Following the Government’s recent move to ease restrictions on overseas building products, Building and Construction Minister Chris Penk has announced sweeping reforms to New Zealand’s building consent system. Described as the most significant changes since the Building Act 2004, these reforms aim to improve consenting efficiency and rebalance risk allocation across the construction sector. While further changes are expected, the proposed overhaul already signals major implications for councils, developers, contractors, consultants, and other industry professionals.

Shifting liability: From joint and several to proportionate

At the core of the reform is a fundamental change to how liability is shared when building defects occur. Currently, under the joint and several liability model, the last person standing (often councils) can be left holding fully responsible for remediation costs - even if other parties, such as developers or builders, are also at fault but are insolvent. This makes councils, and by extension ratepayers, the “backstop” underwriters for defective building claims.

While this model ensures homeowners are compensated, it creates inefficiencies and unintended consequences. Councils face undefined and often uninsurable risks for building work carried out by private parties. This exposure drives risk-averse behaviour within councils; which in turn leads to delays, redesigns, and repeated inspections during the consenting process. Councils are also less likely to approve innovative or unfamiliar building products and designs, even if they are more efficient or cost-effective, due to fear of future liability.

Minister Penk’s proposed shift to proportionate liability would reduce the risk councils face by capping a council’s responsibility for building defects to the share of work it performed. For example, if a court finds a council 40% responsible for consenting a faulty design, and an architect 60% responsible for preparing it, the council’s liability would be limited to 40%; even if the architect cannot pay their share. This change aligns with systems used in Australia since the 1990s.

Implications for the Private sector

What remains unclear is whether proportionate liability will apply solely to councils or extend to all parties involved in construction. If adopted across the board, developers, contractors, and consultants would also see their liability capped according to their level of responsibility. This would end the current model where councils can act as the ‘backstop’ party liable to homeowners for defective buildings, and shift risk away from councils.

The trade-off is that this change could leave some homeowners unable to recover full remediation costs if one or more responsible parties are insolvent. To address this, the Government is exploring enhanced insurance and warranty schemes to protect consumers and ensure coverage for defective work.

What comes next?

While the details are still emerging, the proposed reforms represent a major shift in how risk is managed in New Zealand’s construction sector. For industry professionals, this could mean:

• Reduced liability exposure for councils and potentially other parties.
• Faster consenting processes, as councils may become less risk-averse.
• Greater responsibility on private sector participants to manage their own risk.
• Increased demand for robust insurance and warranty/guarantee products.

The Government’s broader reform agenda is expected to touch on other aspects of construction regulation, including product approvals, building code updates, and workforce development. For now, project participants (including contractors and engineers) should prepare for a more balanced - but potentially more complex - risk environment.

Supporting the new liability framework

An option under consideration is mandatory professional indemnity insurance for all parties involved in building projects. For this to work, the mandate would need to require run-off cover to be held for a number of years after the building works are completed – this is to ensure cover will be available some years down the track, (which is often when defects are discovered and claims are made by owners). Under a proportionate liability model, each party’s exposure is limited to their share of responsibility, making risk more predictable and thus, potentially more insurable. In Australia, similar schemes have proven effective, with contractors required to hold policies covering negligence during construction.

However, it remains to be seen if New Zealand’s insurance market has capacity to meet this demand. The market for professional indemnity insurance is already tight, and much of the current risk sits with councils (and this is typically uninsured). These reforms may open the door for offshore insurers to enter the market and expand coverage options. The Government is exploring mandatory home warranty schemes, similar to those in Australia. While private, domestic examples already exist, such as the Master Builders’ 10-Year Guarantee and Certified Builders’ Halo Guarantee, to adequately address new risks under proportionate liability these schemes would need to be expanded. The costs of any warranty or insurance schemes will likely be shifted onto consumers rather than absorbed by the industry, creating what is akin to a user-pays model for managing the risk of defective building.

Consenting system overhaul

Separate from liability reform, the Government is also proposing changes to how Building Consent Authorities (BCAs) operate. New Zealand currently has 66 council-run BCAs. Under the new framework, councils will be able to voluntarily consolidate their consenting functions by transferring responsibilities to other councils to enable resource sharing, reduce duplication, and improve consistency in applying the Building Code.

Additionally, councils may be permitted to delegate consenting functions to non-council entities, including government departments, council-controlled organisations, and potentially private companies. The scope of this delegation remains unclear, but the recent launch of New Zealand’s first private BCA suggests private sector involvement is likely on the table.

This may raise concerns for those who struggled through the leaky building crisis. Private organisations may lack the financial resilience of councils, and if found liable for defects, could become insolvent. This risks leaving homeowners without recourse. There is also a risk that profit-driven entities may apply less rigorous standards when exercising regulatory functions.

Looking ahead

These reforms mark a significant shift in how New Zealand manages risk in the construction sector. By reducing councils’ liability and streamlining consenting processes, the Government aims to improve efficiency and encourage innovation. However, success will depend on whether the private sector is equipped to absorb the transferred risk - and whether robust insurance and warranty schemes will be available to protect homeowners. 

Without effective safeguards, the burden of defective building work may fall on individual homeowners– the party often least able to bear the risks.

This article was originally published by Build Magazine. A link to the article on their website can be found here.