Non-Compliant Building Work. A Homeowners Guide.

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All posts / For Sellers / General: Real Estate / Insurance / Legal

New Zealand is a nation of DIY’ers. We love to add value! And, not surprisingly, there are a fair number of us who also love shortcuts. Weren’t rules made to be broken?

“The job has been done properly – we just didn’t want to pay the Council cut.”
“We were told about this when we bought. It didn’t bother us. It won’t bother our buyers.”
“The buyers can take it or leave it. It’s not our problem.”

Do the above comments sound like you? Has your property had work done without a Building Permit or a Building Consent? Or are you looking at adding value sans Council involvement? This post tells you what to expect today.

What are non-compliant works?

Non-compliant building work is building work that required either a Building Permit or a Building Consent and was carried out without one.

Building Permits were issued before 1 July 1992.

Building Consents and Code Compliance Certificates were issued after 1 July 1992.

Before you DIY.

Check if you need a Building Consent.

Find out if the work you plan to undertake requires a Building Consent. This page on www.building.govt.nz is a good place to start.

Restricted Building Work

Also be aware that some types of work are clasified as Restricted Building Work. If your reno plans involve Restricted Building Work and you plan to pay someone to do the work for you, you will need to use a Licenced Building Practitioner.

Important Note: Not all people that identify as builders are Licenced Building Practitioners. Find out if your builder is an LBP by searching the LBP Register.

Owner-Builders Exemption

If your reno plans involve Restricted Building Work on a property you occupy or a holiday home you can apply for an Owner-Builders Exemption. If granted, this would enable you to carry out specific kinds of work yourself.

An Owner-Builders exemption still requires you to obtain the relevant Building Consents, do your work to Code, and the fact that you did the work yourself will be added to your LIM report for future buyers information.

Read more about Owner-Builders Exemptions here.

Exempt Works: When you don’t need Building Consent.

Works that you are allowed to carry out without a Building Consent are often referred to as Exempt Works. The good news is there are plenty of ways you can add value to your property without Council involvement. What are your options? Read the MBIE’s Building Work That Does Not Require A Building Consent guide here.

The Building Act 2004 – Penalties for breach.

Ok. This is the bit where I mention the Councils big stick. It is well-known that Councils tend to be more reactive than proactive but is this really a risk you want to take?

Selling a home with non-compliant works.

Do you already own a home with non-compliant works? You may or may not have been responsible for them. Yet here you are holding the bag.

The good news is that you are not alone so your non-compliant works are not going to be an awful shock for your buyers. There are scores of homes with non-compliant aspects across Auckland. The bad news is, the landscape has changed considerably in this regard over the last several years.

When agents are pitching for your business some may be tempted to gloss over the harsh realities of the situation for you. But if you know what to expect from the get-go, you will be better equipped to make the decisions you need to make, either before you come to market or as you progress through your sale process. And helping you make better decisions is what this blog is about.

Your Buyers and The Bank: Finance and Insurance

The current challenge is not actually getting your buyers heads around the fact that your ensuite or extension doesn’t have a Building Consent. The challenge is getting their bank to approve their mortgage so that they can buy your home.

Is this likely to be a problem for you?

If you ask mortgage brokers about this they will tell you “It’s case by case..” but, when pressed, they will admit that most of the time, the banks default answer is “No”.

This week I asked half a dozen mortgage brokers if, in the last 12 months, they had obtained approval for ONE buyer where a bank had accepted non-compliant works without requiring removal or remediation prior to settlement. Two said yes, they had put ONE deal together. Four said no.

When exceptions are made they are generally made because the bank is comfortable with their level of exposure to risk whether or not the works remain. This may be the case when one or a combination of the following apply:

  • A buyer has a high deposit. Low LVR.
  • Minimal value is attributed to the works. Your buyer may need a Registered Valuation to prove the purchase price has not been impacted by the non-compliant works.
  • The works are not attached to the dwelling. ie. in a garage or other outbuilding.
  • The works can be insured.

Impact On Value

In almost all cases, un-remediated non-compliant works shrink your market and make it harder for buyers to buy your home. The degree of value stigma you experience will likely depend on both the quality of the work and cost of remediation.

Generally speaking, non-compliant works are likely to have a neutral or negative impact on value. Because of this, I would urge you to reconsider if you’re planning on making additions to your property without the required Building Consents. It’s one of the fastest way to spend a bunch of time and money while adding absolutely no value – regardless of how great everything looks.

What can you do? Control what you can control.

Is your building work insurable?

Hopefully, you already know that it is because if not, non-disclosure may give your insurer a reason to decline a future claim. If you haven’t disclosed to your current insurer, it would pay to get on the phone and find out if you can insure the non-compliant aspects of your property. If you find an insurer willing to provide cover, get a written quote.

Your buyers will struggle to finance something they can’t insure. Doing some of the leg work for them will make it easier for them to choose your property.

Remediation: Certificate of Acceptance (COA)

If your building work was carried out after 1 July 1992 you can make an application for a Certificate of Acceptance. From the Council perspective, this is ‘as good as it gets’ retrospectively.

