We have recently seen a number of cases where builders and other building contractors are withholding producer statements or records of building work in order to obtain leverage in dispute or non-payment situations.
The advantage to a builder or building contractor of withholding these documents is that Council is unlikely to issue a Code of Compliance Certificate for the building work in their absence.. This is because Councils rely on these documents, particularly producer statements, to determine whether the building work or building system complies with the Building Code. This places the building owner in a difficult position. Despite the obvious advantages, however, withholding these documents comes with its own risks to builders and building contractors.
Under the Building Act 2004, a Licensed Building Practitioner (LBP) is required to provide a record of work to the building owner and the Council upon completion of restricted building work unless there is a “good reason” not to.
The Building Practitioners Board (Board) has considered whether the existence of a dispute or non-payment is a “good reason” for an LBP to withhold a record of building work from a building owner. In the Board’s view, the existence of a dispute or non-payment is not “good reason” to withhold a record of building work. The Board has also recognised that an LBP cannot make it a term of their contract that they can withhold a record of building work until they have been paid in full. This is because it is a statutory requirement for an LBP to provide a record of building work upon completion of restricted building work and so is unable to be a negotiable term of a contract.
LBPs therefore need to be particularly careful when it comes to withholding records of building work from a building owner in order to obtain leverage in the case of a dispute or non-payment.
Producer statements are slightly different to records of building work in that they are not recognised as having any particular legal status. Rather, Councils rely on them as a matter of policy when fulfilling their obligations of ensuring building work complies with the Building Code before issuing a Code of Compliance Certificate.
Given there is no statutory requirement for a builder, building contractor or supplier or installer of a building system to provide producer statements, it is possible to negotiate a term into a building contract about when these statements will be provided. For example, it is possible to state they will only be provided upon payment in full or once the relevant subcontractor has been paid.
It should be noted however that in practice, such clauses can potentially be navigated around. The Ministry of Business, Innovation and Employment (MBIE) released a determination in November 2017 which recognised there is no basis in the Building Act 2004 for a Council to demand a producer statement as a condition for establishing compliance with the Building Code and for issuing a Code of Compliance Certificate. Rather, MBIE said a Council is entitled to rely on a producer statement as evidence of compliance but not to the exclusion of other evidence that demonstrates compliance. This means that if there is another way to prove building work or a building system complies with the Building Code, then the need for a producer statement may become redundant.
Whether you are a builder, building contractor, supplier or manufacturer of building systems, or a building owner, Cavell Leitch’s specialist construction team can help you with any building and construction advice from building contracts and terms of trade to debt recovery and dispute resolution.
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