Building guarantees are supposed to offer you peace of mind if you're building or renovating a house. We assess the major guarantees available – including a new product that covers remedial work on leaky homes – and make the case for a government-backed scheme.

Legal protections

There are legal protections which are supposed to guarantee that any building work on your house is “fit for purpose”. But they don’t always help if your building project goes belly up.

Implied warranties
All residential building work is covered by the warranties set out in the Building Act.

The most important of them state that building work must be done competently and completed within a certain timeframe.

However, it's difficult to enforce these warranties for shoddy building work. You can:

  • File your dispute with the Disputes Tribunal (but only if you're claiming for less than $15,000 – or $20,000 with the agreement of both parties).
  • Opt for adjudication or arbitration (but fees can range from several thousand dollars to tens of thousands of dollars).
  • Lodge a claim with the Weathertight Homes Tribunal (but only if you have a leaky home built or altered within the past 10 years).
  • Take your case to court (but this is costly, time-consuming and stressful).

Licensed building practitioners
You now need to hire a licensed building practitioner (LBP) to carry out or supervise work that influences the structural integrity or weather-tightness of your home. The licensing scheme is meant to ensure that major work is done by competent tradespeople who can be held accountable if anything goes wrong.

Under the scheme, you can make a complaint to the Building Practitioners Board if an LBP has done a sub-standard job on your house. The board can cancel the practitioner's licence and impose a fine – but it can't award reparation. So you'll still be out of pocket.

Private building guarantees
Private building guarantees are designed to plug this gap in consumer protection.

The Certified Builders Association of New Zealand and the Registered Master Builders Federation (see below) provide the main guarantees available here (although some independent companies, such as Signature Homes, also offer guarantees to cover their own work).

The Department of Building and Housing estimates 50 percent of new builds are covered by guarantees from 1 of the 2 main suppliers.

Builtin New Zealand guarantees

Builtin New Zealand administers the Certified Builders Association of New Zealand (CBANZ) guarantee, which is called the Homefirst 10-Year Builders Guarantee.

It also offers the Homefirst 7-Year Builders Guarantee and a WaterTight Warranty for remedial work on leaky homes. The guarantees and warranty are underwritten by CBL Insurance Limited.

A Homefirst 10-Year Guarantee is only available if you’ve hired a builder who belongs to the CBANZ.

The Homefirst 7-Year Guarantee and the WaterTight Warranty don't limit your choice of builder as much. You can apply for one of these if you hire an independent builder – but Builtin New Zealand will have to approve your choice of builder first.

The cost of these Builtin New Zealand guarantees depends on the cost of your building contract and your level of cover. Each guarantee has 3 different levels of cover:

  • Full Contract covers the entire building project, including materials and subcontractors. But you must let your builder manage the project on your behalf.
  • Carpentry Labour Only covers only the builder's workmanship. You're responsible for the work of the subcontractors and the quality of the building materials.
  • Kitset Loss of Deposit covers your deposit on a building kitset if the builder goes bust and you don't receive the materials you've purchased. Builtin New Zealand assures us that rot and fungal decay will be covered by the Homefirst guarantees if it’s caused by a defect.

For a building project worth $350,000, a Full Contract Homefirst 10-Year Guarantee would cost between $1000 and $1200 (see "Guarantees compared", below). It’d cost between $600 and $700 if you opted for the Carpentry Labour Only option.

Master Build guarantees

Master Build Services provides the 3 guarantees offered by the Registered Master Builders Federation:

  • Master Build 10-Year Standard Guarantee
  • Master Build 10-Year Classic Guarantee
  • Master Build 10-Year Premium Guarantee.

A Master Build Services guarantee is only available if you hire a Registered Master Builder to work on your building project. There are no exceptions.

Each of these 3 guarantees offers a different level of cover:

  • The Standard covers loss of deposit, non-completion, and both structural and non-structural defects in materials or workmanship but not rot and fungal decay. You can reduce the cost of this guarantee by opting out of the loss-of-deposit and the non-completion cover.
  • The Classic covers defects in materials, workmanship and structure, plus rot and fungal decay.
  • The Premium is basically a combination of the Standard and Classic guarantees. It covers loss of deposit; non-completion; defects in workmanship, materials and structure; plus rot and fungal decay.

The Standard guarantee costs a fixed price of $1200 (or $900 if you opt out of the cover for loss of deposit and non-completion).

The other 2 Master Build guarantees are based on a percentage of the work you’re having done. The Classic costs 0.55 percent of the work ($1925 if the contract’s worth $350,000). The Premium costs 0.70 percent ($2450 if your contract's $350,000).

The Classic and Premium guarantees offer cover for rot or fungal decay up to a maximum of $500,000 for a period of 10 years. The hitch here is that your house's design must score 12 or lower on the Department of Building and Housing's "Acceptable Solution E2/AS1 Risk Matrix", which puts numbers on the risk of a house leaking:

  • Low risk = 0 to 6
  • Medium risk = 7 to 12
  • High risk = 13 to 20
  • Very high risk = over 20.

So Master Build Services' rot and fungal decay cover is available only for low- or medium-risk houses – which already have a reasonable chance of being weather-tight. (See "The risk of leaks", below, for more details of the "risk matrix".)

Guarantees compared

Prices quoted here are based on a building contract worth $350,000. The basic cover listed is the maximum offered by each guarantee and depends on the limitations stated in each guarantee.

