If you want extra protection during a home build, you’ll usually have to put your hand in your pocket and buy a building guarantee. These guarantees are marketed as peace of mind you’ll be covered if the build suddenly goes pear-shaped. But the cover they provide might not be as good as you think.
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As they signed on the dotted line of their building contract, an Auckland couple were reassured that – should anything go wrong – there was a warranty covering them. Their bank wouldn’t agree to the mortgage on the house-and-land package without one.
But when their builder, Bella Vista Homes, went into liquidation, they discovered the cover wasn’t what they thought. They had no protections beyond the minimum provided by law. The couple estimates it might cost $150,000 more than they bargained to complete their home and that doesn’t include their lost deposit.
Their neighbours-to-be, a young family who also signed with Bella Vista, are in the same boat. Told they’d be in their new home by Christmas, they now face the prospect of selling the property to recover the extra costs to finish the house. “It’s an absolute mess,” the young father says.
You don’t have to look far to find horror stories of home builds gone wrong. Despite efforts to clean up the industry and clamp down on cowboy operators, consumers are still largely on their own when things go off-beam.
We compared 5 building guarantees: Halo, Master Build Premium, Master Build Standard, Signature Homes and Stamford.
Master Build guarantees, the longest standing in the market, are an option if you build with a Registered Master Builder. A planned relaunch of the products in 2018 will see all work automatically covered by the guarantees, unless the buyer opts out.
The Halo guarantee, run by the New Zealand Certified Builders Association, already provides this type of automatic cover for work done by its members. Similarly, Signature Homes’ guarantee comes with any home built by its franchises.
Stamford’s guarantee doesn’t specify who you must choose for the work, although it vets the builder and their business.
With the exception of Signature Homes, you’ll pay a premium, on top of the cost of the build, to secure cover. However, it’s your builder who completes the application. Because of this, wait until you’ve seen official confirmation from a guarantee provider before paying the building deposit.
In 2016, Canterbury builder Gerard Thomson was fined $12,800 and ordered to pay $16,700 in reparation after telling his clients he’d organised Homefirst building guarantees for their new houses but never filed the paperwork.
Homefirst was underwritten by CBL Insurance, which was put into liquidation in February 2018.
If the building company collapses before work begins, all 5 schemes will refund your deposit. However, this can be limited – Master Build guarantees only refund 5% of the total contract price, so if you’ve put down 10% or 20%, you could be left out of pocket.
If your builder starts but doesn’t finish the job, the 5 schemes will cover the difference between the original builder’s quote and what another will charge to do the work – but only up to a limit.
Master Build’s and Stamford’s warranties are limited to 10% of the contract price, which isn’t a lot of leeway.
Stamford says 10% is “the norm” in countries such as the UK.
You may not be covered for any payments you make to the builder in advance of work being done – and doing so could mean you can’t make a claim under the guarantee at all.
Requests for advance payments (no matter the reason) should raise a red flag, Home Owners and Buyers Association of New Zealand president John Gray says. “Do not make a payment in advance. People are often under a lot of pressure and just say yes and pay it.”
The industry standard is to pay a builder for work already completed. Guarantee providers may assess the schedule of progress payments (set amounts paid as major works, such as the foundation and framing, are completed) before approving your guarantee. If it deems the builder is requesting money ahead of work being completed, a provider may decline to cover you or request changes.
You could also risk your cover if you don’t stay up to date with progress payments. It’s a good idea to hire an independent person, such as a building surveyor, to vet the build whenever a progress payment is requested to make sure the work has been completed to the standards required, Mr Gray says.
All 5 schemes cover structural defects for 10 years. Halo also covers non-structural defects for a decade.
The others will only remedy non-structural defects for the first few years – you’ll get 3 years of cover with a Master Build Premium guarantee and 2 years with Master Build Standard, Signature Homes and Stamford.
Although the defect (such as a leaky roof) will be covered, only Halo provides cover for damage (such as water-stained curtains) resulting from the defect. However, their protection only kicks in if you don’t have other insurance, such as house and contents, in place.
Customers who discover rot are covered by all 5 guarantees if the issue stems from a defect in the build. If the problem was caused by your behaviour (for example, failing to ensure adequate ventilation), your claim will be declined.
If you have to move out of your home during repairs, you’ll get up to 6 months of accommodation costs under the Halo and Stamford guarantees. Signature Homes pays for alternative accommodation for as long as repairs take.
You’ll currently have to stump up the cost of temporary accommodation if you hold a Master Build guarantee.
If you have a Signature Homes or Master Build warranty, you won’t need to pay an excess if you make a claim. With the other 2 schemes, excesses vary. Halo’s ranges from $500 to $750 for claims for defects found more than 3 months after completion. Stamford’s excess is from $1000 to $2500.
If you sell, all the guarantees can be transferred to the property’s new owner, though you may need to pay a fee or file the paperwork within a set period of time.
Unlike car or home and contents insurers, providers of building guarantees aren’t required to be licensed, which means their financial stability doesn’t always come under the scrutiny of regulators.
Two building guarantees we reviewed are backed by a licensed insurer: Halo and Stamford. These insurers must have a current financial strength rating, an indication of their ability to pay your claim.
They also must be registered with an independent financial disputes resolution scheme, which you can turn to if you disagree with how your claim was handled. These insurers have signed up to the industry’s Fair Insurance Code, which means (at least in principle) they must resolve claims “quickly, fairly and transparently”.
