Are they any good?

The guarantees give you a form of redress if something goes wrong. However, they act more like insurance policies than guarantees. And - while they cover loss of deposit, non-completion, and defects - there are important limitations and exclusions in these guarantees. (See Limitations and exclusions.)

Limitations

Under the Master Build (MB) Guarantee, Master Build Services can decide whether the cost of fixing a defect is out of proportion to the loss or damage you've suffered. Instead of fixing the defect, Master Build Services can pay compensation.

The guarantee doesn't explain how the amount of compensation is worked out - for example, whether it's just Master Build Services' own estimate of your loss or damage.

Registered Master Builder's chief executive Pieter Burghout says that the homeowner can seek arbitration on the amount of compensation if they think the initial pay-out is too small.

The Homefirst Guarantee's cover looks more generous to us than the MB Guarantee. But there's one important drawback: the Homefirst Guarantee doesn't cover "leaky" homes (for example, homes built with untreated timber and/or unventilated monolithic claddings).

Builtin NZ's Jim Rickard says the reason for this is: "our building guarantee is only intended to cover the obligations of the builder. Leaky home issues are clearly not just due to the actions of the builder - [there are questions] of design, materials and inspection regimes. We certainly do cover leaky homes due to the builder's faulty workmanship".

Exclusions

The MB Guarantee excludes liability for any defects that "could" have been discovered by the owner upon reasonable inspection before the date of final payment or possession. We think this clause is too subjective: what one person considers an "obvious" defect might easily be missed by someone else.

Another concern with the MB Guarantee is a clause excluding any damage that a building owner "ought" to have taken steps to mitigate. One major law firm told us that, in its experience, such damage can occur while the claims are being sorted out. Mr Burghout says this is a standard clause used in all international guarantees: "If it's clear a defect in the roof is causing damage, you have an obligation to do temporary repairs - which to us is common sense."

The Homefirst Guarantee contains a clause excluding cover for defects where variations to the building plans are carried out (a variation is work that wasn't in the original building schedule). Worst-case scenario: this clause could be used to reject your application for cover - even though the variations have no bearing on the defect you're seeking cover for.

Mr Rickard says that this has never happened in practice: "Although we accept that this exclusion could be interpreted this way, it is not intended to exclude all cover. We shall be addressing this clause in a proposed forthcoming redraft to ensure clarity."

Improving the guarantees

All homeowners currently get a fixed guarantee that's meant to cover many different building types and conditions. But the exclusions skew the guarantees in favour of the firms offering them.

The guarantees would provide consumers with far greater protection if Master Build Services and Builtin New Zealand relaxed some of their exclusions. But Mr Burghout says that relaxing exclusions is too simplistic:

"We can offer more variety, more options, but that comes at a cost ... the reason we can keep the cost of the MB guarantee low is by offering a standardised product which benefits consumers accordingly."

We still think that the guarantors could allow homeowners more room to negotiate on specific clauses when a guarantee is bought. Individual guarantees could be tailored to better suit different building needs.