Benefits Of Taking Out A Latent Defects Policy For Your Building Construction Project

The Meaning Of A Latent Defect Policy

A latent defect policy is known as a latent defects insurance or a building warranty. It is a way of protecting building owners from material damage triggered by structural defects. There are many causes of structural or inherent defects in a building; however, the most common include poor design and construction procedures, poor quality construction material and workmanship, and other issues arising from unexpected ground or foundation issues.

How Long Is The Latent Defect Warranty Duration?

The duration for latent defect policies will differ in length. A cover may begin from the day of practical completion of the building and remain in place for the next ten to twelve years. Also, building owners can get shorter policies, but the recommended period is ten years, as latent defects may take a long time before they manifest.

Are Latent Defects Covered Under My Property Insurance Cover?

No. During construction, any loss or damage the building may suffer is usually insured under a contract works insurance policy. A contract works insurance policy covers damage or repair to the building on an “all risks” basis. A building policy is arranged after the construction to provide cover on an “all-risk” basis. However, this cover does not include damage originating from any latent or inherent defects unless the damage has been caused by an insured event like a fire or natural disaster.

Timelines For Latent Defect Insurance

* be advised that many times, a builder’s (developer) liability period of two years is necessary. It means that, during that period, the developer is liable for any repair required by the building.

Who Should Obtain Latent Defect Insurance?

A latent defect policy is sometimes referred to as a “first party pay” and comes with two significant implications; to begin with, the building owner is entitled to receive a claim settlement. In addition, no proof of legal liability or a need to establish fault is required, implying that the insurer can expedite the reinstatement process without going through a protracted legal procedure.

Additionally, it means the policy can prevent the possible risk of the contractor going insolvent. Finally, the building owner can transfer the rights of a latent defects policy to another individual upon selling the property. Eventually, the building owner must purchase the defect policy for themselves and ensure it is in their name, not the contractor’s.

What Defects Are Excluded From A Latent Defect Policy

-All defects that were discovered or known before the start of the policy

-Defects originating from abnormal use of the building, e.g., overloading

-Defects arising from wear and tear or poor building maintenance practices

-Defects caused by non-approved building modifications or alterations

-Loss of colour often from the aging process

-Defects on installations not provided for in the technical audit

Benefits Of Working With Advantage

Advantage has assisted many property developers in procuring latent defect policies for their building projects. From this experience, we have a rich network of the right providers to talk to based on the size and type of your project. Instead of working directly with a building warranty provider, we can explore the entire market to bring you a list of options with the best policy terms in the industry.

Benefits Of Working With A Professional Insurance Broker To Buy Latent Defects Insurance

We have a rich network of long-standing relations, high purchasing power, and an ability to find the best terms in the industry from many policy providers. We evaluate all policy offers on your behalf and recommend the proposal with the best value based on the overall price and coverage. Our pay is included as part of the insurance premium.

Why Advantage Latent Defects Insurance Is A Better Option Than PCC or NHBC

To begin with, the NHBC only deals with homebuilders or homeowners, making it impossible for them to insure commercial buildings. Moreover, the NHBC policy has constricting terms, and the cost of the NHBC policy is higher. For example, NHBC must ask for a two-year builder liability period, which means the developer must take care of all repairs that occur in the initial two years after the completion of construction.

On the other hand, Advantage can, in many cases, provide day one risk transfer, which means the insurer assumes the entire risk starting from the date of practical completion. This is an essential consideration for the developer. Finally, unlike the NHBC’s stringent policy terms, Advantage policy is much more lenient about how the building has been constructed.

The mortgage lender will most likely ask for a building warranty to enable you to sell your housing units. Nonetheless, a professional consultant’s certificate (PCC) may be enough in some circumstances. However, a PCC is valid for only six years, while our policies usually last for between ten and twelve years, on average.

In addition, a successful claim with a PCC requires you to prove the architect’s negligence; however, with a building warranty, you do not have to prove any fault to receive compensation. Furthermore, with a PCC, you must work with an architect with sufficient professional indemnity insurance, as you will be laying a claim against the architect. If the building’s repair cost is eight figures or higher, your architect may lack enough insurance to compensate for the rebuild under a PCC.

Advantages Of Latent Defects Insurance

-Risk transfer occurs on day one after practical completion

-It provides for an insolvency cover

-It covers the existing building structure and proposed construction works

-It covers for loss of revenue or profits

-The policy covers for loss of rental income

-It covers for the extra cost of providing alternative accommodation for the affected tenants/inhabitants

-The policy covers for electrical or mechanical failure of vital building components like lifts, air conditioning, heating, and ventilation installations.