Stamford says it will pay for defects no matter who is at fault – you’re covered for work done by the architect and structural engineer as well as the builder.
Master Build’s and Signature Homes’ guarantees operate differently.
Claims on Master Build guarantees are paid by Master Build Services, a subsidiary of the Registered Master Builders Association – effectively, the builder is being backed by his or her colleagues. Last year, Master Build signed up with independent disputes resolution provider FairWay Resolution. The move, which followed considerable flak about Master Build’s claim process, means dissatisfied customers can take their case to this body for free.
Signature Homes says it relies on cash reserves and a $1 million bank bond to pay claims in case its franchisees go under. The company says it settles claims “internally and promptly”, though customers don’t have access to a free independent disputes scheme.
Once your home is complete, building guarantees provide little more than what you’re entitled to by law. The Building Act specifies all building work must be fit for purpose. If homeowners find defects within 12 months of completion, the builder must remedy them.
For the next 9 years, the builder remains liable to fix any defects – unless they can prove the company’s not at fault. But the major problem for consumers is enforcing their rights to have shoddy work fixed.
If you think the builder hasn’t met their legal obligations, you can take the matter to the Disputes Tribunal. But that’s only an option for disputes up to $15,000 (or $20,000 with the agreement of both parties).
Your other options are to head to court to seek compensation, or try to resolve the matter through adjudication or arbitration processes. These avenues come at a cost and they won’t help if the building company has gone under.
You can complain about a builder to the Building Practitioners Board, which can issue a fine and suspend or cancel a licence. But it can’t order reparation.
We’ve been calling for a government-backed building warranty scheme that would kick in if the builder failed to deliver or went belly-up. Similar schemes operate across the Tasman to provide protection for consumers like those caught out by the Bella Vista collapse.
In most Australian states, home warranty insurance is compulsory. Builders must hold insurance for all residential builds. The absence of any requirement this side of the ditch leaves a gap in consumer protection.
The Ministry of Business, Innovation and Employment is investigating options for mandatory building guarantees. However, Associate Housing Minister Jenny Salesa hasn’t said if she supports a legislative change.
|Name||Price||Provider||DURING BUILD: Loss of deposit (whichever is less)||DURING BUILD: Non-completion (whichever is less)||AFTER BUILD: Defects (whichever is less)||AFTER BUILD: Rot and fungal decay|
|Halo 10-Year Residential Guarantee Insurance||$1201.75||New Zealand Certified Builders||Up to 20% of contract price or $500,000||Up to 20% of contract price or $500,000||Cost to repair or replace (structural and non-structural)||Covered if result of defect|
|Master Build 10-Year Premium Guarantee||$2950.00||Master Build Services||Up to 5% of contract price or $40,000||Up to 10% of contract price or $100,000||Up to contract price or $1,000,000 for 10 years (structural) or 3 years (non-structural)||Covered if result of defect|
|Master Build 10-Year Standard Guarantee||$1300.00||Master Build Services||Up to 5% of contract price or $20,000||Up to 10% of contract price or $40,000||Up to contract price or $400,000 for 10 years (structural) or 2 years (non-structural)||Covered if result of defect|
|Signature Homes Building Guarantees||Included in building contract||Residential Indemnity||Cost to complete project||Cost to complete project||Unlimited for 10 years (structural) or 2 years (non-structural)||Covered if result of defect|
|Stamford 10-Year Building Warranty||$2012.50||Stamford Insurance||Up to 10% of contract price or $150,000||Up to 10% of contract price or $100,000||Up to contract price for 10 years (structural) or 2 years (non-structural)||Covered if result of defect|
GUIDE TO THE TABLE PRICE is based on a building contract of $350,000 and includes GST. COVER DURING BUILD and COVER AFTER BUILD is the maximum cover offered by each guarantee and depends on the limits and terms stated in each guarantee.
As many as 10,000 people with Homefirst 10-year building guarantees were left high and dry after the insurance underwriter, CBL Insurance, was put into liquidation.
Homefirst guarantees were provided by BuiltIn Insurance and also sold by New Zealand Certified Builders until the organisation launched its Halo guarantee in 2016.
In February 2018, the Reserve Bank asked the High Court to appoint interim liquidators to CBL. The company was operating below minimum solvency requirements and was required to get Reserve Bank approval for major transactions. But it ignored the bank’s directions and paid $55 million to two other entities, a move the Reserve Bank said may have benefitted some creditors over others.
Based on preliminary financial information, liquidators McGrathNicol said Homefirst policyholders “should be aware there may be insufficient funds available to meet in full any claims”.
BuiltIn Insurance said Homefirst customers who have signed a building contract and paid a deposit or have homes under construction can purchase replacement cover from Stamford Insurance, underwritten by Lloyd’s of London. Stamford will also consider applications from homeowners if their house is less than 12 months’ old.
Stamford’s terms and conditions will apply and customers will need to sign a declaration that “they know of no circumstances which could give rise to a claim”. Policyholders should contact BuiltIn Insurance to arrange cover.
BuiltIn said it’s seeking an alternative for Homefirst customers whose build was completed more than 12 months ago. The company is accepting new applications for Homefirst guarantees, though these policies will be backed by Lloyd’s of London.
Policyholders can find out more information about the liquidation and contact details for the liquidators here.
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