For decades, the New Zealand building industry has operated under a legal framework known as “joint and several liability.” In plain English, this meant that if a project went wrong, perhaps due to a design flaw, poor workmanship, or inadequate inspection, and then a claim was made, any of the responsible parties could be held liable for 100% of the damages.
Historically, because building companies were often small and easily liquidated, the local Council often became the ‘last man standing’, and as a result, ratepayers have spent millions covering the gaps left by insolvent builders, even when the Council was only found to be 10% responsible for a missed inspection.
The End Of The Joint And Several Liability
The Government’s upcoming Building Amendment Bill (slated for introduction in 2026) is set to trigger the biggest shake-up to construction liability since the 2004 Building Act. For SME builders, this isn’t just a legal tweak, it’s a fundamental change to how you quote, how you insure, how you manage your sub-trades, and how you protect your personal assets.
This guide breaks down exactly what is changing and why the “joint and several liability” is being replaced by “proportionate liability”, and how the business of building in New Zealand is about to get much more sophisticated.
What Is Proportionate Liability?
The core of the reform is a move to proportionate liability. Under this new rule, if a defect is found in a building, each party is only liable for the portion of the damage they actually caused. If a court finds you 40% responsible and an architect 60% responsible, you only pay 40%. The Council, if they are found to have any fault at all, is likewise only responsible for their specific percentage.
What If There Is A Compensation Gap?
While this sounds fairer for builders, it creates a significant risk for homeowners. If a builder is 90% at fault but has gone out of business, the homeowner can no longer sue the Council for that 90%. They would be left with a massive repair bill and no way to pay it. To prevent this, the Government is making insurance-backed warranties mandatory to bridge the compensation gap left by insolvent or disappeared building entities.
What Are Mandatory Home Warranties
Soon, offering a guarantee won’t be a competitive advantage, it will be a legal requirement. You will no longer just be offering a master build guarantee; you will be legally required to provide an approved warranty for all new residential builds (three storeys or less) and renovations costing $100,000 or more (including GST) that require building consent. Here is the rundown on what the new insurance changes mean for builders and tradies.
What Do These Warranties Cover?
The new legislation will set minimum standards for these products, likely including things like:
- A 1-Year Defects Period: Often called a maintenance period, where the builder is responsible for fixing minor issues.
- A 10-Year Structural Warranty: Covering major structural defects and weather-tightness issues.
- Insolvency Cover: This is the most critical part. The warranty must pay out even if the building company has been liquidated.
What’s The Catch?
Warranty providers (like Master Builders, NZ Certified Builders Association, or independent firms) don’t just give these out to anyone. To issue a warranty, they will actually vet your business. They will have to look at things like the following in order to decide if they will take you on.
- Financial Solvency: Do you have enough capital to finish the jobs you start?
- Track Record: Have you had previous claims or failed projects?
- Site Management: How do you supervise your sub-trades?
If you aren’t currently warranty-ready, you may find yourself legally unable to take on jobs over $100,000. For many small man-and-a-van operations, this will require a significant professionalisation of their systems.
What This Means For Builders And Tradies
Here are all the top 4 things you need to know about the new warranty system and what it means for your business.
1. Doubling Down On LBP Accountability
The Government’s goal is to move accountability back to the person holding the hammer. With the Council no longer acting as the financial safety net, the spotlight is moving directly onto Licensed Building Practitioners (LBPs). To ensure standards stay high and to deter cowboy behaviour, penalties for disciplinary offences under the LBP scheme are set to double. Maximum fines are increasing from $10,000 to $20,000, and maximum license suspensions are increasing from 12 months to 24 months.
This isn’t just about bad workmanship. It’s about administrative responsibility. Failure to provide accurate records of work or signing off on work you didn’t adequately supervise will now carry much heavier financial and professional consequences.
2. Mandatory Professional Indemnity For Designers
While builders are covered by the new warranty scheme, the professionals who design the buildings are facing their own new requirements. Architects, engineers, and building surveyors will now be required to hold Professional Indemnity (PI) insurance.
This is definitely a win for builders, as under the old system, if a builder followed a bad design, they often got stuck with the bill because the architect didn’t have the insurance to pay. Under the new proportionate system, mandatory PI ensures that if a design fault leads to a claim, there is a solvent insurer sitting behind the designer to pay their share. This reduces the pressure on the builder to fix design errors on the fly.
3. The Potential Upside – Faster Consenting?
The Government’s motivation for the industry in adopting these reforms is that by reducing the Council’s liability, Councils should become less risk-averse. Currently, many Councils are slow to approve consents or issue CCCs because they are concerned with being liable.
If their liability is capped at their actual percentage of fault, the natural logic is that they will be more willing to accept alternative solutions and potentially move faster on inspections. Whether this translates to real-world speed remains to be seen, but it is one of the significant drivers behind the reform.
4. What Is It Going To Cost?
The cost of these warranties will ultimately be passed on to the consumer, but the builder is the one who has to manage the transaction. This means managing the direct and indirect costs of the warranties.
Warranties typically cost around 0.5% to 0.6% of the build cost. On a $600,000 build, that’s an extra $3,000-$4,000.
Plus, the indirect costs of the time spent on documentation, financial reporting, and compliance will increase. Builders may need to invest in more sophisticated project management software to keep the records required by the warranty provider.
How To Prepare For The New Warranty Requirements
Although the full rules aren’t expected to be fully operational until 2027 (following the Bill’s passage in 2026 and a one-year transition period), waiting until the last minute is a recipe for disaster. Here are some quick tips on how to prepare for the new warranty requirements and avoid getting caught in the crossfire.
Stage 1 – Conduct A Financial Health Check (Now)
To get approved by warranty providers, you’ll need to show healthy financial accounts. Move away from shoe-box accounting, ensure your tax records and payments are up to date, and start building a cash reserve. Insolvency insurers look for liquidity before they grant you the right to issue warranties to clients.
Stage 2: Tighten Up Your Documentation (Mid 2026)
In a proportionate liability world, your best defence is actual proof. If a leak occurs, you need to be able to prove, with documents, photos and date-stamped records, that you installed the flashing according to the manufacturer’s spec. Think seriously about adopting a digital tool (like Buildertrend or Fergus) to easily capture site photos daily, and ensure every sub-trade provides a PS3 or equivalent for their work.
Stage 3: Review Your Contracts (Late 2026)
Standard building contracts will need to be updated to reflect the mandatory warranty requirement. You should also review your terms with sub-trades. If you are liable for your proportionate share, you need to ensure you can pass that liability down to a plumber or electrician if they were the cause of the fault.
Navigating The Changes Together
These industry reforms are essentially designed to professionalise the industry. The days of “it’ll be right” are being replaced by a system of “prove it’s right.” Where being a good builder is no longer enough, you need to be a well-insured, well-documented builder too!
As a member of the Combined Building Supplies co-operative, you are uniquely positioned to handle this shift. The reforms favour builders who operate with transparency, use high-quality materials from reputable suppliers, and maintain professional business standards, the very values CBS was founded on.
Have questions about how these reforms impact your current pipeline or your business structure? Make the most of the CBS networking opportunities, which can put you in touch with other building companies and what they are doing to navigate the changes. By diving right in to these changes now, you won’t just be compliant by 2027, you’ll be ahead of the competition!