VENDOR BEWARE: BUILDING WARRANTIES AND LIMITATION PERIODS

Gedye v South [2010] 3 NZLR 271(LA) and [2010] NZSC 97

In 1997 Mr Gedye arranged for work to be carried out on his house.  Six years later he sold it under the then current ADLS standard form agreement, which contained a warranty that all obligations imposed under the Building Act for the 1997 work had been fully complied with.  It was later discovered that the work was defective, and the purchaser sued Mr Gedye in 2008, some 11 years after the building work was carried out. 

The Building Act contains a “long-stop” provision that prevents claims of negligent building work being brought after 10 years from the date of the completion of the work.  This meant that Mr Gedye was prevented from joining the builders to the action.  He argued all the way to the Supreme Court that the purchaser was similarly time-barred on the claim against him, but the Court of Appeal found that the breach of warranty was the key date for calculation of the limitation period to apply to the purchaser, and that this occurred on execution of the agreement for sale and purchase, not the date of the works.  The Supreme Court agreed.

The good news for property vendors is that the applicable warranty has been removed from the ADLS standard form agreement, but the case confirms that if a party has undertaken building work and later provides a warranty for it, they may be liable for defects discovered, even if that party cannot recover costs from the parties who carried out the work.