what we learned from christchurch taking the risk out ... - PlaceMakers

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FEATURESMBIE – BUILDING & HOUSINGAvoiding leaky home perilsWeathertight work isn’t the place for risk takers – make sure you protect yourself and your work!You can protect yourself against liability to the current owners by inserting special clauses in your building contract, which clearly define your scope of workThe main risk you face in undertakingleaky home repairs is that, iffurther leaks develop later ondown the track, the homeowner willfile a claim against you. This fifth articlein the series based on the workshoprun by the Ministry of Business,Innovation and Employment – Buildingand Housing group looks at how youcan effectively manage this risk.Leaky home projects, where the ownerwants a cheap patch-up job done withouta building consent, are high risk andyou should stay well clear of them. Youwant to undertake low-risk projects, wherea reputable building surveyor has donea thorough investigation and prepareda report on the causes of the leaks;an architect has prepared plans andspecifications for the repair work; anda building consent has been obtained.Leaky home projects, where the owner wants a cheappatch-up job done without a building consent,are high risk and you should stay well clear of themAlthough the risk of future leaks ismuch lower in these projects, there willinevitably be occasions where evena consented repair job won’t turn out tobe watertight in the long run. It thereforemakes good sense to protect yourself.There are five main ways of doing that.LIMITATION PERIODSThe law imposes time limits withinwhich people must commence legalproceedings. For claims based onsomething that happened on or before31 December 2010, if a claimant isgoing to bring a claim based on analleged breach of contract, he hassix years from the date when he saysthe relevant term of the contract wasbreached.For claims based on negligence(ie carelessness, which caused someoneloss that was reasonably foreseeable),the claimant has six years from thedate on which the loss or defect becamereasonably discoverable.For claims based on acts or omissionsafter 31 December 2010, where theclaimant is seeking a payment of money,the limitation period is six years from the8www.mbie.govt.nz
elevant act or omission. But even afterthe six years have expired, if the claimantdiscovers (or should have discovered)that he has a claim, he has a furtherthree years from then to file his claim.However, where the claim relates tobuilding work, no claim can be broughtmore than ten years after the act oromission upon which the claim is based.BUILDING CONTRACTYou can protect yourself againstliability to the current owners byinserting special clauses in your buildingcontract, which clearly define yourscope of work. The special clausesshould provide that you are only hiredto do the work shown in the plans andspecifications, not to comment on them,nor to point out any potential defectseither in the repair work or in the rest of thehouse that is not affected by the repairs.INSURANCE POLICYHave an insurance policy thatcovers you against the risk andconsequences of your own mistakes.The first relevant insurance policyis known as a guarantee (or surety)that is offered, for example, by membersof the Certified Builders Associationand Registered Master BuildersFederation. These products protectthe owner rather than the builder andmost do not cover weathertightnesswork; a ‘WaterTight Warranty’ is,however, now available.The second relevant insurance policyis known as Errors & Omissions (E&O)cover or ‘professional indemnity’.WHAT’S THAT ALL ABOUT THEN?Unlike the surety products, this protectsthe builder rather than the owner. Itcovers you where you or your employees,contractors, subcontractors or suppliershave made a mistake, or put faultycomponents or materials into the building.LIMITED LIABILITY COMPANIESThe fourth way of protecting yourselfis by way of limited liability companiesand trusts. The whole idea of a limitedliability company is to protect yourpersonal assets from business risks.However, you cannot abuse the privilegeof limited liability; you cannot, forexample, keep liquidating your companyand replacing it with a new one foreach leaky home job you undertake.Secondly, a limited liability companyoffers no protection against claimsbrought against you personally, ifyou had ‘hands-on’ involvement inthe remediation work (ie.: you workedon-site or issued instructions abouthow to do the remedial work).AND TRUSTSThe necessary safeguard in such asituation (which is typical in smallowner-operator businesses) can beprovided by a trust. When you put anasset (such as your house) into trustand you become a trustee, you holdthat particular asset as a custodian orguardian for the people who really ownit, namely the beneficiaries. For thatreason, your own creditors can’t touchthat asset, unless they can prove yourtrust is a sham, or you put your assetsinto trust for the purpose of defeatingTEST YOUR KNOWLEDGE!your creditors. So your trust has tobe genuine and it obviously pays tocreate your trust when everything isrosy, rather than when the creditorsare breathing down your neck.YOUR WORKThe fifth and possibly the cheapestand most effective way to avoid futureliability for leaks, is to be thoroughin your work rather than economical.These are the types of projectswhere overkill is more appropriatethan economising. Hopefully, youwill be able to factor that degree ofthoroughness into your pricing.NOTE: This article is not intended to berelied upon as legal advice. Please notethat the views and opinions expressed inthis article are those of Madison Hardyand do not necessarily reflect the opinionor position of the Ministry of Business,Innovation and Employment – Buildingand Housing group.Next monthThe next article will discusshealth and safety in the contextof remediation projects.This article was provided byGeoff Hardy and Gagan Tangriof Madison Hardy, a commerciallaw firm specialising in constructionlaw. It is not intended as legaladvice. For further informationplease phone (09) 970 9569 ore-mail info@madisonhardy.com.4) a b c5) a b c6) a b cWhat special clause should you includein your building contract?a) That you are only hired to do the workshown in the plans.b) That you are responsible for pointingout potential defects.c) That Target presenters are not allowedwithin 100km of you.What is the idea behind a limited liabilitycompany?a) A very cunning one.b) It allows you tax exemptions.c) It helps protect your personal assetsfrom business risks.When is the best time to establisha trust?a) When business is rosy.b) When creditors are breathing downyour neck.c) When you take a trophy wife.NB: The questions and answers in this section have been produced by the publisher and do not necessarily reflect views or opinions of the contributing organisation.9
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