When is a Builder Free of Liability for Defects?
The first thing to realise is that it has nothing to do with what appears in the Building Contract.
Building Contracts may specify anything from 90 days to 12 months and many people, including many builders, mistakenly believe that once the defects period expires, the owner has no further rights or remedies, but that is not correct.
Four different laws give the homeowner the right to have defects remedied for up to 10 years. These can be found in the Building Act, the Consumer Guarantees Act, the law of contract and the tort of negligence.
So builders who think they can ‘contract out’ of these liabilities need to think again.
Every residential building contract since 30 November 2004 automatically contains the warranties in section 397 of the Building Act. The same applies to any sale agreement by a spec builder or residential developer to his purchaser. Those warranties basically say there won’t be any (major) defects in the building, and those warranties can’t be avoided by exclusion clauses or limitations of liability. Furthermore, the benefit of those warranties passes to subsequent owners.
There is a similar set of warranties under the Consumer Guarantees Act and only the original homeowner can enforce them not only against the builder but also any subcontractor or supplier who was actually responsible for the defect.
Then the builder can be liable in negligence for workmanship or materials that didn’t meet minimum standards.
The normal limitation period is 6 years from when the defective work was done, but if you don’t discover the defect until later on, you get an extension under the Building Act. This means a builder potentially remains liable for rectifying latent defects for between 6 and 10 years after the original building work was done.
Stamford is the only insurer able to offer the builder indemnity from these defects liabilities after just 2 years.