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Insuring the construction of a building isn’t necessarily over when the structure is completed. Failures in design, materials, or workmanship, can go undetected until latent defects cause issues with the building several months or even many years later.
Rectifying these kinds of structural defects can be very expensive, which is why it’s important to have a latent defects insurance policy from the start. This policy can help to cover the costs of fixing latent structural defects, taking financial pressure off the building owner.
This post-completion building defects cover is normally available for a period of 10 years from the building’s completion certification date (now 15 years under the Building Safety Act 2022). It can cover up to the full value of rebuilding the property if required.
Also known as a structural warranty or new home warranty, this type of insurance policy is required by UK Finance (formerly the Council of Mortgage Lenders/CML) for new build homes, but can also be arranged for commercial properties, mixed-use developments, and renovation work.
Developers typically take out latent defects insurance for their projects before passing the policy over to the buyer. The reassurance of having a latent defects warranty can make properties more marketable, as they’ll be more attractive to investors and buyers.
Whether you’re a developer, investor, owner, or tenant, it makes financial sense to mitigate the risks of disruptive and costly latent structural defects by having the proper cover in place.
This policy should give you at least 10 years of cover for repair or reinstatement costs if damage is discovered resulting from faulty design, construction work, or building materials. Latent defects insurance will usually cover the following elements:
If taken out by the buyer of an off-plan property, the policy may also include protection against the insolvency of the developer/builder. Latent defects insurance policies can be tailored to your individual needs, with potential extra cover available for:
This insurance can be purchased for a variety of project and property types, including residential and commercial, speculative and non-speculative, and even completed buildings. It can be purchased by anyone who needs it, from self-building individuals to national developers.
When you have latent defects insurance, you don’t have to worry about proving negligence or determining who is at fault for the defective work. This helps to minimise disruption, allowing to access repair funds as quickly as possible following a successful claim rather than waiting for the outcome of complex litigation against the developer or builder.
As the alternative name of ‘structural warranty’ implies, latent defects insurance only covers problems with the building’s structural integrity. Generally, these policies don’t cover fixtures and fittings inside the property, or mechanical systems such as heating.
A latent defects warranty will only cover structural defects that are not found during initial surveys and do not become apparent until months or years after completion of the building. This means that the policy will not cover the costs for damage resulting from:
Latent defects insurance usually will not apply to anything that hasn’t been signed off under the technical audits that take place as part of the warranty process.
You may be unsure of who latent defects insurance is for, or which properties are eligible for a latent defects policy – or even when exactly this type of insurance applies. Most warranties covering structural defects are adjusted on a case-by-case basis to the specifications of the project, so this can vary, but they tend to be available for a variety of buildings, including:
These can include private or social housing, elderly or student accommodation, business premises, and public sector buildings. Essentially, any type of newly built or altered structure can benefit from latent defects insurance, because it covers the quality and safety of its structural elements.
As such, a variety of people and professionals are able to set up a latent defects insurance policy. Though the developer and/or builder typically does this before construction even begins, the policy later passes to the building owner who buys the property – but if the insurance isn’t already in place at the time of purchase, the owner may be responsible for arranging retrospective cover.
This means that not just contractors but also homeowners, business owners, landlords, leaseholders, housing associations, and financial lenders may find that it’s in their best interest to set up a latent defects warranty themselvesto protect their investment in the building. The sooner this is secured, the better, as you will then have increased protection at a lower premium.
Like most insurance policies, latent defects premiums can be a single one-off payment or annual payments for the duration of the policy term. As each latent defects policy will be tailored to the unique circumstances of the project or building, the cost will vary.
Factors that can affect the cost of latent defects insurance include (but are not limited to):
The larger and more expensive the building or development, the higher the insurance costs will be. However, using reputable builders with a design and materials that comply with building safety codes can help to reduce the cost of latent defects insurance.
One thing that could drive the cost up is waiting until after construction has already started, or even until it’s been completed, to apply for a latent defects insurance policy. If warranty providers haven’t signed off on designs or materials, there is a greater risk for structural defects.
If you’re looking for latent defects insurance to protect your build and business reputation, get in touch with Architects Certificate to discuss our ABC+ Structural Warranty and receive a latent defects insurance quote.
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