As a new construction firm goes to the wall, customers are furious to discover they can't claim on the Master Builders Association's 10-year guarantee
When Joel and Elly Wilton paid $1300-plus for a Master Build Guarantee, they thought they would be covered if anything went wrong in the renovation of their $2 million Auckland home. The building company owner, Registered Master Builder Deek Tocker, thought the same.
They were all wrong; now they say the guarantee isn't worth the paper it's written on.
The Registered Master Builders Association has been lobbying for the Government to make warranties such as its one mandatory, but a Newsroom investigation reveals concerns from builders and their customers about the scheme's perceived lack of accountability.
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Over the past six months, at least five Master Builders have gone into receivership or liquidation. Three of these had guarantees in place that the association says it's honouring.
Jonesy Construction and Tocker's firm Double D Construction are two that have been put into liquidation. Master Build chief executive David Kelly says four Jonesy customers had made 11 claims under the guarantee. But regrettably, there are 27 more whose initial applications were never lodged by the builder, and the association would have refused to guarantee some of them. "We understand this is a difficult time for these homeowners and are working to support them as best we can."
As for Double D, Kelly denied knowledge of any claims – though Joel Wilton says he has repeatedly called the association about claiming on his guarantee, and been told it's logged. He's asked for them to call him back – but with no response. "In December 2021, we went to Registered Master Builders to lodge the defects against the guarantee and it had not been actioned," adds Elly Wilton. "RMB wanted us to tell them what the defects were even though the guarantee was still being 'assessed' if it could be approved."
"We operate in a competitive environment, and it is the stance of the board that we do not disclose what we regard as commercially sensitive or confidential financial information." – David Kelly, Master Builders
The dispute between the Wiltons and Double D Construction went to arbitration, which ruled in favour of the Wiltons. And after further investigation, David Kelly confirms Master Builders did have "limited contact" with the Mt Eden homeowners earlier this year. "At that stage the builder was still in business," he says. "While a member of Master Builders is in business, we have an expectation that as a Master Builder they will address any issues and resolve contractual matters with homeowners.
"Given the recent liquidation of Double D, we are now working with the homeowners to understand any claims they may have. Our claims team endeavour to respond to all homeowner calls in a timely manner; however, like many organisations we are stretched at times due to Covid-19 and illness impacting the team. We endeavour to provide good customer service and are sorry for delays when they occur."
Double D's liquidator, Paul Vlasic, reports the company became insolvent due to difficult trading conditions, the pandemic and an adverse award against the company – namely, the dispute with the Wiltons. Tocker says there were also another two disputes over completion and payment for projects, taking the company's shortfall to $110,000.
At the Mt Eden house, there are claims and counter-claims: Double D says it's lost $30,000; Joel Wilton says he and his wife have been left $82,000 out of pocket.
► Have you paid for a Master Build Guarantee, then tried to claim on it? Email contact@newsroom.co.nz
And while the primary dispute is between the builder and customer, both are frustrated the Master Build Guarantee won't cover the mess. "The whole Master Builders thing is an absolute have," Wilton claims. "They advertise that 'you need us, we'll help you through it, there's a guarantee at the end of it'. And, you know, there's not. It's lip service. It's total rubbish."
Tocker agrees: "I will not be joining the Master Builders again," he says. "I don't mean to speak ill of them. But I felt like if I was going to ring them, they just passed me off to a local lawyer. They're happy to take your annual fee and the price of the Master Build Guarantee, but if you want any advice from them, you have to pay for it.
"I paid all this membership money for years and years and years, and it didn't really stand for much."
Newsroom has heard from builders concerned about the Master Build Guarantee and the lack of any accountability. The association hiked its prices in May this year yet, unlike traditional insurance or indemnity schemes, it resolutely refuses to disclose any details of how much money is being paid in, and paid out.
According to the website there are more than 50,000 Master Build Guarantees active in the market, offering protection for more than $34 billion of property.
The association says it sold 18,000 guarantees last year which, at an average of more than $1000 to $1200 each, would have brought in more than $20 million. Accumulated over many years, this would be an enormous nest egg for the association – especially as any claims are usually met by asking the builder to go back and remedy defects, rather than a payout.
