Latent defects in newly built homes

Purchasers opt for newly built homes for various reasons. Whilst we hope for perfection in the completion of such properties, this is not always the case. Occasionally, defects become apparent, and purchasers must then look to the options available to them to have such defects rectified writes Conor Dunne, Associate, Fieldfisher Ireland LLP.

There are two main types of defects which may arise in newly-constructed homes, namely:

• Patent defects are those which become apparent initially. For patent defects, purchasers may rely on breach of contract claims against contractors and other professionals involved in the property’s construction. The law surrounding collateral warranties is also available to extend a claim to other persons.
• Latent defects are those which arise where a defect, caused by defective design, materials, workmanship, or supervision during construction, existed when the construction was completed but did not become apparent initially.

Purchasers should consider the options available to them to help protect themselves against the unforeseen, potential high costs involved in latent defects which become apparent following completion of their property.

Latent defects insurance

It is standard practice for defects to be excluded from property insurance policies. Latent defects insurance is an additional insurance policy which purchasers can avail of which typically provides protection against defects in design, materials or workmanship which become apparent post-completion.

A primary benefit of these policies is that there is no requirement for fault or misconduct on the part of the Builder. This is valuable when compared with the practical difficulties which can arise in proving fault in litigation for defects.

Unfortunately, these policies do have their drawbacks. Notably, they can be costly. Often, such policies also require a technical audit assessment to be carried out to provide cover, which may be required prior to building work beginning.

Some providers may require sight of the laying of the foundations to provide cover. As a result, such policies may not be a viable option where construction has already begun on the property or is nearing completion. A greater issue arises where lending institutions require policies be in place as a pre-condition to providing loan facilities. Where construction has begun without supervision from the relevant provider or is nearing completion, the lending institution may accept a structural defects indemnity from the builder. It is often the case that the lending institution will also require an Architect’s Certificate confirming supervision or inspection by the Architect of the construction at various stages.

How are other jurisdictions dealing with this issue?

In the UK, Collateral Warranties are the industry standard. Statutory provisions also apply:

• The Defective Premises Act 1972 (‘the 1972 Act’) requires that those constructing any dwelling do so in a workmanlike manner using proper materials so that, when completed, the dwelling is fit for habitation.
• The Building Safety Act 2022 (‘the 2022 Act’):

• Certain provisions of the Act came into force from 28 June 2022, such as a provision which now allows property owners to make structural defect claims for pre-existing buildings up to 30 years after the property’s completion.
• The Act has extended the mandatory warranty period on newly built homes from 10 years to 15 years. Under the Act, where a developer does not provide such a warranty prior to selling the property, they will be liable to pay either a fine of £10,000 or 10 per cent of the sale price, whichever is greater.
• The 2022 Act extends the limitation period in which litigants can bring a claim under the 1972 Act.
• The 2022 Act also introduces a right of action against any person who “takes on work in relation to any part” of a property. This allows for a larger scope for potential liability, extending the opportunities for litigants to bring claims under the 1972 Act which would have been statute-barred prior to these amendments.

In France, property purchasers are afforded protection against latent defects by way of a legal warranty. Under French civil law, all building work is guaranteed for up to 10 years, regardless of change of ownership. However, this warranty does not cover all work for the entire 10-year period. In the first year there is a comprehensive guarantee, whilst in later years only major defects are covered.

The legal warranty of quality will only be valid where a defect meets certain conditions. It must:

1. have existed at the time of the sale;
2. have been unknown to the buyer;
3. be serious and result in the property being unfit for what a reasonable buyer would have expected to use it for; and
4. be latent.

Under the legal warranty of quality, a purchaser may obtain a reduction in the sale price or annulment of the sale where there are serious defects. However, there is a limitation period of two years within which any action for the enforcement of the warranty for latent defects must be taken.

In Germany, extensive warranty rights are granted to purchasers of newly built properties. This includes the assignment of warranty claims against companies involved in the construction.

Liability for defects will arise where the work is not of the agreed nature, such as where there has been use of materials which were not agreed upon, or where the property is not suitable for the use envisaged in the contract.

Conclusion

Purchasers of newly constructed properties need to determine from the outset what type of defect insurance or warranties will be offered by the builder and ideally, prior to the commencement of construction.

W: www.fieldfisher.com/en-ie/locations/ireland