4 February 2026
Who pays when buildings fail? Proposed liability changes and new homeowner protections
In August 2025, the Building and Construction Minister announced a major overhaul of the building consent system under the Building Act 2004 (New Zealand) (Act) – the most significant reform since the Act’s enactment.
The reform encompasses a broad set of regulatory changes to the sector’s liability settings and would enable voluntary consolidation of Building Consent Authorities’ (BCAs) functions and services, with the aim of reducing delays, lowering costs, streamlining processes and eliminating inconsistencies. Of particular note was the announcement that, in the building context, the joint and several liability regime would be abolished.
The August 2025 announcement was followed by a further announcement in November 2025, and a Cabinet paper in December 2025. These propose measures to strengthen consumer protections to support the change to the liability regime.
Proportionate liability
Currently in New Zealand, if more than one party is negligent and causes damage, those parties are jointly and severally liable for that same damage. This can mean that if one of the companies or individuals responsible for the loss cannot pay, the other parties have to pick up the tab. In the residential building context, this has been particularly costly for local authorities because they are often the only remaining party to litigation, with the principal wrongdoers having been liquidated. The issue has also been front of mind for professional indemnity insurers for design professionals. This is in the context of New Zealand courts being willing to extend duties of care owed by parties such as councils and designers to homeowners. Under the proposed liability settings, the joint and several liability regime would be replaced with a proportionate liability regime. Parties involved in defective building work would only be financially accountable for their own contribution to the defects, not for costs caused by other companies or individuals who are responsible but unable to pay. The objective of this change is to reduce the likelihood of financial burdens falling on councils and ratepayers where another party is responsible for the defective work. All Australian states have had some form of proportionate liability regime for many years. However, it is important to note that these regimes apply across all sectors and to broad types of liability. Unlike what appears to be proposed in New Zealand, they are not limited to issues arising in the construction sector. Also, in New South Wales, Tasmania and Western Australia, parties can contract out of the regime if they choose to do so (it is currently unclear the extent to which contracting out will be permitted under the proposed New Zealand regime). A broad proportionate liability regime was considered and rejected by the Law Commission and the National-led Government in 2014. The recent announcements do not address what has changed since 2014. However, the reform is broadly consistent with the Law Commission’s view at the time that council defendants were in a difficult position because, unlike private parties, they cannot choose whether to participate in the construction industry. The current proposal is also more limited than the broader reform previously considered – it would apply only to the construction sector.The devil will be in the detail of the reform, which will become clear when the Building Amendment Bill is released. Key questions include:
- What will be the scope of the proportionate liability regime?
- Will the regime apply only to claims by homeowners (which appears unlikely), or will it regulate liability between all those involved in the delivery of a residential building project?
- If it applies to all parties, will the Bill allow contracting out of the regime between commercial parties?
- If the regime extends to the construction of commercial buildings, will contracting out be permitted?
Consumer protection measures
In August 2025, the Government announced that it was exploring options for mandatory support mechanisms to mitigate the risks to consumers associated with a proportionate liability regime. It was confirmed in the December 2025 Cabinet paper that these measures would be:
- Home warranties; and
- Professional indemnity insurance.
Home warranties
For all new residential buildings up to three storeys, and for renovations of NZD100,000 (GST inclusive) and above, the proposed changes would make it mandatory for homeowners to purchase a home warranty. This would cover a one-year defects period and a 10-year structural warranty. Home warranties would apply only to residential construction involving “restricted building work” (that is, work that must be carried out under the supervision of an LBP), and would not apply to commercial construction. The concern is that existing consumer protections (including implied warranties under the Act) may require consumers to bring costly legal proceedings and may be ineffective if liable parties are insolvent. Treasury’s preference was for an opt-out warranty scheme, due to risks of higher costs, reduced building supply and negative impacts for unaffiliated builders (for example, builders that are not members of Master Builders). However, the Government has decided to proceed on the basis that "voluntary cover risks homeowners opting-out without a full understanding of the financial risks, leaving many exposed to financial hardship without recourse". Treasury also argued that consumers should have the opportunity to decide whether to take on the additional costs, which are estimated to be typically less than 0.5% of the total build. This argument was considered but dismissed by the Government on the basis that the costs are justified given the system-level benefits of securing long-term protection through a warranty. Finally, of note for existing and potential providers of guarantee and warranty products is the proposal to introduce a register of providers. Providers would be required to attest to their ability to meet specified actuarial, operational and reporting requirements. Further detail is to be confirmed.
Professional indemnity insurance
The reform proposes to make it mandatory for all professionals contributing to building design (including architects, engineers and building designers) for projects of NZD100,000 or more to hold professional indemnity insurance. Most professionals already hold at least this level of cover, but there is a portion of providers to the residential market that do not. This reform is aimed at addressing that gap in consumer protection. This requirement would apply to both residential and commercial work, noting that, in our experience, it is a de facto requirement for professionals undertaking commercial work to hold an acceptable level of insurance cover.
Other consumer protection measures
The Government also investigated introducing a requirement for homeowners’ deposits to be safeguarded in a protection scheme until certain building milestones were reached, rather than being paid to the builder upfront. However, this was dismissed on the basis that the existing market for deposit protection products was sufficient, and that mandatory protection products would have a significant negative impact on builders’ cashflows.