Builtin New Zealand

Homefirst 7-Year Builders Guarantee

  • Price: $1000-1200
  • Loss of deposit: 20 percent of contract price or $50,000 (whichever is less)
  • Non-completion: 20 percent of contract price or $100,000 (whichever is less)
  • Defects (non-structural/structural): $100,000 (2 years/7 years)
  • Rot and fungal decay: Covered if result of defect

Homefirst 10-Year Builders Guarantee

  • Price: $1000-1200
  • Loss of deposit: 20 percent of contract price or $50,000 (whichever is less)
  • Non-completion: 20 percent of contract price or $100,000 (whichever is less)
  • Defects (non-structural/structural): $100,000 (2 years/10 years)
  • Rot and fungal decay: Covered if result of defect

Master Build Services

Master Build 10-Year Standard Guarantee

  • Price: $1200 (fixed price whatever the value of the building contract)
  • Loss of deposit: 5 percent of contract price or $15,000 (whichever is less)
  • Non-completion: 10 percent of contract price or $30,000 (whichever is less)
  • Defects (non-structural/structural): $100,000 (2 years/10 years)
  • Rot and fungal decay: n/a

Master Build 10-Year Classic Guarantee

  • Price: $1925
  • Loss of deposit: n/a
  • Non-completion: n/a
  • Defects (non-structural/structural): $500,000 (2 years/10 years)
  • Rot and fungal decay: $500,000 (10 years)

Master Build 10-Year Premium Guarantee

  • Price: $2450
  • Loss of deposit: 5 percent of contract price or $25,000 (whichever is less)
  • Non-completion: 10 percent of contract price or $40,000 (whichever is less)
  • Defects (non-structural/structural): $500,000 (2 years/10 years)
  • Rot and fungal decay: $500,000 (10 years)

Limitations and exclusions

These guarantees have some common limitations and exclusions. These include:

Consequential damage
The guarantees don't cover consequential damage. So your leaky roof will be fixed (provided it falls within the scope of the guarantee) but your water-stained curtains won’t be. However, Builtin New Zealand's two Homefirst Guarantees will cover the cost of alternative accommodation, and the removal and storage of household belongings for up to 30 days.

Damage covered by other insurance
The guarantees don't cover damage or loss that's already covered by another insurance contract. However, the Homefirst Guarantees will pay excess costs if the "first-resort" insurance contract doesn't fully cover you.

Variations to the building schedule
The guarantees won't cover variations to your building schedule unless you clear the variation with the guarantor first.

Remedial work
The guarantees won't cover defects if you take repairs into your own hands (for instance, if you hire a second builder to clean up the first builder's mess) unless you clear the repairs with your guarantor first.

Emergency repairs
The guarantees won't cover damage to your house caused by a defect unless you've taken reasonable steps to prevent the damage. So you can hire an after-hours builder to plug a sudden leak in your roof – but you must try to notify your guarantor first.

The onus is on you

A building guarantee doesn't free you from your responsibilities as a building owner. You still need to:

  • Agree a contract with your chosen builder.
  • Get building consent from your local authority.
  • Monitor your progress payments as work is completed.
  • Make sure council inspections take place as scheduled.
  • Sign a Notice of Practical Completion with your builder.
  • Apply for a Code Compliance Certificate from your local council.

Not carrying out any of your responsibilities as an owner can limit your cover.

No guarantee is a substitute for carefully selecting your builder. Check your builder's licence (www.business.govt.nz), qualifications, past projects and testimonials before signing a contract. Visit the Companies Office website to see if the director of the building company has gone into liquidation in the past.

Making a claim
To make a successful claim under your guarantee, you’ll need to be well-versed in its fine print. Make sure you understand the process for notifying the guarantee scheme of any defects (always in writing) and any time limits for lodging a claim.

The Queensland system

Queensland has a system of home-warranty insurance that acts much like a private building guarantee. It covers loss of deposit, defects and non-completion of work. And (like other guarantees) it won't cover damage or loss that's already covered by another insurance contract.

But in Queensland, builders – not consumers – are required to obtain warranty insurance from the Building Services Authority (BSA) for residential building work worth more than $3300.

The BSA is also a statutory authority, rather than a private outfit. As well as the insurance scheme, it's responsible for disputes resolution and mandatory licensing of all contractors. Among its powers, the BSA can:

  • Record instances where a builder has failed to rectify a defect (the records are publicly available).
  • Revoke a builder's licence.
  • Recover costs from the builder if it has to pay insurance cover to a homeowner.
  • Fine dishonest or incompetent builders $2000 and pursue further penalties (up to $25,000) through the Queensland Civil and Administrative Tribunal.

New South Wales has also moved to a form of statutory home warranty insurance. NSW Fair Trading offers a free building dispute resolution service. If the service fails, the state's Consumer, Trader and Tenancy Tribunal can hear building claims up to $500,000.

In 2011, as part of the Building Act review here, the Department of Building and Housing (DBH) mulled over the regulation of building guarantees. One alternative was a government-run surety product that could compete with the existing guarantees.

In the end, the government decided against regulating guarantees until other Building Act reforms had "bedded in".

It also recommended that the DBH develop further information and guidance "to help homeowners understand and manage the risks associated with the current suite of guarantee products and services in the building sector ...". The guidance hasn't been produced yet.

Our view

  • A government-backed home warranty insurance system (like Queensland's) should be introduced here. It would provide better consumer protection than private guarantees.
  • A statutory building-disputes tribunal would give homeowners a better chance of having poor-quality building work rectified. Building disputes are often complex and technical – there should be a specialist body to deal with them.

Report by Luke Harrison.