15 February 2021

Latent Defect Insurance what is it and how can it protect you?

Latent Defect Insurance  what is it and how can it protect you?

We arrange Latent Defects Insurance to help cover the repair costs on residential, commercial and mixed-use developments.

What is a Latent Defect?
If structural damage occurs months or years after the realistic completion of a new-build or conversion project, latent defect insurance may help to cover the cost of repairs or reconstruction.  Latent defects may be caused by a fault in the building’s design or construction, or by faulty materials.

This form of damage can be highly disruptive, expensive and complex, and could have a significant effect on your business. That’s why it makes good commercial sense to mitigate the risk with building defects insurance – it can be essential for property developers, funders, and owners or tenants. Commercial Latent Defects Insurance can secure long term strategies for Funders and Investors and offers the ability to call on the policy in the first 10 or 12 years post practical completion.

The security provided by a latent defects policy can encourage investors and can accelerate sales, lettings, and is imperative to be in place for Banks & Building Societies to approve lending against new build properties.

What kind of projects can be insured?

We can arrange latent defects insurance for inherent or structural issues for a wide range of residential, commercial and mixed-use developments. You can be covered for speculative, non-speculative and completed projects. Coverholders can range from individuals doing a self-build to large-scale national developers.

Key advantages of latent defect insurance

Latent defect protection ensures that there is no need to decide who is at fault or to prove negligence, and no need for slow, complex litigation before repairs can be done. There are no restrictions on the number of assignments (passing on to future owners), and immediate access to repair funds can minimise business interruption.

Latent defects insurance provides a cost effective, high-performance alternative to collateral warranties, although they often work hand-in-hand. Collateral warranties can only be actioned if the professional indemnity policy (to which they are usually appended) is still in place and all parties are still trading. You’d also need to prove negligence on the part of the construction team, which can be very difficult. However, structural defects insurance covers you even if parties cease trading, and there’s no need to prove negligence.

What is a Patent Defect?
In comparison to the Latent Defect, a patent defect is one that might logically have been found or become evident during the development period. This may be found at some point by the builder, the surveyor or any individual interested with the building. Issues such as this should be documented and resolved in a reasonable amount of time, and any such issues should be fully remediated prior to issuing any certificates or sign off on the project.

Examples of a Patent Defect include:

  • Cracks to the Foundation that are visible when reasonably inspected.
  • A missing roof tile.
  • Woodwork on a property rotting during the build process

How do these differences impact you?
Any Patent defect in a property should be remediated within a reasonable timeframe and should not be signed off before the defect is addressed. However, a Latent defect, by definition may not be reasonably discovered before practical completion. This is why a latent defects insurance policy is crucial for any owner of new build properties as it would cover any insured latent defect under the policy.

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