Latent structural defects are hidden defects in a building that may go undetected for many months or even years before the resulting structural damage becomes apparent. In some cases, this delay can lead to the development of serious defects, potentially increasing the risk of the structure collapsing.
There are many factors that can cause hidden design defects, but they are usually the result of faulty design, poor workmanship or the use of unsuitable materials.
If structural components are defective, a home can become uninhabitable and repairs can be very expensive. This is why insurance against hidden defects can be so beneficial for new buildings, whether residential or commercial.
Here are some of the biggest benefits of hidden defects insurance that make it worthwhile for both developers and property owners.
Financial security for property owners
The main benefit of hidden defects insurance, also known as building structure warranty, is that it gives the buyer of a property the peace of mind that their investment is protected.
The policy should cover the cost of repairing any hidden structural damage that may occur, so that the owner does not have to pay out of pocket or deal with the burden of such an unexpected and likely significant financial burden.
Many builders and contractors tend to review designs and quality of work reactively rather than proactively as a project progresses. However, insurance against hidden defects requires independent inspections of construction at key stages.
This avoids costly delays and rework and gives the buyer the assurance that their property complies with all relevant building and safety regulations.
No proof of negligence or fault of the party required
Hidden defects insurance is a first-party policy taken out for the benefit of the property in question, rather than an individual or organization. The property owner then benefits from protection against building damage caused by hidden defects.
Unlike other types of insurance, such as collateral guarantees and professional liability insurance, such structural guarantees do not require proof of negligence. The policyholder can make a claim directly to the guarantor without having to prove who was at fault.
Instead of wasting time and money in court, the insurer will examine the evidence of damage to the building caused by a hidden defect to determine whether the claim is valid and will cover the cost of repairs under the warranty.
Because they are not dependent on the responsible party's insurance, building warranties can also provide protection against the insolvency of the builder, meaning that legal action can still be taken even if the person or company responsible has gone out of business.
Protection for developers and contractors
It is worthwhile for the project developer or property developer to invest time and money in taking out building defect insurance, which he can transfer to the buyer of the completed property, because this also protects construction companies, independent building contractors and architects from claims for damages due to construction defects.
Without this protection, either party could be taken to court and held liable for a structural defect for which it was responsible. It would then have to bear the costs of defending the case and rely on its professional indemnity insurance.
Structural defects are often particularly expensive to repair, so buyers don't have to worry about potential litigation and the cost of corrective measures. They can rest assured that buyers can go directly to the hidden defect insurance provider for financial compensation.
Not having a construction guarantee can be particularly problematic for self-builders, as they are responsible for overseeing the proper completion of the project and would otherwise face legal action against the individual builders they employ.
Improved saleability through transferable warranties
Taking out insurance against hidden defects from the start of construction can significantly increase the attractiveness of the property to potential buyers, as it proves that the developer or builder is committed to controlling the quality of their work.
Many banks also require such legal protection before agreeing to a mortgage. This gives lenders the assurance that the property they are investing in is protected against hidden structural damage for at least 15 years.
This is also a major selling point for new build buyers who are likely to sell their property within this time frame and move to a larger home.
Second-time buyers can also rest assured that their purchase is protected as hidden defects insurance is transferable and the policy can be transferred between owners of the property.
Does your project require insurance against hidden defects?
Hidden defects insurance or construction warranties offer many benefits to those involved in the design and construction of buildings, as well as those who purchase them. Long-term protection against the costs of unforeseen construction problems provides peace of mind for all involved.
If you are concerned about the potential risks of hidden defects in the structural elements or building envelope of a property you are financing, building or purchasing, then it is definitely worth taking out hidden defects insurance for your project.
From commercial developers to social housing organisations, from self-builders to renovators, many different project managers and property types can benefit from Insurance against hidden defects – so don’t hesitate to apply before construction begins.
