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CCC and Residential Contruction Contracts

Code Compliance Certificates and Residential Construction Contracts 

We have previously blogged about the changes to the Building Act 2004 for the residential construction sector of the building industry. (if you haven’t read about the changes then please read our article). 

Part of the requirements for builders is that they must have written agreements for building works over $30,000 (including GST). 

As part of scoping the building works that a builder undertakes, the contract must set out which of the parties (the homeowner or builder) will obtain the building consent(s). 

Section 362V(1) of the Building Act 2004 prohibits a commercial on-seller from allowing the homeowner to take possession of the dwelling or complete a sale without a code compliance certificate being issued. 

The section defines a commercial on-seller as a person, who in trade, builds a dwelling, arranges for a dwelling to be built or acquires the dwelling from a person who built or arranged for the dwelling to be built for the purpose of selling the household unit. 

If a commercial on-seller allows a homeowner to take possession or complete a sale without a Code Compliance Certificate being issued, in breach of the Act, then they are liable for a criminal conviction and a fine of up to $200,000 per breach. 

Regardless of who obtains the building consent(s), a prudent measure is to ensure that the residential construction contract contains a term whereby the possession and completion of the sale without a code compliance certificate is prohibited. 

However, this is not the end of the story. There are many reasons why homeowners may want to take early possession of their new dwellings or in fact could already be in possession of the dwelling if the building works is, for example, alterations to the existing dwelling. 

Section 362V(1) of the Act will not apply if the homeowner and the commercial on-seller “enter into a written agreement, in the form (if any) prescribed by the regulations”, pursuant to section 362V(2) of the Act. 

Since the changes came into effect (and the short time in which the industry has had to adjust to the changes) there appear to be three distinct arguments emerge about how to comply with this exception. 

The first argument is to simply have a written agreement that allows the homeowner to occupy the dwelling or complete the sale, without a code compliance certificate being issued. 

The reasoning behind this argument is that there is no form prescribed by the regulations, in the same way that the checklist and pre-contract disclosure statement are prescribed therefore all that should be required is a written agreement and any form will do. 

There are some contracts out there in the market place that do just this but is not recommended that they be used. 

The second argument, is similarly premised upon the reasoning that there is no prescribed form under section 362V of the Act, but argues that the law is not so easily fooled by making what is illegal in legislation, legal in a contract. 

So, the argument continues, have a written variation of agreement allowing the home owner to take possession or complete the sale, but leave the responsibility of obtaining the code compliance certificate with the commercial on-seller. 

There is good reason for a variation of agreement like this as it makes clear as to who will ultimately be responsible for obtaining the code compliance certificate and the builder is still protected from liability under section 362V(1) of the Act. 

The third argument points to the form 1 prescribed by the now repealed section 364 of the Act and still contained in the Building (Forms) Regulations. 

The reasoning here is that with some modification of this form then this is the form prescribed by section 362V of the Act and should be used. 

It is worth noting here that the form 1 can be filled in but cannot be modified in anyway. 

There is some good legal opinion supporting this third argument, but still section 362(2) of the Act states that the written agreement must be in the form (if any) prescribed, why not just expressly refer to the Form 1 that was used under the old section 364 ? 

Further the form 1 does not clearly set out who will be responsible for obtaining the code compliance certificate once the sale has been completed or the homeowner has taken possession. 

The law requires clarification here, but in the meantime speak to us about how the law might apply in your particular residential construction contract before risking $200,000 and a criminal conviction

• Posted By: Tristram Lock on Fri, 26th Jun 2015 @ 10:39:45

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