Proportionate liability in the building sector: a new era for risk and responsibility?

The announcement is part of the Government’s overhaul of the building system; the most significant since the passing of the Building Act 2004. The reform is broad in scope, targeting the end-to-end building consent process, liability settings, regulatory consistency, and the roles and responsibilities of key participants in the sector. The changes are designed to address longstanding issues of inefficiency, inconsistency, and high costs, and to support the delivery of safe, durable, and affordable buildings across the country.

The reform around liability has the potential to herald genuine change for those across the building sector, including councils, builders, designers, insurers and, ultimately, home and building owners. This article looks beyond the headlines to examine how the proposed regime differs from the status quo and the possible concerns and potential benefits arising from the proposed shift in apportioning liability. 

The current setting – joint and several liability

The common law principle of joint and several liability is where two or more parties are held responsible for the same liability (or loss), but each of them is liable for the full amount of the loss. This means a homeowner can pursue any or all of the parties they allege are liable for their loss, even if other parties share responsibility for that loss. Where one party pays more than their “share”, they have a right to seek contribution from the other parties (assuming those parties are not insolvent or absent).³   

Under existing settings, a home or building owner alleging defects or non-compliance can elect to pursue one solvent defendant (e.g. the relevant council) on the basis that this party could be jointly and severally liable for all loss. Typically, a plaintiff does not sue one defendant and looks to pursue multiple parties; with those defendants also seeking to pursue third parties involved in the building/construction process. In a multi-defendant scenario, the principle of joint and several liability can still operate to the solvent party or parties’ detriment, with that party (or those parties) potentially liable for the total amount of proven loss, including loss that might have otherwise been the responsibility of an insolvent party.⁴ In practice, it is common for a number of parties involved in the construction of a building to have been wound up or to have become insolvent by the time a matter proceeds to trial. This means councils often become the “deep pocket”, and solvent contractors can end up paying far more than they might have if all parties involved in the construction remained solvent. When developers go into liquidation or builders vanish, councils and their ratepayers often inherit a significant share of the bill. In the Government’s announcement, Minister Penk referred to the example of the Oaks Shores litigation in Queenstown – where a NZ$160 million weathertightness claim threatened a multi-decade rates spike if the council was left with the total bill.  

While joint and several liability was designed to ensure plaintiffs are kept whole, those advocating for an adjustment to the current settings have pointed to the following considerations:

• Risk aversion in consenting – building consent authorities (or BCAs) have become wary of potential disproportionate liability and end up deploying conservative interpretations of the Building Code and demanding high evidentiary thresholds, slowing approvals.
  
  
• Insurance distortion – Councils must insure against losses largely outside their direct control, while some industry participants carry no insurance at all.
  
  
• Inequitable outcomes – solvent but low-fault defendants fund the negligence of others.  

These pressures have fuelled calls for a model that aligns legal responsibility with actual culpability.⁵   

The Government has also noted that Australia, which has significantly lower building costs, has a proportionate liability regime.⁶ 

The proposed reform – what proportionate liability is likely to look like 

Proportionate liability reverses the “last-man-standing” principle. In a multi-party proceeding, the court will be called on to attribute a percentage share of responsibility to each defendant. Each is then liable only for their share, irrespective of the solvency of others. For example, if a builder is assessed 40% at fault and the council at 20%, those defendants pay those proportions. The remaining 40% may lie with an insolvent developer, leaving a shortfall. Any shortfall will fall to the home (or building) owner.  

Companion reforms, which are still under consideration, include mandatory professional indemnity cover for key industry participants and possible home-warranty products for residential projects. These measures are being discussed as a counterweight to the possible shortfall and risk that a home (or building) owner may end up facing.  

Possible concerns and potential benefits 

In terms of potential concerns:  

• The so-called “empty-chair” problem – a plaintiff may face a recovery shortfall where a responsible party is insolvent or uninsured.  
  
  
• Insurance availability and cost – securing cover for weather-tightness and other systemic risks has historically been difficult in New Zealand. Premium pressure could offset some cost-savings expected from more efficient consenting processes.
  
  
• Increased litigation complexity – plaintiffs will be incentivised to sue every potentially liable party at the outset to avoid gaps. Contribution actions by defendants will likely reduce, but early joinder and proportionate assessment will be more legally and factually intensive.  
  
  
• Inconsistency between defendants – if the proportionate liability regime is limited to those who perform or certify “building work” under the Building Act, there is a risk of inconsistency and unfairness for parties who do not perform building work, such as manufacturers of building products. While the position varies from state to state in Australia, the proportionate liability regime applies on a general basis rather than being tied to particular types of activities. We think it will be critical that the new regime is fair and principled in extending the protections of proportionate liability to manufacturers and suppliers of building products.
  