The income and disbursements aren't disclosed to the association's 3,100 members, who are commercial and residential builders. Nor is the money disclosed in the accounts that the Registered Master Builders Association is legally required to lodge with the Companies Office; instead, it is hidden in a separate, wholly-owned but private company.
That company does not publish any financial statements. The only hint at what it's doing with its fund is a line in the parent association's statements, which says the association received $600,000 in dividends in 2020 from an undisclosed ownership stake. Some or most of that was from the Guarantee, Kelly confirms.
Newsroom asked the association for the financials for the Master Build Guarantee and the company that operates it, Master Build Services Ltd. Kelly refused to disclose them, pleading commercial sensitivity. "We operate in a competitive environment."
But in fact, the Master Build Guarantee is the only warranty on the market promising to cover jobs that aren't completed, when building firms close down or go bust. And this year, largely because of shortages of building supplies such as Gib, increasing numbers of firms have gone to the wall.
Certified Master Builders also offer a warranty, but that only covers defects. And Builtin Insurance has recently stopped selling its 10-year Guarantee, because of difficulties underwriting the risk. "We have suspended issuing new guarantees while the construction market enters a volatile period with a likely increase in building company insolvencies," says Builtin director Ben Rickard.
That does illustrate the greater accountability that Master Builders refuses to provide. Builtin is a specialist insurance firm that is licensed as a financial services provider, regulated by the Financial Markets Authority.
Because of the way it structures its guarantee policy, Master Build Services Ltd escapes those regulatory and monitoring obligations. Five of the six men on its board are past or present building company directors: Richard Carver, Michael Fox, Peter Neven, Christopher Preston and Darrell Trigg. The sixth, Ralph Stewart, is an insurance company boss.
Kelly says it's "a strong board" that includes independent directors with extensive experience and knowledge of both the construction and insurance markets in New Zealand.
"The Master Build Guarantee is a warranty product not an insurance product," he argues. "Like an insurance company we maintain very high levels of governance and we assess our financial strength voluntarily against the Reserve Bank's solvency requirements.
"The dividend paid last year was not solely from the Guarantee business. Dividends are agreed and signed off by the board once it is satisfied that the company is in a strong solvency position."
Kelly says Master Build Services Ltd engages an independent actuary, with insurance expertise, to assess its solvency requirements twice a year.
"The most recent assessment was undertaken and presented to the board in June 2022," he says. "This showed that we are currently exceeding our solvency requirements. Their assessment is based on looking at our business and its trends over the past 30 years, including the quantity and type of buildings covered and the market conditions. Part of their solvency assessment is to consider various scenarios that could have a significant and negative impact on the total cost or volume of claims made in regard to our solvency.
"In addition to this, we operate under the relevant accounting standard, which requires that, in producing our financial statements, an annual review is undertaken of our ability to meet potential future claim payments for Guarantees already accepted. This is undertaken by the independent actuaries, and again indicated adequate cover. Our financial statements are prepared on a going concern basis and are audited by an independent auditor."
Kelly says the Master Build 10-year Guarantee is the longest-serving product of its kind in the New Zealand market. "This means we have weathered the many boom-and-bust cycles that have plagued our sector for the past 30 years. This has included managing periods where we have experienced a higher than normal level of claims, as well as significant member liquidations.
"The Master Build Guarantee is one of the few products on the market that provides cover if your builder is no longer in business, including if they go into liquidation," he adds. "This is a very deliberate decision by our Board. It reflects what we believe is one of the biggest risks for any homeowner. It is also an issue we are confident to provide cover for, because of the way our Guarantee works."
The company manages risk by only offering the guarantee through Master Builder members, placing cover caps on various stages of a project, and ensuring that building contracts don't demand significant advance payments. "This manages the risk for all parties and limits our risk exposure.
"Not every Guarantee application we receive will be approved. In each case, we must undertake a comprehensive risk assessment which involves assessing such matters as the builder's status and track record, compliance to the suggested payment schedule, the deposit being paid, the nature of the build and the specifications, the types of materials used, and any related risks involved in getting the building completed. An application will only be approved if we are satisfied with the risk we are taking on."
Clarification: Initially David Kelly said 11 Jonesy Constructions customers had lodged Master Build Guarantee claims. He has now corrected that statement: there were four customers who made 11 claims.
