed up consenting and ease the burden on ratepayers unfairly footing the bill for damages.”

Building Minister Chris Penk has announced the measures that will make up the new proportionate liability system.

Now, Penk has announced the measures that will be introduced to support the new system and ensure homeowners remain protected.

There will be a requirement for building design professionals, such as architects and engineers, but not builders to hold professional indemnity insurance.

It will be mandatory for homeowners to buy warranties for new builds of up to three storeys and for renovation work of $100,000 or more. They will provide cover for a one-year defect period and a 10-year structural warranty.

Penalties for defective work by Licensed Building Practitioners (LBPs) will be strengthened, with the maximum fine increased to $20,000 from $10,000 and the maximum suspension period to 24 months from 12.

Penk said the measures provided strong protections that underpinned the building system reforms, safeguarded homeowners, and enforced accountability.

Nearly 3000 buildings are set to be removed from New Zealand’s earthquake prone register under a major government overhaul. Building and Construction Minister Chris Pink says the changes will focus on high-risk structures and ease costs for owners.

But much of the new system will be reliant on the home warranty schemes.

The minister said such schemes meant that for about half a percent of the total build cost homeowners were protected against defects after the build was finished.

No mandatory indemnity insurance for builders could be a problem, the Building Industry Federation’s Julien Leys says.

“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.”

There are currently three home warranty providers in the New Zealand market, with Certified Builders and Master Builders each offering a guarantee and a building warranty insurance through Stamfords.

Building Industry Federation chief executive Julien Leys said the system would work for most residential builds, but not having mandatory indemnity insurance for builders could be a problem.

“It does leave holes outside that mandatory home warranty envelope, and it is where there is a weakness.”

If a builder went into insolvency it would be hard to address any issues or uncompleted work so there was a market risk there, he said.

“There could also be problems if the home warranty system comes under stress due to a deluge of claims. Will the providers be able to manage that sufficiently?

“The Government says providers can scale up, but it also requires current insurers in the market to scale up quite quickly so they are making a number of assumptions.”

Leys was not sure New Zealand’s insurance market could do so in the timeframe put forward, and said it was possible there would be insurer retrenchment as happened in Australia.

Anyone offering a home warranty will have to be registered with MBIE.

“There will also be a lot of pressure on MBIE who will be monitoring the warranty providers. Do they have capacity to do that closely, and how rigorous will they be on the non-compliance?

“There’s a bit of a question mark on the enforcement side, particularly when it comes to those small, fly-by-night type builders. It’s a big market, and MBIE is one department.”

The proposed measures were okay, but there were gaps and risks, and it was important industry was listened to, and the legislative process was not pushed through too quickly, he said.

Minister Penk told The Post that it was impossible to design a system that covered every risk without significantly increasing the costs involved.

There was no appetite in the insurance market for providing professional indemnity insurance to builders, and that practical reality had to be taken into account, he said.

“But we think the home warranties will provide protection for homeowners, and that we can address any of those historical gaps via the requirement for anyone offering a warranty to be registered with MBIE.

“Those registered providers will need to give examples of cover, and what is available to address various issues. Because it is not only insolvency that comes up, but also retirement or death.”

It will be important to ensure that homeowners and builders understand how the protections work, Certified Builders’ Malcolm Fleming says.

What happened around those situations would be covered in detail in the regulations that were currently being developed, he said.

“MBIE will have a high level role overseeing those providing warranties, but won’t be administering the warranties themself so they should have capacity.

“We understand there is another insurer interested in operating in the warranty space, but watching to see what happens. In a best case scenario, a larger guarantee market will develop and give people more choice.”

Certified Builders chief executive Malcolm Fleming said the industry had been advocating for reform for many years, and the new system put the responsibility for poor workmanship squarely on the builder.

“Guarantees work well because they are attached to the build project, not the builder. If a builder goes into liquidation or won’t complete the work, another builder can step in.

“This means homeowners have options to get the work completed, to a high standard, without being forced into a sometimes adversarial process of financial redress.”

But introducing mandatory home warranties also put the onus on homeowners, he said.

“At the moment, more often than not they don’t have a warranty. While 100% of our members offer a warranty, about 42% of customers take up that option.

“That’s why they have to be mandatory. It is a small cost, but it will give another 60% of homeowners a pathway to redress that they don’t have at the moment.”

Another thing to remember was that it was not always the builder that was the problem, Fleming said.

“It can be the design - which is where mandatory professional indemnity insurance for building design professionals comes in.”

The industry was ready to go, as the systems, guarantees, and expertise already existed, he said.

“Now, it’s about making sure builders and homeowners understand how these protections work, and which options offer the strongest long-term security.”

Legislation around the new measures will be introduced to Parliament early next year, and once it has passed, there will be a one-year implementation period before the new system takes effect.