A latent structural defect is a fault in a structural element of a property that was not visible or otherwise apparent upon completion of construction. The significance of latent defects is that they usually aren’t noticeable until the damage has already been done.
They can take months or years to develop, stemming from a mistake made during the original design or construction works. By the time homeowners notice a crack in the wall or that their floors are sloping, the structural defect can be in such bad shape that it requires expensive repair work.
To pre-empt this issue, the developers or builders responsible for a building or conversion project should take out latent defects insurance, which can then be passed on to homeowners.
Wondering why structural defects insurance is so important? Here’s what you should know about the benefits of this type of structural warranty, and why you’re likely to need one.
Extent of coverage
Latent structural defects are typically not covered by most other insurance policies, such as building insurance, as they cover new damages or losses rather than pre-existing defects with the building’s structure. This is why it’s important to have the extra coverage that latent defects insurance provides.
This type of warranty covers the owner against the costs of repairing structural faults that may develop within the building, which may have been caused by poor design, materials, or construction methods. These problems may not become apparent for months or even years after completion.
While it typically only covers the load-bearing structure and envelope, these can be the most complex and costly elements to repair. If the defect worsens to the point of collapse, the entire structure may need to be completely rebuilt – but the latent defects insurance policy can cover up to the cost of rebuilding the property to the original planned standard (properly, this time).
Latent defects insurance can be taken out for a variety of residential, commercial, and mixed-use properties, but it only applies to new builds or conversions of existing structures. Though it will cost extra, it’s possible to get additional coverage for electrical and mechanical defects.
Most construction projects are likely to cost thousands or hundreds of thousands of pounds, so having latent defects insurance means having a safety net to protect that financial investment. The load-bearing structure is responsible for keeping the building standing, so any minor defect that could develop into something more severe can have serious consequences.
Part of the latent defects policy involves having regular inspections at key stages throughout the construction process, where professional surveyors can catch problems early enough for them to be rectified. This reduces the risk of a latent defect developing later on, or – if something does go unnoticed – is likely to reduce its severity, resulting in less expensive repairs.
A successful latent defects insurance claim would pay out relatively quickly for structural repairs to elements such as floors, walls, roof bracings, and foundations. Depending on the extent of the policy you set up, it could even pay for a total rebuild if the defects are that severe, which would be an extremely disruptive, expensive, and time-consuming process without this protection.
Duration of cover
Latent defects insurance is typically paid for upfront in one lump sum and is non-renewable, with the coverage extending for a minimum of 10 years. During the first 2 years of coverage, the contractor or builder can usually be held accountable for fixing non-structural issues such as fixtures and fittings as well, though this must be explicitly stated in the policy for a claim to be made.
Under the new Building Safety Act, the policy term should now extend to at least 15 years from the date of completion, which is generally more than long enough for any structural defects to have presented themselves. Most defects will become noticeable within the first few years of the building being in use, such as issues with waterproofing or sagging floors.
Of course, latent defects can remain hidden or go ignored for a long time, but it’s reasonable to believe that any serious issues would have come to light within 10–15 years of the structure enduring regular usage and exposure to the elements.
There’s also the risk of the developer, contractor, or other responsible company going out of business during the decade or more after the building is completed. This type of building warranty takes the stress away from trying to chase an insolvent company for financial reparation, instead allowing you to go directly to your insurance provider to make a claim.
No need to prove negligence
Being written for the property itself and not an individual party, a latent defects policy does not require proof of negligence or establishing who is at fault for a successful claim – the insurer only requires proof of the structural damage.
Some parties prefer to rely on professional indemnity insurance or collateral warranties, but these often require the property owner to prove that the defects directly resulted from the responsible party’s negligence, which can be difficult and costly to do.
This may involve having to take the developer or contractor to court, which takes a lot of time and money and doesn’t guarantee a favourable outcome for the property owner. Additionally, if the responsible party has become insolvent, you may be unable to recover losses from them at all.
If you can provide evidence of the structural defect, your claim will likely be successful, and the funds will be available for restorative works much faster, minimising disruption and stress. You won’t have to prove who was responsible for the poor design, workmanship, or materials used – either the original party can be called back to carry out repairs, or another company can be used.
Last but not least, ensuring that any newly built or renovated property comes with a latent defects insurance policy will make it easier to buy and sell. The Building Safety Act now makes it mandatory for all developers or commissioners of new build homes to provide a new build home warranty to sell the property.
As the initial buyer of a new build or converted property, you’ll also find that most mortgage lenders require proof of various insurance coverage to protect their investment, including some form of latent defects insurance. Including this information in your application can improve your chances of securing a favorable mortgage loan.
If you intend to rent or sell the property before the end of the policy term, it also makes the property more attractive to tenants or buyers, who will be reassured to know that this protection is in place. Similarly, prospective buyers are likely to need such a policy to help them secure their own mortgage loan.
Being an assignable policy, the insurance cover stays with the property for the duration of cover, meaning that it should transfer to the new owner whenever the property is sold.
Why you need latent defects insurance
Previously a best-kept secret in the construction industry, latent defects insurance is now compulsory for all new build homes. Both developers and homebuyers alike benefit from a policy that reduces structural defect risks and provides financial support for their repairs.
If you’re involved with the construction of a new build property or the conversion or renovation of an existing structure, then you’re going to need latent defects cover. It’s no longer enough to rely on professional indemnity cover or a collateral warranty alone – especially since these policies typically don’t cover costs relating to faulty materials or poor workmanship.
The best time to set up latent defects insurance is before construction work begins, as this allows your provider to inspect the quality of the work regularly throughout the process. The later you leave it, the higher the policy premiums and the greater the risk of overlooked defects will be – so, if you’re about to start work on a new build or conversion, be sure to have this policy in place.