Safeguard Against Latent Defects With Structural Warranty Cover

‘What is latent defects insurance?’  This is a question we are frequently asked at Octo Insurance Brokers in our capacity as a specialist property insurance broker.  The answer is that latent defects insurance – or LDI as it is sometimes abbreviated – is exactly the same as structural warranty insurance.  It is also sometimes called building warranty insurance.

This plethora of names, for what is essentially the same property developer, contractor and self-builder’s insurance cover, can cause some confusion.  For this reason, Octo Insurance Broker’s specialist in this area, Michael McGuire, is demystifying latent defects insurance, structural warranty insurance and building warranty insurance, in this easy-to-understand article.

With over a decade of experience in this specific field, Michael is well-placed to provide guidance and support in this specialist insurance sector.

The use of structural and building warranties/latent defect insurance

We know that having a plethora of terms applied to the same product is not very customer-friendly. Despite this, the reasons for buying this cover, and regarding it as an essential purchase, should be clear.  

If you are a property developer, a builder of new-build homes or commercial developments, or a developer/builder bringing heavily renovated homes or commercial properties to market, you should probably regard this insurance as a ‘must-have’.  The same is true if you are a self-builder, embarking on your own ‘Grand Designs’ project.

A building or structural warranty is an insurance-backed policy designed to help all of these types of property-sector stakeholder mitigate the risks within their build project.  

By having a building or structural warranty – or latent defects insurance policy – in place, it is possible to provide peace of mind to whoever is living or working in the finished property, once completed.

What structural or building warranties offer

That peace of mind comes from knowing that any issues which result at a later stage, in terms of structural defects and major flaws, can be addressed by calling upon the warranty or policy.  Latent defects are just that, remaining undetected until some particular stress exposes the underlying weakness that exists.

If you have a structural warranty or building warranty (latent defects policy) in place, such repairs would not have to be personally funded by the buyer.  Whenever the fault materialises, they can call upon the cover and have that pick up the tab.

This makes a building or structural warranty a major asset for the property developer.  It can allay any fears that any new-home or new-build buyers may have about future issues with their property. The same is true for those buying commercial properties. Being able to provide such a warranty also enhances the reputation of the vendor, conveying professionalism and customer care.  

The safeguarding aspect to such a warranty or insurance policy typically extends over 10-12 years.  That means that even longer-term issues, which may not come to light for some time, can be covered.  

It should be noted that the policy will only cover the original ‘build’.  Any extensions or loft conversions added at a later date cannot be addressed through the existing warranty.

Defects covered by a structural warranty

The issues that may arise typically come from poor workmanship, design flaws, or defective materials used within construction.  Defects could be within the foundations, in the roof, within a building’s waterproof envelope, due to faults in load-bearing walls or problems with other parts of the building structure.  

Basements can be one problematic area within properties, as can flat roofs, and here, an additional insurance-backed guarantee is required.  This is also something with which Octo Insurance Brokers can assist.

Whilst a builder or developer has to legally step up and put such defects right in the first two years following project completion.  From there, years 3 to 10, or 3 to 12, are insured by the warranty/policy.  This means the owner of the building does not have to pursue the original builder or developer.  They simply call upon the warranty or policy to rectify things.  

Are structural and building warranties a legal requirement?

There is nothing in law to say that structural and building warranties must be provided. However, most mortgage lenders will only provide funds to a buyer, if such cover is in place.

For a self-builder, or someone handling a custom-build, purchasing a structural warranty makes sense.  It will help provide confidence in the constructed property. That makes it easier to sell the property to a future buyer.  Cover can be passed on to successors in title, staying with the property for the duration of the warranty’s life.

A self-builder may require such a warranty, to satisfy the requirements of a self-build mortgage lender.  The certification may be released in stages, as the project develops, if that is in the best interest of the self-builder.  However they choose to structure things, the warranty will safeguard them from additional build costs and property professionals’ fees.  Should there be a need to demolish and rebuild a part (or all) of the project, costs such as rubble removal and alternative accommodation can also be covered.

Structural and building warranties for commercial and mixed-use developments

As a significant amount of investment and revenue is tied up in commercial and mixed-use developments, it again makes sense to mitigate risk through a warranty.  

A developer can easily safeguard the long-term future of both new-build and converted properties, if they purchase a structural or building warranty (commercial latent defects insurance policy).  Octo Insurance Brokers can provide the commercial latent defects insurance required, whether a builder is constructing a retail development, university student accommodation, mixed-use development covering retail and private or social housing, or something else.

By having a building or structural warranty in place, it is possible to safeguard the interests of all parties involved.  It may also be possible to extend the duration of the warranty, to suit the needs of a particular commercial project.  To do this, it is typically essential to work with a specialist like Octo Insurance Brokers.  Typically, a warranty for a housing association project would be for a 12-year time frame, rather than 10.  Cover is typically purchased before the project starts.

What a building warranty or structural warranty costs

As with all types of insurance, the cost of a building warranty or structural warranty is dependent on the risk.  In property terms, that will be dictated by the type of project and its residential or commercial footprint.  It will also be influenced by the architect’s plans and their complexity.  The materials used in the construction project are another factor and the period of time over which cover is required is also a variable.

Octo Insurance Brokers’ approach to building and structural warranties

Octo Insurance Brokers has a range of insurer options at its disposal when it comes to building and structural warranties.  Consequently, Octo can typically offer alternatives that other providers cannot.  This can be useful if the objective is to save money but still provide a compliant and robust property buyer or investor safeguard.

Octo also works closely with surveyors. It has a strong relationship with many of those professionals who will be the ‘eyes’ of the build, reviewing construction on-site for the insurer.  This can help make life easier for clients, as it improves the dialogue that takes place during a building or structural warranty process.

The best way to approach your need for structural or building warranties is to assess what is out there and where your best options lie.  Including Octo Insurance Brokers in that process makes perfect sense.

Author biography

Michael McGuire is a Senior Relationship Manager at Octo Insurance Brokers and has established a strong reputation in the building and structural warranties market for over a decade.  Regarded as a specialist in this field, Michael’s pro-active approach to latent defects insurance is thorough, measured and always customer-centric, giving Octo’s property insurance clients the best possible advice for their residential, commercial or mixed-use project and its insurance coverage.