Following its announcement on shaking up the country’s building consent system, the Government is sharing its "safeguarding measures to ensure building owners are protected" within the new system.
On Monday, Building and Construction Minister Chris Penk announced that professionals contributing to building design, such as architects and engineers, will be required to hold professional indemnity insurance.
Professional indemnity insurance covers professionals who provide a service or advice. This insurance provides cover when a third party or someone who engages in your work alleges professional negligence and takes legal action.
Penk said this requirement does not extend to other building trades.
Alongside this, there will be mandatory home warranties for all new residential buildings that are three storeys and under, and for renovations of $100,000 and above - covering a one-year defect period and a 10-year structural warranty.
Home warranties cover the repair of defects for residential projects. Current examples of this include the Master Build 10-year Guarantee which is offered by the Registered Master Builders Association or the Halo 10-year Residential Guarantee from the New Zealand Certified Builders Association.
When it comes to home warranty schemes, Penk said the benefits can be significant. “For around half a percent of the total build cost, homeowners are protected against defects after the build is finished.”
Penk said the sector has assured him it can scale to meet new demand, allowing consumers to “shop around to find coverage best suited to their build”.
The Government is also planning to strengthen disciplinary penalties for Licensed Building Practitioners by increasing the maximum fine from $10,000 to $20,000 and the maximum suspension period from 12 months to 24 months.
“Disciplinary penalties were long overdue for an update and strengthening them supports skilled professionals by holding to account those who cut corners.”
New offences would be introduced for professionals under the Building Act if there is non-compliance with home warranty and professional indemnity insurance.
Changes to home warranty and professional indemnity insurance will be progressed through the Building Amendment Bill and this is expected to be introduced in early 2026, while changes to disciplinary penalties will be in a separate Bill but also expected to take effect in 2026.
When legislation has passed, there will be a one-year implementation period before proportionate liability and other new rules take effect.
Biggest changes
Penk first announced changes to the building consent system in August, which he said at the time, was the biggest changes to the system since the Building Act came into force in 2004.
One of the changes to the building consent system included moving from joint and several liability to proportionate liability for defective work.
Joint and several liability means liability is shared between multiple parties - and the payment is shared by these parties. Proportionate liability means each party will be responsible only for the share of the work it carried out.
In addition councils would be allowed to voluntarily consolidate their Building Consent Authorities with one another.
At the time, Penk was questioned by reporters about why Cabinet had not made a decision on professional indemnity insurance and home warranty schemes.
He told reporters that the announcement was a signal to sectors involved that it would be moving to proportionate liability.
There were detailed conversations that needed to be had with the sector to ensure there were no gaps in the system, Penk said in August.
"We need to give everyone the comfort and the certainty that we are moving to this system to see what the willingness of them to step up is.
“We don’t want to add cost simply by shifting the liability and therefore the cost from the ratepayer and the council to a private avenue instead. So we need to carefully balance those considerations.”
“People do go in and out of business and we don’t want an empty chair problem where a vulnerable consumer is left with a gap in terms of their coverage,” Penk said.
Shift in the consent system
On Monday, Penk said: “Right now, councils can be hesitant to sign off on the building projects New Zealand needs because they risk being held fully liable for defects they did not cause, to the tune of millions of dollars.”
“This occurs because under the current law, when two or more parties are involved in a mistake, the customer can pursue any one of them for the full damages, regardless of each party’s level of contribution,” Penk said.
“Councils have the deepest pockets and cannot walk away by filing for insolvency, meaning that ratepayers often end up paying for mistakes made by others, even when the local council’s involvement was limited to signing off the work.”
Under proportionate liability, Penk said each party would only be accountable for the work they undertook - which would speed up consenting and “ease the burden on ratepayers unfairly footing the bill for damages”.
Penk said the measures would support the shift in the consent system and ensure people involved in the building process “remain protected”.
“Together, these measures provide strong protections that underpin building system reforms, safeguard building owners, boost consent productivity, enforce accountability, and make building faster, easier and more affordable.”
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