Latent structural defects are hidden faults in a building that can go undiscovered for many months or even years before the resulting structural damage becomes noticeable. In some cases, this delay can allow severe defects to develop, potentially putting the structure at risk of collapse.
There are plenty of factors that can cause latent structural defects, but they are typically consequences of flawed designs, shoddy workmanship, or the use of inappropriate materials.
When load-bearing structural elements are defective, they can render a home inhabitable and be very expensive to fix. This is why latent defects insurance can be so beneficial for new build properties, whether residential or commercial.
Here are some of the biggest advantages of latent defects insurance that make it worthwhile for developers and property owners alike.
Financial peace of mind for property owners
The primary benefit of latent defects insurance, also known as a structural building warranty, is that it gives the buyer of the property peace of mind that their investment is protected.
The policy should cover the costs of rectifying any latent structural defects that might develop, meaning the owner won’t be out of pocket or struggle with the strain of such an unexpected and likely significant financial burden.
Many builders and contractors tend to have a more reactive than proactive approach to checking designs and work quality as a project progresses, but a latent defects insurance policy requires independent key stage inspections of the build.
This helps to avoid costly delays and redoing work, also reassuring buyers that their property complies with all the relevant building regulations and safety codes.
No need to prove negligence or which party is at fault
Latent defects insurance is a first party policy that’s written for the benefit of the specific property, rather than an individual or organisation. Whoever owns the property then benefits from its protection against structural damage caused by latent defects.
Unlike other insurance types, such as collateral warranties and professional indemnity insurance, structural warranties like these do not require proof of negligence. The policy holder can make a direct claim to the warranty provider without having to establish who was at fault.
Rather than wasting time and money on a court case, the insurer will assess whether the claim is valid based on the evidence of structural damage existing as a consequence of a latent defect, and pay for the repairs within the limitations of the warranty.
As they don’t rely on the responsible party’s insurance, structural warranties can also offer protection against contractor insolvency – so there’s still an option for legal recourse even if the responsible individual or company has gone out of business.
Protection for developers and contractors
It’s worth the developer’s or builder’s time and money to set up latent defects insurance that they can transfer to the buyer of the completed property, because it also protects construction firms, independent contractors, and architects against structural defect claims.
Without this cover, any of these parties could be taken to court and held liable for a structural mistake they were responsible for, then having to deal with the costs of defending against the claim and falling back on their professional indemnity insurance.
Structural defects are often some of the most expensive to repair, so rather than worrying about potential litigation and the costs of corrective work, these parties can rest assured that buyers can go directly to the latent defects insurance provider for financial compensation.
Not having a structural warranty can be particularly worrisome for self-builders, as they will be responsible for overseeing the completion of the project to the correct standards, and would otherwise have to pursue legal action against any individual contractors they may have hired.
Increased saleability with transferable warranties
Arranging latent defects insurance that’s in place from the start of construction can make the property much more attractive to potential buyers, as it proves that the developer or builder has committed to checking the quality of their work.
Many banks also require this type of legal protection to be in place before agreeing to provide a mortgage, as it also gives lenders peace of mind that the property they’re investing in will be protected against latent structural defects for a minimum of 15 years.
This is also an important selling point for buyers of new builds who are likely to sell their property and move on to a bigger home within this timeframe.
Secondary buyers can also be confident that their purchase is protected thanks to the assignability of latent defects insurance, which allows the policy to transfer between owners of the property.
Does your project need latent defects insurance?
Latent defects insurance policies or structural warranties provide many benefits to those involved in designing and constructing buildings in addition to those who buy them. Having long-term protection against the costs of unforeseen structural problems gives peace of mind to all parties involved.
If you’re concerned about the possible risks of latent defects developing in the load-bearing elements or building envelope of a property you’re funding, building, or buying, then it’s definitely worth looking into a latent defects insurance policy for your project.
From commercial developers to social housing organisations, self-builders to renovators, many different project managers and property types can benefit from latent defects insurance – so don’t hesitate to apply before your construction project gets underway.