Consumer building contracts

Section 1 of the Residential Property Construction Act defines the scope of the Act, and thereby the type of contractual relationship governed by it. It is stipulated here that the Act applies to agreements between contractors and consumers in relation to the construction of a residential building. In addition, the types of cases this covers are outlined:

a. contract governing the construction of a building for residential purposes and agreement concerning the work carried out directly as part of such construction, and

b. contract governing the right to real estate and one’s own residence when the work of the contractor has still not been completed by the agreed date. An agreement concerning the further sale of such a right shall similarly be considered.

It is important to note that the scope of the Act is formulated so as to give it a relatively wide application, and that the Act also apples to the construction of leisure homes. Central to the Act’s application is the nature of the parties, as the contractual relationship must be entered into by a consumer and a contractor, and it must relate to the construction of a residential property of some kind.

A contractor who has signed such a contract with a consumer will bear the same responsibilities as a design-bid-build (turnkey) contractor, given the provisions of the Residential Property Construction Act. This will be the case even though the contractor might look upon himself as an intermediary, for example between the consumer and a foreign supplier. It is important that the contractor is fully aware of his role in contractual relationships with consumers.

An assessment of what constitutes a defect pursuant to the Residential Property Construction Act generally proceeds from the premise that a defect exists if the result does not correspond to what is described in the contract. Section 25 (1) of the Act also refers explicitly to Sections 7, 9 and 13.

In Section 7 the requirement for technically sound performance is stipulated. In legal procedure and theory, it is acknowledged that technically sound performance must be judged according to industry standards, for example Byggforskserien and Byggdetaljer. This is also laid down in LG-2010-081823. It is, however, important that a contractor is able to defend the solution of his choice, and if such is deemed by the court to be reasonable, it will probably not be of decisive significance that Byggdetaljer recommends another solution.

At the same time, it is important to note that defects pursuant to Section 25 (2) of the Residential Property Construction Act also exist when the result is not in compliance with the official requirements laid down in the relevant legislation or regulations. This means that a breach of the regulatory requirement in for example TEK17 may represent defective performance.

An issue that is often the source of conflict is the extent to which a binding date has been given for takeover of the residence. Section 10 of the Residential Property Construction Act states that the contractor shall respect the agreed time limits and if he fails to do so, this will lead to penalties for non-performance in the form of fines. The decisive point here is whether a completion date has been agreed.

In legal practice there are in particular two judgments, Rt-2011-670 (Nye Major) and Rt-2011-679 (Krusesgate), which have determined what is deemed necessary to confirm that a specific takeover date has been agreed. In these two cases the following formulations have been used to express the takeover date:

• Nye major: «Seller aims for completion of residence in the second half of 2007.»
• Krusesgate: «The residences are planned to be ready for takeover in the course of the 3rd quarter 2007.»

In both of these cases the Supreme Court concluded that a binding takeover date had not been agreed. In the Nye Major decision, the Court also remarked that there were no grounds for interpreting the contract formulation as a form of forecast that implied a requirement to deliver within a reasonable time after the time limit had elapsed.

There is a provision in Section 10 (3) stipulating that the contractor has a duty to ensure the reasonable progress of the project. This provision sets a limit to the time taken by the contractor in those cases where no takeover date has been set, and it cannot therefore be ruled out that non-binding time estimates nevertheless may be of relevance when considering this provision of the Act.