Build guarantees failing to protect customers

August 30, 2022

in Building & Construction,Property

With the ever-increasing constraints on the New Zealand building and construction industry now worsening amid a global economic crisis, we are seeing an increase in the number of disputes over projects closing down resulting in homeowners being left deep out of pocket, and out of options.

For these reasons and many more, traditional forms of third-party build guarantees have been seen as an attractive selling point in contracts involving development and construction projects. It gives the ultimate consumer a form of comfort that if things go wrong, there is a backstop.

Build guarantees are certainly not the only backstop, but in many cases, they are sold as a ‘catch all’ option leaving consumers with a false sense of security and stopping short of considering all other options available to them.

Some build guarantees provide assurances not only for defects in construction or products, but also for loss of deposit and non-completion of projects where the builder/developer goes bust.

On the face of it, these protections may appear to be available to the consumer, but in reality the situation can be very different.

The press has been running hot with examples where consumers believed they were being covered by a build guarantee when in fact they were not. Key examples highlight would-be homeowners being left without a deposit on the builder/developer going into liquidation, or left being unable to receive a pay-out for non-completion of the project on various ‘technicalities’ under the terms of the guarantee.

We have been involved in disputes where off-plan development contracts were sold with the promise of build guarantees being available on completion, only to find out later that none were actually being provided or could actually be obtained.

So, what then is a build guarantee worth if it cannot be relied on?

At a contractual level, having a build guarantee in place and being covered by the terms of the guarantee should afford the consumer the protections provided under the guarantee, or else the provider or supplier risks breach of contract, misrepresentation or breach of statutory rights protected by consumer laws.

Whether in fact the build guarantee is in place or whether in fact you are covered by the terms of the guarantee is a matter to be reviewed carefully by your lawyer at the earliest possible stage, and not when things actually go wrong. As we have seen with recent examples, at that stage it can usually be ‘too little too late’.

There are active steps you should consider taking if you are intending to rely on the protections being promised under a build guarantee.

If you require any advice or further information on the matters dealt with in this publication please contact the lawyer at Farry Law who normally advises you, or alternatively contact:

Cornelius Botha
09 353 6677

The information contained in this publication is intended as a guide only.  It does not constitute legal advice and should not be relied upon as such.  Professional advice should be sought before applying any of the information to particular circumstances.  While every reasonable care has been taken in the preparation of this publication, Farry Law does not accept liability for any errors it may contain. 

Previous post:

Next post: