As the Government considers public insurance for building defects, new concerns emerge about Master Builders' secretive warranty and its refusal to pay out for defects and company collapses
Fiona Drysdale and her husband had already questioned some of the $650,000 of invoices on the construction of their newly built home before they took possession. But when they moved into the three-bedroom house, more problems quickly became apparent.
The interior paintwork was shoddy, in their opinion and that of the master painter they asked to inspect it. There were big scratches across the windows. And that was just the start of it – in the end, Drysdale says they were left $41,000 out of pocket.
She has come forward to tell of her anger at the Registered Master Builder who project managed and constructed the Lumsden home where she and her husband Ken had imagined entertaining their grandchildren.
And to express her frustration with the pricey Registered Master Builders Association warranty: "I thought the Master Build Guarantee was actually there for situations like this, and these poor homeowners where the builder goes out of business. I thought that was what the guarantee was about. But it's not."
Registered Master Builders Association chief executive David Kelly gives varied excuses to the home-owners who complain the association won't pay up on its warranty but he refuses to say how many (if any) pay-outs it has made in the past 12 months. All he has said is that the association honours all valid claims, mostly by the builder returning to the site to fix the problems. "There are only a very small number that require a cash settlement."
He won't disclose how much the customers of registered master builders have paid for warranties, though at an average of $1000-$1200 each, the guarantees would have brought in more than $20 million last year. Neither will he disclose how much it's issued in disbursements.
Drysdale is not the first upset customer to speak out.
Newsroom has been in touch with Sylvana Whitehouse, who's representing 20 families pursuing legal action against the Registered Master Builders Association after the collapse of Jonesy Construction in Wellington.
In Omaha, north of Auckland, Miles and Rosemary Reeve says Master Builders refused to pay for remedial work for faults in their building project. "Their response basically said the house had to be falling down before they would become involved," Miles Reeve says.
And in Auckland, Joel and Elly Wilton say their Master Build Guarantee isn't worth the paper it's written on, after building company Double D Construction went into liquidation leaving them to pay $82,000 in remedial work on their home renovations.
READ MORE:
► Master Build guarantee ‘not worth the paper it’s written on’
► Liquidation of leaky homes firm underlines need for public insurance scheme
► Have you paid for a Master Build Guarantee, then tried to claim on it? Email contact@newsroom.co.nz
For the Drysdales and the Reeves, Kelly says the association wasn't obliged to pay out, because they'd taken their complaints to the Disputes Tribunal or District Court – a response that further angers Fiona Drysdale, as she was told by the association she needed to sort out the financial dispute before it would consider paying out for the defective work.
For Whitehouse, the Wiltons and other customers affected by the company liquidations, Kelly says the association is now working with them to understand their claims. The association engaged with them only after media coverage highlighted the lack of compensation.
The Master Build Guarantee is the only building warranty that promises to cover building company collapses as well as defective work, but it comes at a price. This year it hiked its fees about 10 percent. A 10-year guarantee now costs $825 for a building job quoted at between $30,000 and $200,000. The listed prices range up to $3025 for a job quoted at $2m; beyond that customers are advised to phone for the price.
As the Government begins a review of who is liable when builds go wrong, the aggrieved homeowners are warning against extending the Master Build warranty scheme to all projects.
The Master Builders Association has long argued that buying a building warranty should be made mandatory – a law change that critics say would be a nice money-spinner for the association.
Kelly says the consenting model isn't working and needs to change, and the Master Builders Association will continue to work closely with the Ministry of Business and Innovation on a government review, announced last week.
“What is also vitally important is that we also work together to develop some ‘quick win’ changes to improve the current system while this review is underway," he says. "We need to also take action to alleviate some of the pressure and delays which are costing builders and homeowners today."
Building and Construction Minister Megan Woods has published consultation papers to underpin a review of building consents rules, including how risk is managed and allocated when builds go wrong.
“The building consent system review will not revisit the current joint and several liability rule as this rule provides the greatest assurance that building owners will be compensated for any loss that results from building defects," she says. "However, the review will closely examine how we manage and allocate risk within the building system."
According to the issues paper, designers, builders and consenting authorities all expect someone else to take responsibility for building safe and compliant structures. "These attitudes and behaviours increase the risk of things going wrong, place greater pressure on building consent authorities to identify issues, and increase the risk of defects requiring rework," says one paper.
"The incentives on practitioners to get it right the first time may also be insufficient. A consistent theme coming from previous reviews is that the drive to build at pace and within budget creates an incentive for some practitioners to do the minimum they need to get the project ‘over the line’."
Homeowners purchasing ‘last resort’ cover must attempt to negotiate with builders to resolve building defects, or demonstrate the builder is no longer in existence, before the insurance company or guarantor will step in. All avenues for recovery of any loss must have been exhausted.
The paper notes the lack of regulatory oversight of builder warranties: "Guarantee and insurance products are also regulated differently with insurance products subject to much more stringent regulatory oversight and requirements ... None of these guarantees protect against design defects that the building consent authority may identify through the consenting process."
New Zealand has failed to develop a viable insurance market for building defects. Stamford Insurance previously had an insurance product that provided protection against design and workmanship defects, but withdrew it when its underwriter Lloyds left the market at the end of 2019.
And Builtin Insurance has recently stopped selling its 10-year Guarantee, because of difficulties underwriting the risk.
"The absence of a building warranty insurance market in New Zealand raises the policy question as to what the government’s role is in developing and supporting a warranty insurance scheme. Some building sector participants would like a publicly provided warranty insurance scheme or product."
'Last resort' building insurance schemes are mandatory in every Australian state except Tasmania, but the issues paper warns the case for such a scheme in New Zealand is weak. "There were significant concerns about the potential impact on the building sector, including that it may constrain the supply of builders and increase building costs. Other submitters considered there should be a greater focus on measures to lift the quality of building work to reduce the risk of defects in the first place.
"The design of such schemes is complex, fraught with uncertainty and unintended effects, and presents a significant fiscal risk to the government that it is not best-placed to manage compared with the private market. While the public policy case for a government-provided insurance scheme is currently not justified, this situation could change in the future to the extent the policy problem becomes clearer and where there are material changes in the costs, risks and potential benefits of such a significant public policy intervention."
In Southland, Fiona Drysdale remains rueful about the money she spent on the Master Build Guarantee.
"Innocently we thought that was what the guarantee was for," she says. "The guarantee that stated it was to give us peace of mind has instead given us sleepless nights and headaches.
"All this means that the clients have nowhere to go for help, back up or to get fair treatment, let alone end up with a finished home that is up to Industry Standard. Master Builders seem to actually protect unscrupulous builders rather than protect his clients."
