Peace of mind: How much protection do building guarantees really offer?
New Zealand should adopt Queensland-style building insurance to address problems in the house building market, says a consumer advocate.
Compulsory building guarantees are being considered under Building Act reforms by Construction Minister Jenny Salesa, but any decision won't be announced until 2020.
Consumer NZ head of research Jessica Wilson said the Australian government-backed scheme offered the broadest protection to home owners and home builders in a number of schemes looked at by Consumer.
The Queensland guarantee was backed by a statutory body that had powers to both censure builders and award compensation to victims of dodgy building, unlike the private schemes available in other Australian states and in New Zealand, she said.
The Certified Builders Association says building guarantees should be compulsory.
Registered Master Builders Association chief executive David Kelly said he strongly supported the Government promoting guarantees because of the limited protection provided by current legislation, but greater discussion was needed to establish what a mandatory guarantee meant in practice and how it could be implemented.
As it stands, the Building Act does not provide protection for non-completion or loss of deposit, nor does it protect people from insolvent builders, Wilson said.
But any compulsory guarantee that was introduced would need to be government backed and paid for by the consumer, she said.
The premium added to the construction cost would depend on the value of the project. In the case of the Queensland guarantee, cover for a $220,000 building costs $1100, or 0.5 per cent of the total cost, Wilson said.
Private sector guarantees such as those offered by Master Builders and Certified Builders would not suffice, Wilson said.
She said that despite being the largest purchase for most people, building a home comes with little consumer protection when things go wrong.
Building guarantees are one of the few consumer safety nets available but even these can leave people feeling caught out, Wilson said.
There are five building guarantees on the market, including Halo, Signature Homes, Builtin and Stamford. But the most widely recognised and generally considered the gold standard, is the 10-year guarantee offered by Master Builders.
These guarantees typically cover the loss of deposits paid to a builder, structural defects including weathertightness and non-completion of the house.
But customers have not always felt they've got what they paid for, Wilson said.
Of the five guarantees available, which Wilson said all offered a similar level of core cover, the Master Build 10-Year Guarantee is the most well known.
It is available to customers of a Registered Master Builder that are renovating or building a house.
People had bought the guarantee for non-completion thinking it would cover them should the worst happen, only to find themselves still facing substantial costs, she said.
"A big thing consumers may not be aware of is that it's not a blanket guarantee that will cover you in every situation, and there are caps on the amount you could be paid if you needed to make a claim," Wilson said.
Claims under the guarantee for non-completion were capped at up to 20 per cent of the contract or $500,000, whichever was less.
Kelly said customers could also claim up to $40,000 for remedial work.
The guarantee usually cost less than 1 per cent of the contract, he said.
Wilson said she would like to see "much better disclosure " of what the guarantee covers, with the limit cap prominently displayed so it was clear to the consumer.
It was also important for customers to be aware of what they needed to comply with, as the guarantee could be voided by a wrong move such as making advance payments to the builder.
K3 Legal director Jeff Walters said consumers needed to be careful with the terms of guarantees because the consequences of breaching them could be severe.
"If you get anyone else to carry out any defect remediation, you can lose the guarantee. If you fail to pay the builder after 21 days of a payment falling due, you lose the guarantee."
But Kelly said the information was clearly displayed both on the website and the contract, and confirmed to clients after the guarantee approval.
"However, we do expect all customers to read the details," he said.
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