May 2005

Code of Compliance Certificates

Contracting Out under the Building Act 2004

It is now an offence, under the Building Act 2004, for a Residential Developer to complete a sale or allow a purchaser into possession of a household unit without the issue of a code compliance certificate issued, for example, by the local council. The certificate is intended to confirm that the residence has been built in accordance with the council’s requirements.

Unfortunately, the Act does permit the developer and purchaser to contract out of this requirement. We believe that many developers and builders will encourage purchasers to “contract out” at the same time as purchasers sign the building contract/ agreement for sale and purchase of residential property. The Act even provides a standard form to be used to “contract out”.

“Contracting Out” is dangerous because:

  • The developer may never complete the work to the Council’s satisfaction;
  • The purchaser will end up having the obligation of obtaining a code compliance certificate and face all of the costs involved;
  • It will be extremely difficult to obtain insurance cover for the property;
  • A bank will not advance loan monies to the purchaser;
  • There may be considerable difficulties in ever being able to sell the property.

It will often be in the developer’s best interests to minimise the developer’s risks and financial exposure by contracting out (if convicted of an offence under this provision of the Act the developer would be liable for a fine of up to $200,000). There are no corresponding significant advantages for the purchaser.

Although the Act’s standard form does recommend that the purchaser “should take independent legal advice before signing”, we are concerned that the briefness of the form will encourage prospective purchasers to sign it without having a full appreciation of the huge risks they are taking. It is always prudent to have us check any building contract/ agreement for sale and purchase before signing. The issue of “contracting out” will now form part of that advice.