7 minute read
Can councils transfer some or all of their liability to the builder?
Building Consent Authorities and Territorial Authorities (for simplicity I’ll call them Councils) are coming under increasing pressure these days. The volume of residential building activity is unprecedented. People are hell-bent on doing their renovation or their new build, seemingly oblivious to the fact that there’s a lack of available building expertise, a lack of building materials, and prices going through the roof.
Add to that the fact that Councils struggle to attract and retain the right expertise too. Many of their overseas-sourced staff have had to return home because of tightened New Zealand immigration rules. The rest of their workforce has been decimated by COVID-19 and that must have created a massive backlog for the Councils to work through. And they are now having to operate in an era where flexible working hours and working from home has become the norm.
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It’s not as if the burden on Councils has been eased to compensate for these added pressures. Their basic responsibilities under the Building Act remain unchanged. They are the gatekeepers that ensure buildings in New Zealand do not harm anyone or damage property. They are responsible for checking that an application for a building consent complies with the building code and that building work has been carried out in accordance with the building consent for that work. They are subject to statutory time limits for the issue of building consents and code compliance certificates. Section 391 of the Building Act makes it clear that the Council can be sued for negligence it if gets it wrong. And under section 393 they are potentially liable for 10 years.
In recent years, Council liability increased substantially due to the leaky building crisis. Although Councils were typically held to be 20% responsible on average, they frequently had to pick up the tab for everyone else who had gone AWOL or gone bust. And they are still picking up that tab to this day. After their insurance cover ran out early this century, they had to pass the cost on to their disgruntled ratepayers, so they became very risk-averse and very cautious.
In 2012, the then-Government responded to their concerns by introducing a concept known as risk-based consenting – which basically proposed to transfer more risk off the Councils and onto the builders – but those laws ended up in the too-hard basket. More recently there have been some new building consent exemptions introduced into Schedule 1 of the Building Act (eg. single-storey detached buildings of between 10-30 m²) which effectively pass responsibility onto Licensed Building Practitioners (LBP) and Chartered Professional Engineers, but that hasn’t eased the load much. So, what can Councils do? They can’t exactly escape their responsibilities, because under section 49 of the Building Act they must grant a building consent if they are satisfied on reasonable grounds that the provisions of the building code would be met if the building work were properly completed in accordance with the plans and specifications that accompanied the application. And under section 94, a Council must issue a Code Compliance Certificate if it is satisfied, on reasonable grounds that the building work complies with the building consent.
To absolutely guarantee that consented building work complies with the building code, and therefore avoid all liability, they would have to have a building inspector on every site 24/7. But the cost of that would be astronomical, so it’s not going to happen. Instead, Councils manage the risk in two ways. They conduct inspections at critical stages of the build so that they focus on the high-risk areas and minimise what can be hidden from them. And they insist on certificates from third parties known as Producer Statements so that they can pass on their liability to those third parties if they supply goods or services that are not code-compliant.
Recently, members of New Zealand Certified Builders have noticed an increase in the number and frequency of producer statements being requested by Auckland Council, and it is likely to be a phenomenon happening throughout the country. If the Councils are doing that – perhaps because their building inspectors can’t cope with the current workload – then that is an unfair burden on builders, because it is allowing Councils to avoid their statutory responsibilities and instead foist them on builders. Although to be fair to Councils, they don’t have many other options right now, given the unprecedented volume of inspection work and the toll that COVID-19 has taken on their workforce.
A producer statement is fundamentally different to the record of work (ROW) that you have to submit to the Council if you are an LBP. ROWs do not create any liability, whereas producer statements do. ROWs simply identify who did the relevant restricted building work, they don’t make that person any more liable for that work than they already were. By contrast, producer statements do create liability – and it is liability to a party (the Council) that the builder wasn’t already liable to.
Producer statements are simply a device that Councils have invented long ago. They have no statutory basis and aren’t even mentioned in the Building Act. Councils insist on producer statements from anyone who is providing some critical component of the building work. The statement is a contractual promise from the person who signs it, to the Council, that their work is codecompliant. Armed with that assurance, the Council feels more confident in issuing the Code Compliance Certificate (CCC).
But builders should be rightly concerned about signing another document that might come back to bite them at some point. Even more so, because the Council isn’t even the builder’s client, and the Council gives nothing in return back to the builder. So why do builders voluntarily expose themselves to the risk of liability to a third party – the Council? Only because the Council insists on producer statements as a condition of issuing the building consent or the CCC, and builders do it as part of their responsibilities to their clients the property owners.
It’s important to remember that producer statements aren’t uniform throughout the country. They all say slightly different things, depending on which Council issues them. The Auckland Council’s PS3, for example, says this: “I have sighted the above building consent and read the attached conditions of consent and confirm that I have undertaken the building work described above in accordance with the consented plans and specifications. I understand that Council will rely upon this producer statement, for the purposes of establishing compliance with the above building consent.” By signing this you are making several promises to the Council (mainly that your work complies with the consented plans and specifications – which means it must comply with the Building Code) and if that promise turns out not to be true, they can sue you for whatever losses they suffer as a result (which would be the damages they have to pay out to a disgruntled property owner). Note that the PS3 says “I” have undertaken the building work … in accordance with the consented plans and specifications. That is a pretty clear suggestion to me that the person signing the PS3 is giving a personal undertaking and assuming personal liability. So, at the very least, the builder should ensure that the PS3 is stated to be given on behalf of the building company, not him/her personally. I would go further and add a paragraph saying that it is the function of the University-trained architects, engineers and other professional consultants to design structures that are codecompliant, and the function of the Building Consent Authority to verify that. The builder’s role is to faithfully reproduce those designs in tangible form, in reliance on the professional consultants’ and the Building Consent Authorities implied assurance that the resulting product will be code-compliant. Whether the Council accepts a producer statement in that form remains to be seen.
Geoff Hardy is a partner in the Auckland law firm Martelli McKegg Lawyers and is a construction law specialist. Geoff also operates the Business Related Legal helpline for NZCB members, contact Geoff on 09 379 0700 or geoff@martellimckegg.co.nz for 20 minutes of free advice.
