Do you have the right to repair your own defects?
Logically, you would think it would be the contractor who was responsible for the defects who gets to fix them, but that does not always suit the owners. They may have lost confidence in the builder’s abilities, or they may simply have formed such a dislike for the builder that they never want to see him back.
That latter situation happens frequently on residential projects, where the homeowners tend to be more emotionally involved, and having their personal space invaded by someone they have seriously fallen out with causes them a lot of discomfort. In those cases they will always prefer to have the defects rectified by a replacement builder, regardless of whether the defects emerged long after completion or whether they showed up during the course of the project.
Most builders want to rectify
From the builder’s perspective, having someone else finish off your work is a bit galling for a number of reasons. First, if you are a conscientious builder then you take pride in your work and you want to see it through to the end. Secondly, you may not agree that all the alleged defects are in fact genuine defects and you want the opportunity to argue the toss. After all, a lot of alleged defects are simply unfinished work that the builder had scheduled to complete at a later date, or they are work that meets the standards agreed to in the contract or required by the building consent and the building code, even though they don’t meet the owner’s expectations.
Alternatively, they may be genuine defects but they are not attributable to the builder or anyone under his control and he had no power to prevent them. You don’t want to be saddled with the cost of paying a competitor to fix what wasn’t broke in the first place, or what wasn’t your fault. Thirdly, the cost to the original builder to fix his own defects is usually substantially less than the cost of paying a competitor to fix them.
It doesn’t always work out
Sometimes the builder simply gets no say in the matter. If the owners are adamant that he is not coming back, they can usually achieve that one way or another. In a renovation when they are living on the property, they effectively control access. In a new build they can arrange for locksmiths to change the locks in the dead of night. It doesn’t take much to get a trespass order issued against the builder and those are quite hard to overturn. Failing anything else, they can simply stop paying the builder, and he isn’t going to keep an expensive labour force and equipment on site forever, when they are not generating any return. Once the builder has vacated the site and a replacement builder has taken over, it is practically impossible to regain the lost territory.
Can the owners do that? Does the builder just have to sit back and give up the fight? Well, no actually, quite the contrary.
You can’t just end it
The first point is that the owners cannot just replace the original builder with a builder more to their liking, except in exceptional circumstances. That is because they have made a commitment, and that commitment is outlined in the building contract. It means that both parties are not only obliged to see the project through to the end, but they are also entitled to do so. You can only terminate a building contract where the other party has very seriously breached his obligations, unless you both agree to go your separate ways. If neither of those things happen then you are stuck with each other until completion, and if you don’t honour that, then you will be liable for damages.
But even if the contract has been validly terminated, that does not mean that the owners can get a substitute builder to rectify real or imagined defects and then recover the cost from the original builder. Certainly they can get a substitute builder to finish off the project if it hasn’t been completed, but finishing off (which the owners pay for) is different from rectifying defects (where the owners hope to recover the expense from the original builder).
What the cases tell us
There is not much case law on this topic in New Zealand, but there is plenty in Australia and the UK. What the cases tell us, is that the owners cannot deliberately make it more expensive for the original builder to compensate them for his shortcomings, than it would have been otherwise. This is sometimes known as the “duty to mitigate your losses” although strictly it is not a duty to keep the remedial cost down, so much as it is a prohibition against recovering unnecessary or excessive damages.
These cases make it clear that, faced with a choice of getting the original builder to rectify his defects, and getting a substitute builder to do it, the owners normally have to give the original builder a reasonable opportunity to do so. That is so whether the building project is still ongoing or was completed long ago. The reason for that is that it costs the original builder far less if he does the work, particularly if the defects are attributable to his suppliers or subcontractors, and they are prepared to rectify them at no cost to the builder. That was the situation in one British case, where the owners attempted to recover the substitute builder’s charges from the original builder, and even though the defects that had been rectified were genuine, the owners were awarded nothing because that is what it would have cost the original builder to fix them.
Exceptions to the rule
There are only a couple of exceptions to this rule. One is if the builder has abandoned the project and has shown that he has no intention of coming back. The builder only has prior rights to rectify his defects if he is ready, willing and able to do so. Secondly, the owners may be justified in refusing to have the original builder back, if it is reasonable for them to do so. For example, if he is so incompetent that he simply doesn’t possess the skills to do the job properly. Or if the defects are genuine but he makes excuse after excuse for not attending to the work. Or if he has a track record of abusive or dishonest behaviour and they have good reason to fear for their safety or for the security of their property.
However, these are not justifications to be used lightly, because the threshold is very high and the owners only get to find out that they can’t recover the cost of the substitute builder, once the ruling comes out and they have spent the money. In situations where the original builder can show that he is licensed or trade qualified, he has had a series of successful building projects for satisfied customers, and he is ready, willing and able to rectify genuine defects, it would be a very risky gamble for the owners to deny him that opportunity.
By Geoff Hardy
Auckland Commercial Lawyer