The recent announcement from the Certified Builders Association that it is now mandatory for all members to give their clients an independent 10 year guarantee for work above $30,000 brings them into line with similar requirements for Master Builders. So are they just pre-empting what the government is going to do anyway, or should builders and homeowners still have the freedom to choose what guarantees they offer and accept?

Firstly, what’s the difference between a homeowner’s rights under the Building Act and the cover in one of these 10 year guarantees?
This is one of the most common questions Builtin are asked by builders. “If I have to guarantee it for 10 years under the Building Act, why should I need to provide a separate guarantee?” Put bluntly, if a building company is still trading then its customers can use the Building Act and other legal means to enforce their rights.  However, if the company has closed down then its contractual and legal obligations can’t be enforced, because the company no longer exists.

That’s OK, many builders say, we don’t plan on going bust!  Indeed, no one does.  The issue is that your customers can’t be sure you’ll be around for the next 10 years if something does go wrong (and frankly, neither can you).  And unfortunately some high profile cases of building companies going bust have increased the public’s concern about this. We don’t need to tell you about the pressures of running a building business, even the best sometimes get into difficulty and often through no fault of their own. This is why homeowners and their banks will often require an independent guarantee.

“Your customers can’t be sure you’ll be around for the next 10 years if something does go wrong.”

How does an independent builders guarantee benefit the homeowner?
Third party builders guarantees, such as Builtin’s Homefirst Builders Guarantee, reassure homeowners that they will:

  • protect the homeowner’s deposit
  • complete the build if their builder can’t, as well as covering the extra costs to do so
  • fix defects for up to 10 years

They are a guarantee of the builder’s obligations under their contract and in law.  In a recent case in Christchurch more than $1m has been paid on behalf of affected homeowners after their builder went bust, many of whom would otherwise have lost their deposit or faced increased costs to complete their homes or fix defective work.

Do builders have to provide them?
No.  The new disclosure rules that came into force in January 2015 only require you to disclose whether you can offer a guarantee, you do not have to provide one.  However, building trade associations require their members to provide them and the government is examining whether they should be made compulsory. Either way, as more homeowners, and their banks, require these guarantees, being able to offer one helps builders to win business.

Builders that do want to offer their clients an insured 10 year guarantee can contact Builtin New Zealand, an independent provider of insurance and guarantees for builders.  Only builders who meet Builtin’s accreditation criteria can offer their guarantee, but there is no cost to become accredited.

How do they benefit builders?
It used to be that there was no benefit for builders under these guarantees, however this is changing. For example, under the Homefirst Builders Guarantee, if there is a claim after your initial 12 month defects liability period ends the insurer will not chase you to recover their costs (although they may seek recovery from your subcontractors if they were at fault). This effectively insures the builder from the cost of rectifying those defects that are covered by the Guarantee. Homefirst also includes $10,000 cover to refund deposits paid by the builder to a component supplier who then goes bust.

Overseas examples
In many Australian states it is a legal requirement for builders to provide what they call a home warranty for every project, and they can’t be licensed without first being approved to provide warranty cover. In the UK more than 80% of all new homes are covered by a third party 10 year guarantee, although the scheme there is optional.  While the Government here is looking at the possibility of making builders guarantees compulsory, the current approach is to encourage the building public to become more informed and choose a builder who can provide one.

In a nutshell
You can’t predict what might happen to you or your business, certainly over a period of 10 years. It’s the reason you insure for any risk. And it’s why third party builders guarantees are increasingly being asked for by homeowners and their banks. For builders, depending on which guarantee you offer, they also now give cover for you too.

Builtin New Zealand is a specialist in insurance & guarantees for builders & tradespeople.  For more information visit www.builtin.co.nz, email Ben Rickard at ben@builtin.co.nz or call him on 0800 BUILTIN.

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