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Both Master Builders and the litigator recommend taking professional advice before signing any building contract
A well-known building construction litigator believes the contract used by Master Builders strongly favours the builder and is urging prospective homebuilders to seek professional advice before signing.
Master Builders unsurprisingly disputes the claim about its contracts, but agrees with the need for all prospective homeowners to carry out due diligence before signing a build contract of any kind.
That litigator, who didn’t want to be named, said disputes involving the standard New Zealand construction contract were more predictable.
“It's a much fairer allocation of risk and that's all these contracts are ever about.
“It's drafted so utterly in favour of the builder it's almost comical.”
Master Builders chief executive David Kelly said the business believed its “market leading” contract was fair to both the homeowner and the builder.
“It is long-standing, and regularly reviewed to ensure it remains relevant for New Zealand conditions, transparent and fair. The most recent review happened in 2018.
“The contract has never been called out by a judge or adjudicator as being unfair. We have worked hard to ensure our contracts provide a fair allocation of risk,” Kelly said.
“The risk allocation in the Master Builders contract is in line with others in New Zealand, including Standards New Zealand 3910 contract, The New Zealand Institute of Architects contract, and the Ministry of Business, Innovation and Employment contract.”
The litigator said scanning and comparing the two contracts came up with a “vast” number of differences including around delay compensation.
“Under Master Builders there's just a whole range of reasons why the builder is never liable if there's any delay.”
They said the Master Builders contract had extremely narrow cancellation provisions and even included a provision that allowed the builder to lodge a caveat over the property title and register a mortgage if unpaid, even if the amount was disputed.
“When you have a dispute involving one of those contracts, you're very much up against it in terms of what your client might be able to achieve because the odds are stacked against them.”
In one case the litigator and their client initiated a dispute resolution process over construction defects.
“The builder disengaged from that because they claim to be impecunious leaving us in a sort of limbo position where we can't cancel the contract.”
The client has had a 12-month period with little to no work having taken place.
Kelly said while the contract had extension of time provisions where disputes made it impracticable to proceed with works, advice was to continue work whenever practicable.
“Unfortunately, when a dispute arises both the builder and the owners often stop performing their obligations under the contract. This often exacerbates the dispute.”
Master Builders provides access to conflict resolution at no cost to either party.
Kelly acknowledged that registering a caveat over a section was a serious step, but that it could only be done to secure unpaid money under the contract.
“Registering a caveat is usually a last resort and sums which are secured are generally significant for the builder. We are unaware of a situation where a member has carried out a mortgagee sale to recover unpaid moneys.”
The litigator said generally builders were good, honest and hardworking, and disputes were pretty rare but urged anyone considering entering into a Master Builders contract to seek professional advice, whether from a lawyer, a building surveyor or anyone who understands risk apportionment.
Similarly, Kelly recommended all homeowners embarking on a build do their due diligence: “They should seek legal advice, and ensure they understand all aspects of the contract, including where price fluctuations may occur, prior to signing.
“Once the project is underway, we would expect regular and open communication between the builder and homeowner to ensure all issues are resolved as the project progresses.”
Master Builders has also attracted criticism over its 10-year guarantee product, with both customers and builders telling Newsroom they were disappointed with the warranty product and a lack of accountability from Master Builders itself.