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Builders' guarantees

A look at what builders' guarantees cover, and what they exclude.

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What guarantees usually cover

Both the Certified Builders' Association of NZ (CBANZ) and the Registered Master Builders' Federation (RMBF) offer guarantees and a number of other builders and building companies offer their own guarantees.

It is most important that you ask the builder or company if they offer a guarantee. Find out what it covers and if you have to pay anything or fill out any forms to activate the guarantee. Don’t just assume that you are automatically covered.

Also find out what sort of contracts the guarantees cover – some may only cover work done under a full contract, and not under a labour-only contract.

Guarantees generally cover:

  • A contribution to the costs of completing the project if it is not completed by the builder for some reason, including paying another builder to do the work.
  • Defects in materials.
  • Quality of workmanship of the builder, and the subcontractors engaged by the builder.

Whether you are covered by a guarantee or not, you still have rights under the Consumer Guarantees Act 1993 which provides legal remedies for faulty goods and services provided by the builder and subcontractors.

Most reputable builders will stand by their work and want to fix problems because their reputation, and therefore future work, often depends on what their clients say about them.

But if you are offered a guarantee, read it very closely so you understand its limitations. Find out if it covers:

  • Labour-only work or full contract.
  • Alterations.
  • Projects only over a certain value
  • Subsequent purchasers.

Find out how long you have to make a claim under the guarantee and how long the guarantee period is.

Read the fine print and find out what will invalidate it, for example if you withhold the final payment, and what special conditions apply. If in doubt, seek legal advice.

Tip: Don’t assume you are covered by a builder’s guarantee. Cover is not always automatic, and it may not be as comprehensive as you believe. You will probably have to fill out an application form and pay some money. Find out exactly what the guarantee covers, read all the paperwork and if necessary run it past your lawyer. Make sure any guarantees are specifically listed in your contract.

Problems with guarantees

Even if you have a guarantee, making claims on it can sometimes prove problematic. People who have spoken to ConsumerBuild about their guarantee have reported problems when asking for it to be honoured.

For example, new house owners who have refused to make the final payment owing on the house because there were so many things wrong with it, have been told that the guarantee was null and void because they withheld money. However, once that final money has been paid it can still be difficult to get any action out of the builder.

In a situation like this, it would be wise to contact the guarantee company and arrange to make the final payment to them to hold in trust until the work is completed satisfactorily.

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Case studies

Case study 1
Because their builder was a RMB, Jack and Joan thought they were automatically covered by the RMBF guarantee. But when problems arose with faulty workmanship (missing piles resulting in an uneven floor and popping nails), they took a claim to the RMBF only to be told they hadn’t applied and paid for the guarantee and therefore were not covered. They had assumed the builder would organise this and include it in his price.

Case study 2
Mike engaged a group housing company who used builders under a franchise system to build his new house. Mike had a lot of difficulty getting the builder to keep to deadlines and wasn’t happy with the quality of the workmanship. Eventually the builder lost his franchise just a few weeks before the house was finished.

The builder has now gone out of business without completing all the tasks identified after the 60 day maintenance period. Mike has been told that the contract was between him and the builder so the ‘five star guarantee’ is not applicable.

Mike has neighbours in the same subdivision who used the same company but moved into their house before the franchise was taken away. They also have had an ongoing battle to get remedial work done under the guarantee.

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