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Does COVID-19 Change the Rules?

Lawyer Geoff Hardy examines whether Covid-19 affects your rights and responsibilities under your landscaping contracts

At the time I wrote this, we were back in Alert Level 2 (or in Auckland’s case, Alert Level 2.5) and we were unsure whether we were heading for Level 1 or not. Tradesmen had by and large continued working despite the increased restrictions, but they were having to observe all the social distancing, personal protection equipment, hygiene, contract tracing, and other precautions that applied to Level 2. They were also facing backlogs in the supply of materials. That meant they were going slow and incurring additional cost.

On top of that, in some cases, property owners were pondering on an uncertain economic future and having second thoughts about whether their landscaping project was such a good idea after all. In those circumstances, it is natural that many property owners would want to do one of two things – suspend work, or suspend payment. And for those projects which had already been signed up but not commenced, it was possible that they would want to call them off. Some landscapers may have been confronted with this, or may do so in the future and will want to know whether they have to go along with it.

I suspect most property owners who are already part-way through a landscaping project are going to want to see it finished, or at least completed to a stage where it won’t fall apart and is not an eyesore. After all, they probably have their project finance in place, and half-finished improvements aren’t any use to anyone. However, if their incomes have taken a hit then they might want to soften the blow of the accumulating costs, and that means slowing up payment. That is going to hurt landscapers, whether they are working directly for the property owners, or as a subcontractor to the head contractor on the project.

Now whether the owners or the head contractor want to change the payment terms, put the project on hold for a while, or even bring it to an end, the starting point is that neither party can force changes on the other without their consent. A deal is a deal, and there is nothing about Covid-19 that alters that deal. If the parties didn’t anticipate a pandemic and didn’t cater for it in the contract, then they have got to carry on as though it didn’t happen. So just as the landscaper has to keep working, so the owners or the head contractor have to keep paying. That doesn’t mean that landscapers can ignore

the Government and keep working as normal right through the Alert Levels. But it does mean that they could be in breach of contract by complying with that directive, regardless of the fact that they had no choice.

Of course, a lot depends on what type of contract the landscaper is bound by. Some will have their own form of contract that they have either obtained from a lawyer, or through trade associations such as Registered Master Landscapers New Zealand or the NZ Institute of Landscape Architects. Many won’t go to that degree of detail, and will merely issue a quote, which may or may not include some fine print about terms of payment. Finally, there are many landscapers who are required to sign a more sophisticated contract either by the property owners if they are contracting with them directly, or by the head contractor if they have been engaged as a subcontractor.

Fortunately, most sophisticated building contracts do cater for this situation to some extent. Some of them contain force majeure provisions that excuse a party from complying with their obligations when they are prevented from doing so for reasons beyond their reasonable control. And most contracts entitle the contractor to an extension of time (thereby avoiding having to pay damages for delay) for similar reasons. The only catch is that the contractor has to try to get around the interruption and must resume work as soon as reasonably possible. And in some contracts there is a deadline for applying for the extension.

What about the owners’ obligations to pay their contractors and not hold them up? Can the owners rely on force majeure, assuming the contract has such a clause in it, to get around those obligations? Well to do so they would have to point to a cause beyond their reasonable control that prevents them from complying with their obligations. And it’s doubtful whether Covid-19 prevents them from paying their contractors and allowing them to continue uninterrupted.

Fortunately for the owners, some building contracts such as NZS 3910:2013 allow the engineer to suspend part or all of the work indefinitely, if it “becomes necessary”. It is debatable whether a potential recession makes suspension “necessary”, but the consolation for the building company is that it can treat the suspension as a variation, and submit claims for the resulting costs and an extension of time. If the suspension continues for more than three months, the building company can ask that the suspension be lifted. If it isn’t lifted within a further month, the building company can get out of having to do the affected work at all.

As an alternative, can the owners change the rules by ordering a negative variation? Most building contracts allow owners to order variations, including removing portions of work from the building company’s scope of work. Technically, they could remove all remaining work from the project and call it to a halt. But the law forbids them from doing so, because that would be a termination in disguise.

The final thing the owners might contemplate doing is terminating the building contract. That is more likely to happen with projects that have been signed up but not commenced, but it could equally happen to projects that are already underway. The important point for both parties to remember is that it’s not that easy to cancel a building contract. Normally both parties must see it through to the end.

There are some exceptions to the rule, of course, and those exceptions are either spelled out in your contract with your client (whether your contract is with the owners, or a head contractor), or they are found in statutes such as the Contract and Commercial Law Act 2017, the Consumer Guarantees Act 1993, and the Building Act 2004. Precisely which termination rights apply depends on the building contract that you use and whether the project is residential or not, but they typically include situations where the other party goes bust, or is seriously in default of its obligations, or it abandons the project or becomes incapable of carrying it out, or for some reason it becomes impossible for the parties to carry the project out.

None of those situations necessarily occurs just because of Covid-19. That is because Covid-19 is hopefully only a temporary phenomenon. Although tradespeople were prohibited from working during Alert Level 4 unless they were providing essential services, and they were technically in default for not working continuously, most of them could rely on force majeure as an excuse, or claim an extension of time. And the fact that they returned to work during Level 3 demonstrated that they hadn’t abandoned the project, they hadn’t gone bust, and they were capable of seeing it through to the end.

So where does that leave landscapers? Although they might have to accept a suspension of work (depending on the contract), they will be compensated for that. More importantly, landscapers do not necessarily have to accept a termination, or a change in the payment terms for that matter. Admittedly, they would normally be realistic and would accommodate a good client’s reasonable requests. But the important point is that it should be on the landscaper’s terms, not on the owners’ or the head contractor’s whim.

Geoff Hardy has 45 years’ experience as a commercial lawyer and is a partner in the Auckland firm Martelli McKegg. He guarantees personal attention to new clients at competitive rates.

His phone number is (09) 379 0700, fax (09) 309 4112, and e-mail This article is not intended to be relied upon as legal advice.


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