More from Auckland Council on the Certificate of Acceptance process here.

Who can work through the COA process for me?

Have a look at the Auckland Council Producer Statement Authors Register. Search for a professional who handles COA Applications. Everyone I have spoken to in the past has been very helpful with initial information so don’t be afraid to get on the blower and ask for some expert advice.

Remediate now or later?

You may decide that you aren’t prepared to go through the COA process before coming to market but are prepared to go through it once you secure a buyer. If that’s the case, it’s a good idea to establish ahead of time if your non-compliant works were built in accordance with the Building Code and if you are likely to obtain a Certificate of Acceptance upon application without spending an unacceptable amount of money on remedial work. You don’t want to end up contractually agreeing to fix something you are unable to fix.

Where possible, establish the cost of attending to any remedial works, engaging a professional to handle this process for you and paying any Council fees. All the better if you can obtain a written estimate or quote. This can be a tool used in negotiations with your buyer and/or in your buyers’ negotiations with their bank.

Remediation: Removal

Sometimes removing non-compliant works is the most sensible workaround. Particularly if the cost of removing them is lower than the cost of going through the COA process and any remedial work required.

Common Sellers Concerns.

Can’t I just get a Safe & Sanitary Report?

Safe and Sanitary Reports do not benefit you unless your non-compliant works were built prior to 1 July 1992.

Everything you need to know about Safe & Sanitary Reports is here on the Auckland Council Website.

Does my agent have to disclose?

Yes.

Agents have strict disclosure obligations. Your Agency Agreement will ask you if you have carried out, or if you are aware of any non-compliant works. We are not able to disclose anything you have not given us permission to disclose. But if you instruct us not to disclose an important issue, we must stop working for you.

More information on this is available from the Settled website here.

Maybe I’ll just tell the agent the works were there when I bought. My house is over 30 years old. How would anyone find out when they were added?

If you have thought about this, you are only human. But non-disclosure can result in a number of unintended consequences for you.

Consider the following:

  1. Buyers are often able to access house plans in your Property File held at Council giving them a pretty good idea about what is original, what isn’t and when non-compliant works were likely to have been added.
  2. GIS historic aerial photos can be used to establish an approximate timeframe for extensions.
  3. Builders can, sometimes, date building materials giving buyers an approximate idea of when works were added.
  4. And, lastly, the neighbours, former tenants or even former owners may be the ones to unceremoniously drop you in it. It is a small world.

There are so many ways you can be snapped and, if you are, your credibility and goodwill with your prospective purchaser go down the gurgler.

I once had a neighbour from an adjacemnt property pop through my Open Home, ask if I knew when an extension was built and proceed to loudly announce that they had watched my seller build it from their kitchen window 4 years before. This wouldn’t have been a problem except the seller had told me that it was there when he purchased 15 years earlier – and I had just repeated this to a buyer. Needless to say, I wouldn’t have loved my chances of getting a great price out of the buyers that were there that day – because we (the seller and, by extension, me) looked pretty suspect.

And then there are possible future legal issues you may create for yourself should your buyer discover the issues down the track and decide to pursue you through the Courts.

Maybe we could keep it out of the Sales and Purchase Agreement so the bank won’t kick up a fuss?

No good agent is going to be thrilled about the possibility of explaining in future why they deliberately withheld material information from a stakeholder (the bank) when drafting your agreement but there is another good reason not to do this – and it’s all about you, the seller.

In the Sales and Purchase Agreement, you make certain undertakings to your purchaser (see Ninth Edition 2012 (7) – General Terms of Sale – Clause 7.0), amongst these being undertakings that you have not done or permitted to be done any non-compliant works. By failing to include an exception to these warranties in your agreement you are making a false statement and may be leaving yourself open to future claims from your purchaser. Don’t be penny wise and pound foolish.

And remember…

Nothing in this post replaces the need to check in with your solicitor when selling a home with non-compliant works. Your solicitor is there to keep you safe and can give you valuable, specific advice in relation to your situation.

In summary…

I hope this post has given you an overview of the increasing importance of adhering to the Building Act with improvements you make to your property. As well as some workarounds when you go to sell a home that has compliance elements that are ‘less than perfect’.

Good luck with your sale!


Other Articles For Sellers.

Selling Your First Home. For First Timers.
Is Auction the Best Strategy? 3 Times It Just Isn’t.
Why Market Without A Price? Strategy For Sellers.
Is the First Offer Usually the Best Offer? Assessing Early Offers.
Smart Ways To Deal With Stupid Offers



Are you looking to sell property in the greater Auckland region? Like some advice about your property or plans?
Feel free to give Maria a call on 021 454694. Or email her here.

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Maori Bay

The Author

Maria is a veteran Auckland realtor, rookie blogger and long time resident of the West and Nor'west. Maria markets and sells residential and lifestyle property across Auckland and is based at Harcourts Northwest Realty Limited - Licensed REAA 2008

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