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Selling a House You've Built or Renovated? What You Need to Know, Before You Sell

Written by Joanne Chilvers on November 11th, 2007.

Most sellers of real property are unaware of the extent of the warranties they give to purchasers when signing a standard agreement to sell their property. In particular, there are specific warranties that apply when a seller has done work to their property that requires a building consent. These warranties apply for any work done during the seller's period of ownership regardless of whether the seller has done the work themselves or engaged professionals to do the work. The main problems that sellers encounter are when they do work without the required consent, or work for which they have a building consent but a code compliance certificate has not yet been issued, or when work is done in accordance with appropriate consents but is later discovered not to comply with the Building Code. This article gives examples of some of the common problems that arise and provides practical advice about what sellers can do to prevent these problems occurring.
 

Vendor Warranties

Quoted below are the warranties in clause 6.2(5) of the ADLS/REINZ 7th edition (2) form which is the standard form of agreement used in New Zealand for the sale and purchase of property. These warranties are likely to be excluded or varied when the sale is by auction or tender.
6.2 The vendor warrants and undertakes that at the giving and taking of possession:
(5) Where the vendor has done or caused or permitted to be done on the property any works for which a permit or building consent was required by law:
a. The required permit or consent was obtained; and
b. The works were completed in accordance with that permit or consent; and
c. Where appropriate, a code compliance certificate was issued for those works; and
d. All obligations imposed under the Building Act 2004 were fully complied with.
 

What Works Require A Permit Or Building Consent?

Certain types of building work require a building consent from the local council before the owner can start work. Some common situations where a building consent is usually needed but often not obtained are:

 
  • decks, if any part is greater than 1m from the ground;
  • fences, if greater than 2m high;
  • new carports and conservatories; and
  • plumbing, all plumbing except repair and maintenance of existing components.
Your local council can advise you on other situations where a consent is needed. Further information can also be found on the Department of Building and Housing's website at www.dbh.govt.nz/ba-get-a-copy . Click on Building Act 2004 and scroll down to page 224.
Depending on the nature and type of your property, you may require other consents in addition to a building consent, particularly if your property is a cross-lease or unit title which may be subject to additional requirements. You may also need a resource consent in addition to a building consent. Please consult your lawyer for further information.
 

What Can Happen If A Building Consent Is Required But Not Obtained?

Below are real examples of the consequences suffered by vendors who didn't obtain the required consent prior to carrying out building works.
 
  • A vendor had renovated a bathroom prior to sale, and installed a new shower above the existing bath. Because the shower installation involved new pipes, a building consent was required but not obtained. The plumber did not correctly attach the shower head to the piping causing water to run down inside the wall when the shower was turned on. As a consequence, damage was caused to the bathroom and neighbouring rooms. Because the vendor was in breach of warranty, it had to pay the costs of correcting the work.
  • A vendor built a new deck. Two-thirds of deck was under 1m high; however one end was slightly higher than 1m above ground level. Accordingly, a building consent was required, but not obtained. The purchaser discovered this prior to settlement and because the vendor was in breach of warranty and unable to remedy matters prior to settlement, the purchaser was able to negotiate a substantial discount off the purchase price.

What Should I Do If I Didn't Obtain A Building Consent?

Provided the building work was carried out after 1 July 1992, you can apply to your local council for a certificate of acceptance under the Building Act. A certificate of acceptance confirms that the work, as far as it can be inspected, complies with the building code in force at the time of the application for the certificate of acceptance and not the code in force when the work was carried out.
A certificate of acceptance does not remedy the fact that the work was carried out in breach of the Building Act, if that was the case.
If the work was carried out prior to 1 July 1992, you need to instruct a suitably qualified professional to inspect the work and prepare a "safe and sanitary" report. Council will hold the report on its property file but no certificate of any kind can be issued by council. Such a report has no status under the Building Act, but may provide some comfort to a purchaser.
 

What Is A Code Compliance Certificate And How Do I Obtain One?

A code compliance certificate applies only in respect of building consents issued after 1 July 1992. Once work has been completed, the council is required to do a final inspection to certify that the work complies with the building consent. In some circumstances, the work must also comply with any changes to the building code made since the consent was issued. If the work passes the final inspection, then upon payment of a fee, council must issue a code compliance certificate which is issued to the owner and is noted on the council file for the property. If you are unsure if works done have a code compliance certificate, call the building department of your council. They can usually advise over the phone if a code compliance certificate is outstanding and how to remedy this.
 

What Are The Obligations Imposed Under The Building Act?

The Building Act provides that all buildings must be constructed in accordance with the New Zealand Building Code. The Building Code specifies performance standards that building work must meet, including durability, weathertightness, structural stability and fire safety. If you are a residential property developer, selling a residential unit, then further warranties are implied into all agreements. These are set out in section 397 of the Building Act and cannot be excluded from any contract for building work to be carried out in respect of a household unit, or in respect of the sale of a household unit by a property developer.
 

Why Is This Important?

One example where clause 6.2(5)d. of the agreement had serious consequences was where the vendor had a house professionally designed and built. All necessary consents were obtained and a code compliance certificate issued upon completion. The vendor sold the house shortly after completion and without knowledge of any problems. A few years later the new purchaser discovered that the house was in fact a "leaky building" and required extensive remedial works. The purchaser sued the vendor for the full cost of the remedial works, for breaching the warranty in clause 6.2(5)d., as the vendor had caused or permitted a house to be built on the property that did not comply with the durability and weathertightness requirements of the Building Code. This was regardless of the fact that the vendor had the house professionally constructed and approved by the council. This case was not ultimately determined by a court; however the process was very expensive, time-consuming and stressful for the vendor.
 

What Should I Do If I Have Done Major Work To My House And Am Intending To Sell?

First, check with your council that you have obtained all necessary consents or permits and that all building consents have code compliance certificates issued. If not, you can either remedy the defect prior to signing an agreement to sell or get your lawyer to add an additional clause to the agreement whereby the purchaser accepts the defect.
The most important point to consider is whether you want to delete the warranty in clause 6.2(5)d. of the standard agreement. Crossing out or removing this clause means it will be difficult for a purchaser to sue you if it later turns out that the house has an unknown defect. Deleting this warranty might have an impact on your ability to sell and you should discuss the matter further with your lawyer and real estate agent.
 

Conclusion

If you have done building work to a house you are selling, there is a good chance that the warranties in the standard agreement affect you as many types of work require a building consent. Purchasers these days are likely to be aware that building consents are required and that a code compliance certificate should be available and will take action against a vendor for breach of warranty. As a vendor, it is better to find out about and remedy any non-complying building issues prior to signing an agreement to sell than to risk being sued (or worse) by a purchaser.
 
 
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