Protection for Property Owners or Occupiers Against Latent Defects
It is important to ensure that you are sufficiently protected against the risks associated with the possibility of latent defects emerging after completion of any works.
This could apply if you if you are:
- a commercial tenant entering into a lease of new premises
- a charity refurbishing your facilities
- a religious order extending your convent
- an academy trust taking on a new free school from the Department for Education
What Is a Latent Defect?
A defect is any design, workmanship or material that is not in accordance with contractual requirements. Defects can range from minor to major issues, such as a defect in the design of foundations that may compromise the structural integrity of an entire building.
Patent defects can be identified during the works and therefore rectified before they are signed off as complete. However, latent defects are concealed and may not emerge until years after the works are complete. It is therefore important that any owner or occupier of works ensures they have contractual (and therefore financial) recourse to the construction parties who are likely to be responsible for any latent defects. This is particularly important for a tenant who will be liable under their lease to keep the property in good repair.
How Can an Owner or Occupier of Works Protect Themselves Against the Possibility of Latent Defects Emerging?
If you are procuring the works and appointing the building contractor and professional consultants directly, then it is important to ensure that your building contract and consultant appointments are drafted appropriately, as these will contain your rights to demand performance of their obligations and bring proceedings for breach of contract should you need to.
Collateral Warranties
If you are not procuring the works directly but have or will acquire an interest in them, collateral warranties can create a contractual relationship between you and those who designed and built the works, and provide protection against latent defects. It is important not only to review and approve the forms of collateral warranties being provided to you, but also the building contract under which the works will be carried out and the consultant appointments under which the design of the works will be commissioned. Collateral warranties are only as good as these underlying documents to which they are collateral, and any ambiguities, limitations or exclusions of liability within them will be carried through to the collateral warranties.
Third Party Rights
An alternative to collateral warranties is third party rights, which are granted directly from those who designed and built the works. Third party rights enable you to enforce directly the obligations of the contractor in the building contract, and the obligations of the consultants in their appointments, as opposed to having your own direct contract with them to enforce in the form of a collateral warranty.
Latent Defects Insurance
Latent defects insurance can also provide protection, however it is advisable to be proactive and review the construction contracts at an early stage to ensure that you have all the necessary contractual protection you will need going forward.