Those who get new homes built or do major renovations are soon going to be required to buy warranties on the building work.

Building and Construction Minister Chris Penk is changing who is liable for defective building work under an overhaul of the Building Act.

For decades, all parties involved in a build have been jointly liable for problems. If one can’t pay, whoever is still standing – usually the local council – picks up the tab.

Under the proposed change, those responsible pay their share only.

The challenge is that the new regime effectively shifts liability on to those in the building industry, whose pockets aren’t as deep as local councils’.

So, to avoid a builder being unable to compensate a home owner for playing their part in a defective build, the Government is going to require all building work to be covered by a warranty.

Currently only about 46% of new builds are covered by a home defects warranty, such as those offered by Master Builders, Certified Builders and Stamford Insurance.

The cost is usually the equivalent of spending between $120 and $275 per year over the warranty’s 10-year term.

“The benefits of a home warranty scheme for those planning to build a house or carry out major renovations are significant. For around half a per cent of the total build cost, home owners are protected against defects after the build is finished,” Penk said.

“Home warranty schemes are already widely available across New Zealand, and the sector has assured me it can scale to meet new demand, allowing consumers to shop around to find coverage best suited to their build.”

Warranty providers will need to register with the Ministry of Business, Innovation and Employment (MBIE).

All home warranty providers will be required to register with the MBIE.

Providers will need to demonstrate they can meet actuarial and operational requirements and stand by their claims for a 10-year period, verified through an independent audit.

Unlike insurance companies, these providers won’t need to meet capital requirements set out by the Reserve Bank.

Because builders aren’t the only ones who could be culpable for a defective build, the Government is also going to require architects, engineers and other professionals to hold professional indemnity insurance.

This way, if they are liable for a problem, they can use their insurance cover to pay for the claim.

About 90% of designers and engineers in New Zealand already have professional indemnity insurance.

Again, the idea behind making professional indemnity insurance and building warranties compulsory is to ensure the tradesperson, or professional or whoever is culpable for defective work, can access the funds required to compensate the home owner.

Under the current “joint and several liability” regime, builders can shut up shop and pawn off the liability to someone involved in the build who has deeper pockets – ie the local council that consented the build.

For the new “proportional liability” regime to work, home owners need to have confidence that whoever is responsible for defective work can pay for it.

To further strengthen the system, the Government is increasing the penalties builders can face for failing to comply with the Building Act. It will also introduce new offence under the act.

Penk said: “Together, these measures provide strong protections that underpin building system reforms, safeguard building owners, boost consent productivity, enforce accountability, and make building faster, easier and more affordable.”

Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.