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When you decide to renovate or build a house, you will likely enter into a building contract. Most of the time, you will be happy to review the terms of the contract yourself. However, it is a good idea to get a contract lawyer to look over it. This is because these contracts are often the subject of disputes. If your contract overtly favours your builder, you might end up losing money on your build. This article will explain what you should look out for in your building contracts and what steps to follow if you have a dispute with your builder.

What is a Building Contract?

A building contract is a legally binding agreement between yourself and a builder. It will outline the price of the build and how long the builder expects it to take. Most building contracts will state that the price specified on the contract may not be the final price paid, as construction often tends to go over budget. A building contract might also contain the process that both parties must follow if there is a dispute.

When Do I Need a Building Contract?

In New Zealand, you must have a building contract if your project costs more than $30,000 (including GST). Any project under this amount does not require a building contract. However, it is recommended that you use one. Written quotes can act as building contracts, but they are often useless in a dispute as they do not contain the same level of detail as a contract.

Types of Contracts

Full Contract

A complete building contract requires the builder to be in charge of all steps of the project. This means that the builder will:

  • procure materials;
  • liaise with the local council;
  • complete labour tasks;
  • supply any machinery needed; and
  • communicate with the architect/engineer.

The builder will provide the complete service, but this will be priced higher than a less substantive contract. 

Labour-Only Contract

As the name suggests, a builder will only provide the labour when contracting under a labour-only contract. This means that you are in charge of project managing the project. If you are inexperienced in project management, then this might not be the best option for you. However, the upside of using a labour-only contract is that you can choose which suppliers you want to use. This approach might be cheaper in the long run. 

Often building contracts will be a hybrid between a full contract and a labour-only contract, as the builder will be able to complete some tasks and the labour. You may also enter into multiple contracts with your builder for each task of the project they complete. 

Building Contract Disputes

Dispute Resolution Clause

If you have a dispute resolution clause in your building contract, you are required to follow this. A dispute resolution clause is likely to require you to engage in either:

  • negotiation;
  • mediation; or 
  • both.

Negotiation is a dispute resolution process that involves both parties explaining what they want and trying to find a compromise that suits both parties. If negotiation fails, then mediation might be required. Mediation is similar to negotiation, but a third-party mediator facilitates conversation and steers both parties down the right path. If neither negotiation nor mediation works, both parties will be able to take their claim to court. However, this should be avoided and used as a last resort as the court system is often time-consuming and expensive.

Disputes Tribunal

Another option that is more accessible than the court is to approach the Disputes Tribunal. The Disputes Tribunal hears claims for disputes up to $30,000. If your claim is over this amount, then you must go to the District Court. In the tribunal, a lawyer cannot represent you, so power imbalances are often evened out. There is no judge, but a referee is appointed to decide on the dispute. However, the referee will often strive to get the parties to settle the disagreement between themselves. Decisions from the Disputes Tribunal are legally binding, so you must follow them. 

Key Takeaways

Building contracts are legally enforceable agreements entered into between a customer and a builder. As a customer, you need to know how to navigate these agreements so that you do not end up paying more than you bargained for. A building contract will contain several key terms relating to the project in question. It is a good idea to include a process for disputes in your contract so that you do not end up in a court battle. However, if you end up in a dispute, you should endeavour to resolve it through extra-judicial means such as mediation. If this fails, the Disputes Tribunal is a cost-effective way to resolve disputes as long as the sum in question is under $30,000. For legal assistance with disputes, contact LegalVision’s New Zealand disputes lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Who decides if a dispute goes to the Disputes Tribunal?

Any party can claim to the Disputes Tribunal. You can make a claim online, after which your contracting party will receive notice that you have made a claim.

Why should I use a building contract?

If the project costs more than $30,000, you must use a building contract, but it is still good practice to use one anyway, even if the claim is below this amount. This is because a contract offers protection against rogue commercial partners and can be enforced in court. 

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