There is a lot of talk around the importance of building guarantees at the moment. In this article we investigate whether such guarantees are essential or are they just another insurance marketing ploy to take more money off you?
The fact is, whether you arrange a guarantee or not, you are already covered by both Consumers Guarantee Act and The Building Act. But is this enough?
The Consumer Guarantees Act doesn’t apply to buildings and building materials, but it does cover services provided by the building industry. This could include any trade work, design work or inspection services. However making a claim under this act could be difficult, and expensive, as you would have to use a lawyer.
Under the Building Act, your consumer rights are protected in a set of warranties that a tradesperson automatically makes when you agree to them doing the work. Builders have liability for 10 years under the Building Act and a duty of care to ensure that everything you build is fit for purpose.
To start with, builders now have to provide a checklist and documentation of qualifications, licensing status, and any insurances or guarantees they offer if the work is over $30,000 (including gst) before a contract is signed. However the builder only has to state if they offer a guarantee - it doesn’t actually mean they have to provide one.
The warranties covered by the Building Act include:
- the building work will be done properly, competently, and in accordance with the plans and specifications
- all the materials used will be suitable and, unless otherwise stated in the contract, new
- the building work will be carried out in accordance with all law and requirements, including the Building Act and Regulations (including the Building Code)
- the building work will be carried out with reasonable care and skill and completed within the time specified, or a reasonable time if no time is stated
- the household unit will be suitable for occupation at the end of the work
This all sounds great, but there are two major problems that homeowners may face:
1) Enforcing the warranties can be difficult. You could go to the Disputes Tribunal, but only for claims to a maximum of $20,000. Otherwise you will have to use your lawyer or a Building Dispute Tribunal Consultant and go to court. The outcome of this could be expensive and unpredictable.
2) Your builder may no longer be in business. For reasons of insolvency, death, disability or simply a change in career, there is a high probability that your builder or building company may not be around to claim from within the 10 year period. In this case your warranty becomes void. According to Homefirst Building Guarantees, over half of all construction companies in NZ will have closed after just four years, and 75% will have failed within 10 years.
So what other options are there?
To cover your build fully, you can request a third party guarantee. As well as covering structural defects for 10 years like the standard Building Act Warranty, a third party guarantee will cover non-structural defects for within the first 2 years of the build being complete, refund lost deposits, pay extra costs to complete unfinished work and will protect you if your builder goes out of business within the 10 years.
If you have hired a Registered Master Builder, you can purchase a Master Build Guarantee. To do this, you must complete the guarantee documents with your builder and pay the required fee. Master Builders have 3 different guarantees to choose from, depending what level of coverage you require for your build:
- 10 Year Kiwi Guarantee (costs $500 but only on contracts under $100,000)
- 10 Year Standard (costs $1,300)
- 10 Year Premium Guarantee (costs $2950)
The Kiwi Guarantee covers claims up to $100,000, the Standard Guarantee $400,000 and the Premium Guarantee covers build claims up to $1,000,000.
You can find out more information about each of these on the Master Builder website.
If your builder is a Certified Builder, you can purchase a 10 Year Certified Builders Homefirst Guarantee through Builtin. Independent builders that are Builtin Accredited can also offer this guarantee. This will cover loss of deposit, completion of unfinished work, building defects and a variety of other situations. There are various guarantees and add ons available depending on the level of cover you require:
- Full contract (costs $1,000 - $1,200)
- Carpentry Labour Only (costs $600 - $700)
A recent example in NZ highlights the importance of having a Third Party Guarantee. In February 2016, Stonewood Homes Christchurch announced it would be going into receivership. (Note just the Stonewood franchise in Christchurch, not anywhere else). You would think that such an established brand and business would have little chance of failing, however these things do happen.
Luckily for most of their customers, Stonewood was a Registered Master Builder company and therefore offered the Master Build Guarantee. In a statement made to the press, Registered Master Builders Association (RMBA) said while it was regrettable that Stonewood Homes in Christchurch had gone into receivership, all Stonewood Christchurch homeowners had Master Build Guarantees, therefore all of their homes would be completed and remain under warranty.
Although you are covered by the Building Act Warranty, it is absolutely worth investing in a third party guarantee to cover your build if the company shuts down. Legally your builder is not required to provide you with a guarantee so it is up to you as consumers to make sure you can get your home guaranteed independently.
Another bonus of having a 10 year Third Party Guarantee is for on-sell. If there is any chance that you may be moving in the next 10 years, then a Builder's guarantee will be a strong selling point.
And finally - it's your home, probably the biggest investment you will make in your life, so an investment worth protecting. So if you are about to start building, ask your builder what guarantees they can offer. If they can't offer any then seriously consider changing your builder. If you have already started, there is a small chance you can get one by paying a late fee, but only if your builder is accredited with either Master Builders, Certified Builders or Builtin.
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