  
• “Contracting out” – it is not clear what approach the Government is likely to adopt in respect of permitting the parties to a building contract to “contract out” of proportionate liability i.e. to provide, for example, as part of a tendered project, that joint and several liability is to apply.⁷ The other contractual interface that will need thought how the regime will operate alongside exclusions and limits on liability.
  
  
• Transitional uncertainty – existing projects and legacy defects may risk straddling two liability regimes, raising questions of retrospective application and limitation periods. The transition regime will therefore be important. 

In terms of potential benefits:

• Fairer allocation of risk – proportionate liability means that parties only shoulder the consequences of their own failings, remedying the perceived inequity of some parties funding others’ negligent acts.
  
  
• Improved consent efficiency – removing the risk of disproportionate burden on councils may temper overly cautious processing, reducing time and cost for builders and owners.
  
  
• Increased consumer protection – the risk of the “empty chair” problem may prompt moves to ensure greater consumer protection through industry wide mechanisms (such as insurance or a compulsory home warranty scheme).
  
  
• Market discipline – builders and designers unable to rely on a council “safety net” may look to invest in quality control and insurance, raising professional standards. 

What next?

The change will be achieved through amendments to the Building Act. The Government has signalled that it will introduce a proposed bill in early 2026 with the aim of the legislation passing in mid-2026.  

Those involved in the industry and impacted by the liability reform will want to pay close attention to the draft legislation and may wish to participate in submissions to the Select Committee when public consultation commences.   

If you have any questions about this article, please get in touch with the contacts listed or your usual Bell Gully adviser.

[1] Announcement by Minister Penk, 18 August 2025, at https://www.beehive.govt.nz/release/biggest-building-consent-system-reform-decades.  
[2] https://www.thepress.co.nz/politics/360794835/government-announce-new-building-consent-rules. 
[3] Section 17 of the Law Reform Act 1936 enables a person who has paid more than their fair share of damages in respect of a tort to recover contribution from other parties who are also liable for the same damage. In a study commissioned by MBIE in 2018, the Sapere Research Group estimated that building consent authority negligence costs were ~$1.1 billion (between 2008-2018). This included an estimated $332 million towards other parties’ share of the costs where other defendants were absent, or 48% of cases where building consent authorities were jointly and severally responsible. The Sapere study also estimated that, for the same period, homeowners were left out of pocket by $458 million, or 10% of the value of total claims in the cases studied. 
[4] There is some nuance to this. In proceedings with multiple defendants, the court must determine whether each defendant should be held liable for the loss claimed by the plaintiff. Each defendant will either be liable or not liable, depending on whether or not they are found to be in breach of, for example, a contract or a legal duty.  Where they are in breach, the court will also have to assess what loss or damage was caused by the breach. A court is also required to decide whether the loss is single and indivisible, or whether different aspects of the loss should be attributed to different liable defendants. A single, indivisible loss contributed to or caused by several wrongdoers is a common but not inevitable finding. For example, a council and a builder may be held liable for damage to an entire home but a decking subcontractor may only be liable for damage to the deck.  
[5] In June 2014, the Law Commission completed a comprehensive review of “liability of multiple defendants” (Report 132). The work was commissioned in the context of New Zealand’s leaky building crisis. The Commission examined joint and several and proportionate liability, reaching the view then that joint and several liability was “clearly the preferable system”. It did, however, recommend adjustments to the liability regime (e.g. a cap on council liability). The Government directed agencies to undertake further work, including consultation and regulatory impact analysis as a result of the Law Commission’s report. 
[6] Victoria was the first state to legislate for proportionate liability in 1993. In 2002, the Australian Federal Government agreed with all States to move to a proportionate liability regime for property damage and economic loss claims involving failure to take reasonable care, and for statute-based misleading and deceptive conduct claims. The change became effective, State by State, on various dates in 2004 and 2005. The Law Commission observed that this reform was influenced by an insurance crisis in Australia, including the collapse of the HIH Insurance Group, which had been a dominant provider in the professional indemnity and public liability insurance market.
[7] In Australia, New South Wales, Tasmania and Western Australia permit contracting out of the proportionate liability regime. In Queensland, contracting out is prohibited. In other jurisdictions, the legislation is silent as to whether or not contracting out is permitted. Some States also have anti-avoidance provisions to prevent prospective defendants from undermining the regime e.g. by requiring others to indemnify them against their share of liability. 

Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.