Dealing with builders and developers: a guide for first-home buyers

For first-home buyers, buying a newly built residential property is not for the faint-hearted.

From legal requirements to practical considerations, successfully navigating the process requires attention to detail. Here are key aspects for the first-home purchaser to watch out for when dealing with a developer or builder:

• Building Act compliance: Understand the legal framework set by the Building Act 2004. Verify that the property has obtained a Code Compliance Certificate (CCC) to meet the necessary building standards and have this specific requirement set out in the contracts. Obtaining a copy of both resource and building consent for future review is prudent. The resource consent will generally provide information about the permitted activities and whether there are any conditions. The building consent will record the consented building work based on current regulations.
• Builder and developer reputation: Engage with reputable builders and developers. Research their track record, seek references and assess their industry experience to ensure a reliable and quality construction process.
• Detailed building contract: Thoroughly review the building contract. Ensure it includes detailed specifications of materials and finishes, providing a clear basis for expectations and potential recourse if deviations occur. Have a lawyer with a construction contract background review this to protect the purchaser’s interests.
• Property location and infrastructure: Consider the property’s location and surrounding infrastructure. Proximity to amenities, schools and public transportation can impact daily life and future resale value. You must also consider whether there is any residents’ society or jointly-owned or managed property. If yes, there must be appropriate governing mechanisms such as a rule or constitution with a registered land covenant or encumbrance.
• Budgeting beyond the purchase price: Budget for additional costs such as legal fees, inspections and potential adjustments to the purchase price based on the property’s final valuation. Being financially prepared helps avoid unexpected strain.
• Professional property inspection: Before finalising the purchase, engage a qualified inspector to ensure the property meets building standards. Identifying issues early on can prevent costly repairs later. A building inspection requirement before the settlement date might be negotiated to cover any major or material issue or defect rather than relying on the defect maintenance mechanism.
• Warranty and guarantee provisions: Understand the warranty and guarantee provisions for new homes, including the 10-year weathertightness warranty mandated by the Building Act. Ensure your client’s investment is protected by having any additional builder warranty (eg, a Masterbuild guarantee) or any building warranty insurance (eg, Stamford building warranty insurance).
• Developer’s future plans: Investigate the developer’s future plans for the area. Upcoming developments or changes in zoning regulations can impact your client’s property value and lifestyle. If the developer or builder has required the purchaser to sign a power of attorney deed covering any further activities in neighbouring land, the purchaser must obtain further information as to the scope of such deed, along with their detailed future plans.
• Restrictive covenants: Be aware of any restrictive covenants associated with the property. Understand these legal obligations to avoid surprises about land use or development restrictions as they may affect the purchaser’s future uses or value. It is common for them to contain a restrictive covenant that prohibits the owner from subdividing or undertaking certain activities that may affect future saleability.
• Construction timeframe: Keep an eye on the completion timeframe. A clear timeline with penalties for delays can protect your client from extended rental costs or unforeseen financial challenges. It is therefore important that the building contract or the purchase contract contains the purchaser’s rights and remedies that may include (1) a liquidated damage clause; and (2) a sunset date clause.

A purchaser should remember to seek professional advice from a lawyer, mortgage advisor and real estate agent throughout the process.

In addition to these points, we suggest you ask your first-homebuyer clients to obtain the following information and documents from the builder or developer before settlement:

• Maintenance manual: Request the builder to provide a comprehensive maintenance manual. This should outline recommended maintenance schedules and procedures for various property components. If the property is subject to any specific facilities (eg, private water tank or waste water tank), the purchaser should obtain all appropriate information, including a copy of the operational manual and maintenance records along with the maintenance program.
• Builder’s warranty and guarantee details: Obtain details about the builder’s warranty coverage. Understand the duration and specifics of the warranty, including what is covered and any exclusions. This information ensures you are aware of your client’s rights and potential responsibilities.
• Subcontractor liens: Enquire about the possibility of subcontractor liens on the property. Understanding the builder’s payment arrangements with subcontractors can prevent legal issues arising from unpaid construction bills. Search the Personal Property Securities Register.
• Completion timeline guarantee: Obtain a guarantee or commitment regarding the completion timeline. This could include penalties for delays beyond the agreed-upon timeframe, giving the purchaser financial protection in case of construction setbacks.
• Clarification on change orders or variations: Clearly define the process for any variation permitted under the contracts. If the purchaser or the developer decides to make alterations or additions during the construction process, understand the procedure, associated costs and any impact on the timeline.
• Communication protocol: Establish a clear communication protocol with the developer and builder. Understand who your client’s primary point of contact is, how often updates will be provided and how to address concerns or queries throughout the construction process.
• Defect maintenance provisions: Enquire about the builder’s defect maintenance obligations under the Building Act. This should be clarified before settlement, along with all relevant contact details and instructions.

(a) Under the Act, there is a 12-month defect repair period that’s implied and applies to new builds. Therefore, the builder must attend to any defect, if any defects in the building work emerge within 12 months of the completed build date. It would be prudent for the purchaser to identify the commencement date of this defect maintenance period. The applicable section under the Act is s 362Q.

(b) Ongoing implied warranties are available to the first-home purchaser under the Act. These are specified in s 362I of the Act and would apply regardless of whether or not this is specified in the building contract.

(c) Civil proceedings relating to building work must be brought within 10 years of the date of the act or omission on which the proceedings are based. The applicable section under the Act is s 393.

• Emergency procedures: Obtain information and contacts on emergency procedures. Know how to address urgent issues, such as leaks or electrical problems.
• Final walk-through checklist: Before closing on the property, request a final walk-through checklist. This document should detail the items to be inspected before taking possession, ensuring any outstanding issues are addressed before moving in. Request a final inspection with the builder before settlement, along with the records of any inspection the builder may have had with the council.

By obtaining these additional details from the builder, your purchaser client can enhance his or her understanding of the property, the construction process and their rights as a homeowner. This proactive approach helps mitigate potential issues and establishes a transparent relationship with the builder.

John Jon is a senior associate at Law.NZ Lawyers and a member of The Law Association’s Property Law committee.