Many new-build properties come with some form of advertised warranty. But what you may not know is that all residential new builds are covered by the implied warranties outlined in the Building Act. So, are they worth it?
For residential building work in New Zealand, all builders owe their customers a duty to ensure that the building is built properly. A builder’s duty is shaped by “implied warranties” provided by the Building Act meaning that a builder must warranty the work for a minimum of 10 years after construction. Under Part 4A of the Building Act, a builder is required to ensure that:
In New Zealand, more than half of all construction companies will have closed after just four years. As an extra layer of protection for clients against smaller construction companies going into liquidation, there are two main products that have been developed by the building industry bodies – New Zealand Certified Builders and the Registered Master Builders’ Association.
It’s important to understand the limitations of those policies. There are multiple levels of cover and not all products are the same. Products range in price from $500 to $3,000 and before purchasing a policy, you need to be certain of what you’re paying for – it’s unrealistic to expect that a $500 policy is going to provide meaningful cover for a $300,000 asset.
Moreover, these policies commonly don’t provide any further cover than that required under the Building Act and all these policies have a limit of cover. The overall limits of cover are never more than the original contract price. Keep in mind that increasing build costs will depreciate the value of these policies over time.
Many Builders provide warranties and/or guarantees that are not backed by a third party and do not extend further than the implied warranties under the Building Act. It’s important to get advice on the adequacy or cover provided by any Warranty or Guaranteed product.
Under the Building Act, once you have taken possession of the property you have a 12-month period to identify defects and your builder is obliged to fix those defects. If you think that there is a defect, then your builder must remedy this in a reasonable time. The Building Act sets out what constitutes defects
So, whether a builder has any third-party warranties i.e. Master Build Warranty or not, they are legally obligated to comply with the Building Act 2004 and MUST warrant their work for a minimum of 10 years. Third-party warranties do not necessarily provide any further cover than what already exists under the Building Act. Also, under the Building Act, all builders MUST fix/rectify any defects that are found within the first 12 months of possession. So rather than relying on a third-party warranty, it’s better to only work with builders that have been in business for a long period of time and that have been recommended to you.
Any questions relating to the reputation of the builder should be raised during your due diligence investigations and you should always seek independent legal advice with regard to the risks of buying off the plans.
Hamish Cowan – General Manager – Momentum Realty
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