Exposing Latent Defects: your responsibilities as a homeowner

Introduction to Latent Defects

With the unprecedented closure of 17 schools, Scottish authorities have been looking into buildings standards for new builds. The buildings, constructed from 2002 to 2005, had been signed off as completed. The press released dramatic images of dangerous school buildings bringing the risks of Latent Defects to public consciousness.

A BLP study shows that awareness of latent defects is on the rise. Over 50% of respondents said they were aware of the need to protect homes from latent defects.

Last year, Oxgangs Primary School was forced to close after a wall collapsed, revealing missing wall ties. The structural, construction defects that led to the closure of 17 schools all fall under the category of latent defects.

What are Latent Defects?

Legally defined as:

“A defect in a property that is due to a defect in design, materials, workmanship, or supervision of contractors or site preparation works which existed but was not apparent on completion of the building works.” (Thomson Reuters: 2017)

The legal definition fails to mention the scale of the damage latent defects can cause. Dangerous building structures can cause fatalities. Not to mention the damage to the home itself and the potentially unlimited cost imposed on both homeowners and contractors.

When defects become visible

Latent defects do not display warning signs, until it is too late. Typically, Homeowners discover Structural defects when they cause an issue, passing building inspections without raising suspicion. In some cases, repair and refurbishment can expose latent defects. 

Lynley Sutherland and Tony Waddell found significant cracks in the concrete foundations of their new home during renovation. Homeowners rarely peel back the roof titles or dig up the flooring so structural defects can go unnoticed for years.

Cracks discovered by Lynley Sutherland & Tony Waddell. Photo: Nick Truebridge

Pre-empting structural defects therefore becomes a matter of choosing skilled professionals, using reliable materials and adhering to building guidelines.

Risk decreases as the building ages 

When latent defects become visible, homeowners should take action as soon as possible. Taking evasive steps avoids further damage and further cost. Luckily, the likelihood of latent defects arising decreases over time.

CRL Management agree that as the building ages, the likelihood of undiscovered defects decreases.

“After 10 years it is reasonable to expect any issues with a new building would have come to light.”

In a recent study, 48% of latent defect damage to homes was as a result of water penetration. Homeowners normally discover water penetration within the first two years of practical completion (the first wet winter is typically challenging).

This falls within the Rectification Period, where the contractor is liable for the repair. Getting latent defects rectified within the Rectification Period means that the cost and the responsibility falls to the contractor, rather than the homeowner. It is the homeowner’s responsibility to declare latent defects to your contractor during this time to remedy the issues and prevent further damage.

When do Latent Defects become the homeowners’ responsibility?

For most aspects of construction, once the homeowner has received a certificate of practical completion, the contractor has no further obligations. However, contractors may still be liable for latent defects for a further 2 years.

Once you have a certificate of practical completion, the Defects Liability Period (Rectification Period) commences. During this period, (typically 6-24 months) the homeowner is responsible for declaring arising defects. It is the contractor’s responsibility to fix all declared defects.

It is worth noting that maintenance issues (e.g. general wear and tear and cosmetic damage) are not latent defects, and the homeowner is responsible for these repairs.

If identified defects have not been rectified by the end of this period, the contractor will agree to a schedule of defects to mend in a timely fashion. Normally homeowners withhold 5% “retention” of the contract’s worth until the contractor completes flagged defects.

Once the contractor has fixed works on the schedule of defects, they will issue a certificate of ‘making good deeds’. After this, they will receive the retention money and issue a final certificate.

Both contractor and client may be under pressure to complete the build promptly, but it is important that latent defects are rectified at this point. After the Defect Liability period, rectification of latent defects becomes homeowner’s responsibility. This is the most crucial time for homeowners to have a latent defects policy, however, this arguably the worst (most expensive) point to enquire for a quote.

When is the best (cheapest) time to get cover?

As with any negotiation, clients obtain the best (cheapest) premium before works take place. This is because both parties have an equal stance at the negotiating table.

Once works are underway homeowners have less leverage and the insurer has less information on the risk portfolio.

When you start your policy before your build, the insurer can audit as you build, ensuring a higher build quality and reduced risk of latent defects. Insurers can offer reduced premiums when they have a fuller risk portfolio, and the cover can come into effect straight after final completion.

The most risky period for homeowners is straight after final completion. Unfortunately, at this point some realise they don’t have the cover they need. If the contractor has not purchased latent defects insurance then the homeowner is not protected. However this is the most costly point to purchase insurance.

For some insurers, premium prices rise by 100% if taken out after the project has begun. Insurers may not agree to a retrospective policy if they have already offered quotes earlier in the project. This is why it is important to get out latent defects insurance from the beginning of your build project.

The Industry’s Best kept Secret

Recently we have seen more homeowners taking out policies as they become aware of their responsibilities. While latent defects insurance cannot entirely predict or prevent building defects, policy guidelines help homeowners choose skilled professionals, use reliable building materials and adhere to building guidelines, thereby reducing the risk of latent defects.

The key benefit to having a latent defects policy is that should a defect arise, the cost of rectifying it is covered.

The industry secret behind exposing latent defects is communication between contractor and homeowner, making sure all parties understand their obligations. Through a combination of reducing and covering risk on new and recent builds, both contractors and homeowners can protect themselves from unlimited cost.

Speak to us today for advice on latent defects insurance

Our renovation insurance team will be happy to talk through your options regarding latent defects insurance.

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