Third Party Builders Guarantees
Building a new home is probably the biggest investment you’ll ever make, and if anything goes wrong it could be the most costly too. It makes sense to reduce your risk by having a guarantee in place, just in case something does go wrong.
The warranties include the expectation that the work will be done competently using suitable materials, completed within a reasonable time and so on.
The problem is enforcing the warranties. You could take your building dispute to the local Disputes Tribunal – but the maximum claim a tribunal can hear is $20,000 (and that’s with the consent of both parties).
Many building disputes are for sums of money much greater than that.
You could use specialist Building Disputes Tribunal consultants, or you’re left with the courts, which are costly and often unpredictable; or with the Weathertight Homes Resolution Service, which deals only with leaky homes.
And if the building company goes into liquidation, which is one of the most common reasons for non-completion of a home, you have virtually no hope of getting your money back from the liquidator.
This is highly unsatisfactory. Consumers deserve better protection for one of the most costly purchases they’re ever likely to make.
Licensed Building Practitioners Scheme
The Department of Building and Housing (now Ministry of Business, Innovation and Employment – Building and Housing Group) Licensed Building Practitioners’ scheme came into effect on 1st March 2012.
Occupational licensing aims to make sure that people in the building industry are competent and accountable. A building practitioners’ board will hear complaints against licensed building practitioners (among other duties). But while the board can fine or suspend builders from the scheme, it isn’t meant to be a form of redress for consumers, so when building a house or doing renovations the cautious homeowner will still look for extra cover – such as a builders guarantee.
A builders guarantee ensures that if your builder can’t complete the job (usually for reasons of insolvency, death or disability) the guarantee company will find someone to finish it, and pay for any extra costs to complete your home. It will also cover you in the event of a loss of deposit and for any structural defects for the period of the guarantee, usually 10 years.
• Protects your deposit
• Guarantees to complete your build at the price you agreed
• Will repair defects for up to 10 years
• Transferrable to subsequent buyers
There are three major building-trade organisations in New Zealand: The Building Hub, New Zealand Certified Builders and the Registered Master Builders Association. Members of all three can provide independent 10 year guarantees.
In addition, builders who are not members of a trade association can apply to Builtin Insurance, a specialist in guarantees and insurance for the building industry, for approval to provide the 10 Year Homefirst Builders Guarantee. Builders who can offer the Homefirst Builders Guarantee must first meet Builtin’s strict criteria, including having the right experience and qualifications and running a financially sound business. The cost of a guarantee varies, depending on the cost of your building contract. The Homefirst Builders Guarantee usually costs between $900 to $1,800 (including GST).
The guarantees from all three trade organisations and the Homefirst Builders Guarantee vary in their benefits, amount of cover, terms & conditions, cost and security. Make sure you read and understand the policy on offer from your preferred builder. Do not assume you’ll automatically be covered by an independent guarantee just because you’ve engaged a member of a trade organisation. You will need to sign a guarantee application form, which the builder must submit for approval, and until you receive a Certificate of Guarantee you may not have cover in place.
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What work can a builders guarantee cover?
Independently insured guarantees are recommended for:
- New Builds
- Alterations & Additions
- Reclads & Exterior Renovation
- Weathertightness (leaky home) remediation
- Carpentry Labour Only
An increasing number of banks and other mortgage lenders are requiring homeowners to have an independent builders guarantee in place before they will approve construction loans. This is much more likely where the loan to value ratio (LVR) is above 80%.
Who underwrites these guarantees?
The Homefirst Builders Guarantee is underwritten by CBL Insurance Limited. CBL are a licensed New Zealand insurance company with an A- (Excellent) financial strength rating. CBL have more than 40 years experience as New Zealand’s largest and longest-established specialist bonding, financial risk & surety company. They have more than 15 million homes under guarantee worldwide. The Master Build Guarantee is administered by Master Build Services, which is wholly owned by the Registered Master Builders Association. The guarantee provided by NZCB members is underwritten by a syndicate within Lloyds of London.