Renovating houses is a common Kiwi pastime that owners hope will add value to their property. However, a recent High Court case demonstrates that care is needed when engaging a builder to carry out modifications to a home.

In the case a married couple (“the H’s”) had entered into a standard form Registered Master Builders contract for renovation of their house. The parties agreed in the contract that the work would be done on a ‘charge up’ basis, meaning that the price was on the basis of actual labour and materials used and there was no set fee.

After the builder had started work, the Council required further works to be carried out to bring the existing house structure into compliance with the Building Code. The result of the Council’s requirements was a very significant increase in the amount of work needing to be done, and its cost. The H’s faced a serious risk of over-capitalising their property. Eventually, they decided that they could not afford to continue with the works and gave their builder notice to terminate the contract.

Because the contract did not specifically provide for the H’s to cancel the contract in these circumstances, the High Court held that they were not entitled to do so. As a result, the H’s faced having to pay the builder’s costs for lost income under the contract until he was able to find another job, as well as legal and court costs.

The unfortunate situation of the H’s serves as a warning for homeowners looking to renovate their home, and might have been avoided with some basic steps:

  1. Check the contract! If your contract does not provide for work on a ‘set-fee’ basis, you could be faced with ballooning costs if additional work is needed. Also, you should make sure that there is an option to terminate the contract if you think this may be necessary.
  2. Make sure you get any necessary building consents and understand exactly what will be required to get a Code Compliance Certificate or Certificate of Acceptance from the Council. This should help you avoid a similar nasty surprise to that encountered by the H’s.

A building contract is an important document, and you could end up liable for more than you think without the right advice. If you would like to discuss your building contract, give us a call on (04) 473 6850.