Dáil Éireann debate -
Thursday, 15 Feb 2001

Vol. 530 No. 5

Adjournment Debate. - HomeBond Guarantee Scheme.

Mr. Connaughton

This is a matter which will have a huge impact for every young person who is either building or buying a new house. It relates to the HomeBond guarantee scheme. HomeBond is supposed to provide a type of insurance to buildings which in turn covers their clients when either an inferior job is done or where a builder goes bankrupt during the construction period. The scheme is broadly similar to that which tour operators have in the tourism industry. However, the experience of one young lady in my constituency in East Galway, who decided to build a new house, should be a lesson to many others. This lady paid the builder several financial instalments once the house had commenced. When the builder notified her that he was covered under the HomeBond guarantee scheme she was much relieved. However, it transpired that when the builder had been paid about £35,000 more than the value of the work done at that stage, seemingly, he went broke and disappeared.

The house owner understood that once this small builder got the so-called seal of approval from HomeBond she was working with what she thought was a safe builder. It appears that the HomeBond guarantee scheme works at two levels. One aspect of the scheme is to guarantee stage payments at certain points of construction, that is, 15 per cent of cost at foundation and 35 per cent at roof level.

This builder was accepted by HomeBond for the first instalment but because the builder did not apply to HomeBond for what is called a HB 11 application, HomeBond believes it has no responsibility whatever in this matter so that this lady is left high and dry.

This young house owner genuinely believed that any builder accepted by HomeBond would be reputable. She questions the vetting procedure and how the builder could go broke so quickly after his acceptance into the scheme. There are genuine structural defects in the house and she believes the HomeBond should be in a position to help her.

This episode will bring home to many young potential house builders and buyers that the guarantee given by HomeBond is quite restrictive and that they should certainly consider having an independent engineer on the site so far as possible in relation to the inspection for structural defects. This house owner is considering going to arbitration. However, for the house builder this is not as attractive a proposition as one might think. It could cost between £2,000 and £2,500 to get the type of legal representation needed to go to arbitration and if she loses she will be worse off than ever.

So far as the vetting of builders is concerned the financial questionnaire is a most elaborate document. It ask all types of questions on the financial standing of the builder involved. I find it difficult to understand if they go to the lengths outlined in this document, that a builder who would meet those requirements could go broke a couple of months later. That baffles me and my constituent. It is only right that the public would know exactly what is going on. I await the Minister of State's response.

Minister of State at the Department of Tourism, Sport and Recreation (Mr. E. Ryan)

My colleague, the Minister for the Environment and Local Government, is unable to be in the House this evening to respond to this issue.

The Government is strongly committed to ensuring both that aspiring first time house purchasers are given every opportunity to buy a house, and that there is adequate protection afforded to first time purchasers, and to all purchasers of new houses to ensure that developers and builders maintain the highest standards of work and that regulations on building standards are met.

The need for financial protection for new house purchasers is required particularly in instances where stage payments are paid to a builder. This practice requires the purchaser to make payments to builders at intervals in respect of the construction of a property. Stage payments are considered to be an unfair practice which exposes the house purchaser to an unacceptable degree of risk, by transferring the building cost of construction, and the development risk, from the developer to the purchaser. Should the builder go out of business before the House is completed, there can be considerable financial difficulties for the purchaser.

A limited stage payments warranty is currently provided by HomeBond, the National House Building Guarantee Scheme Company, which protects purchasers of new houses in the event of a bankruptcy or liquidation of a HomeBond registered builder. While it is acknowledged that the protection afforded by the HomeBond stage payments warranty is insufficient as liability is limited, it would not be feasible to overcome this inadequacy by simply increasing the level of cover provided, as the extra costs incurred by a builder would ultimately be passed on to the purchaser. There is no protection for people who have houses built by builders who are not members of HomeBond.

A number of issues relating to consumer protection for house purchasers are currently being considered by the Department of the Environment and Local Government for inclusion in a draft Housing (Miscellaneous Provisions) Bill which is being prepared by his Department. Among the issues being addressed are proposals to limit the practice of stage payments to ensure that the rights of house purchasers are safeguarded while avoiding adverse implications for overall housing supply.

Agreements between builders and purchasers regarding construction contracts, including completion of "snag lists", are governed by the rules of private contract between both parties. Therefore, builders who do not meet the requirements set out in the contract may be sued for breach of contract. As these are private contracts, third party intervention would not be appropriate. However, what the Government can do is ensure that these contracts are fair to all parties. I understand the Director of Consumer Affairs is preparing to bring a court case under EU unfair terms in consumer contracts regulations to outlaw certain terms in builders' contracts deemed to be inherently unfair. Such clauses would include those where builders insert into the standard building contract, a "get-out" clause to avoid finishing houses and completing snag lists. I understand the case is due to be heard shortly.

In addition to their current ten-year warranty for structural defects to new properties constructed by registered builders, HomeBond introduced last November a new complaints assessment scheme for registered builders, in respect of non-structural defects in new houses, arising within a year of completion of the purchase with effect from 1 January 2001. Non-structural defects covered under the scheme include leaky plumbing, uneven flooring, breaches of fire requirements such as smoke alarms, and lack of insulation. If a HomeBond member fails to comply with a direction notified by HomeBond, HomeBond may invoke sanctions against its member, including a refusal to register dwellings and possibly suspension or termination of membership.

Mr. Connaughton

They will not know at that stage.

Mr. E. Ryan

While the Department of the Environment and Local Government has overall responsibility for building regulations, which set out the legal requirements for design and construction, each local authority's building control officer is empowered to ensure that general building standards are observed by builders. These officers can undertake inspections and, if they consider that the work carried out is sub-standard, they can institute legal proceedings against non-compliant builders.