“The unknown is what it is. And to be frightened of it is what sends everyone scurrying around … Accept that it’s unknown and it’s plain sailing.”
JOHN LENNON.
I don’t think John Lennon was thinking about latent defects when he said that. But if you believe latent defects are plain sailing, think again. Recent changes in the law mean that the sea is certainly becoming choppier. The following is a brief reminder of where we are with respect to latent defects and limitation periods and a look at what changes have been made by the latest legislation.
What do we mean by Latent Defects?
Let’s start by considering what we mean by latent defects. Defects are split into two categories, patent and latent. Patent defects are the ones that are noticeable. These will normally be picked up either prior to completion, or during the defects liability / rectification period under the contract. Latent defects on the other hand are concealed defects. They are things that would not be found by reasonable inspection by a competent person. I call it the prawn sandwich test – it might look, smell and taste great but it’s not until later that you know there’s something wrong.
Limitation Periods
Now you can’t talk about latent defects without also thinking about limitation periods. These are various lengths of time set out in statute during which you may bring a claim or action. Whilst you can still bring a claim once these periods have expired the party you are claiming against will have a time-bar, or limitation defence, available to defeat your claim. So, knowing the relevant limitation period is crucial to your success.
- A) Limitation Act 1980
The key piece of legislation setting out limitation periods is the Limitation Act 1980. The starting point for measuring limitation periods is the date on which the cause of action accrues. In this context the phrase cause of action is simply a reference to the material facts that allow the claim to be made. For example, for a claim in contract the cause of action is the date on which the breach of contract occurs. For most contracts the limitation period runs for six years from that breach unless the contract is executed as a deed, when it runs for twelve years.
A tort is a civil ‘wrong’ that is independent of a contract. The most common tort in construction is that of negligence. For a claim in tort the cause of action arises when the party bringing the claim actually suffers damage. The limitation period again runs for six years from that cause of action.
- B) Latent Damage Act 1986
Now the main problem when it comes to latent defects is that due to their concealment they may not be discovered until many years after construction. By then the relevant limitation period will have passed and the ability to successfully claim been lost. This is where the Latent Damage Act 1986 comes into play as this provides for the limitation period to be extended based not on when the damage or breach occurs, but when the party bringing the claim has, or ought to reasonably have, relevant knowledge of the defect. Relevant knowledge in this case consists of knowing both the basis for the claim and that the damage was caused by the other party’s acts or omissions. The extended limitation period runs for three years from that knowledge.
For obvious reasons there has to be a long-stop to this extended limitation period otherwise liability would run indefinitely. The long-stop is fifteen years, running from date of the negligent act or tort.
Building Safety Act 2022
The choppy waters I mentioned earlier have been caused by the Building Safety Act 2022. This was born out of the numerous reports and reviews undertaken following the shocking events at Grenfell. Unsurprisingly it brings in a whole new raft of regulation, enforcement and liability throughout the construction process with particular attention paid to construction materials and cladding. As with all new legislation it will take some time for lawyers to find all the loopholes and for the courts to work out how they think it was intended to operate. We are still in the early days of the process as not all sections of the Building Safety Act are operative and some of the secondary legislation needed to make it work properly are yet to be passed by Parliament. But what do we know so far about the changes the Building Safety Act brings to latent defects and liability periods?
There are two key changes that mainly affect residential property. The first change concerns claims under the Defective Premises Act 1972. The Defective Premises Act requires work carried out on dwellings to be of a workmanlike or professional manner using proper materials. Further, once completed the dwelling is to be fit for habitation. So, nothing too unreasonable. However, the Building Safety Act has extended the liability period for claims under the Defective Premises Act from six years to fifteen years for claims for works completed after 28 June 2022 and a whopping thirty years retrospectively for claims regarding works completed before 28 June 2022. As if that wasn’t enough, it has also extended the scope of claims that can be brought under the Defective Premises Act. Previously this only covered claims related to new construction, but now it also covers claims relating to refurbishment and remedial works to existing properties.
The second key change brought in by the Building Safety Act concerns latent defect insurance. As the name suggests, latent defect insurance is designed to provide cover for building owners or occupiers against latent defects. The main benefit of this insurance is that a claim can be successfully made without the need to prove negligence, removing many of the legal arguments that can delay payment. Latent defects insurance is common for residential property as it is a requirement of UK Finance (which incorporates the old Council of Mortgage Lenders), but it can also be obtained for commercial properties. Each policy will be different but typically it will provide cover for structural damage and run for ten or twelve years from the date of practical completion.
Section 144 of the Building Safety Act has not been implemented yet, but when it is the latent defects insurance provided by new home warranties will have to provide cover for at least fifteen years.
Final Thoughts
The Building Safety Act clearly extends liability in respect of latent defects. But it goes much further than that. There will be increased regulation thanks to the creation of new bodies such as the Building Safety Regulator and the National Regulator for Construction Products. There are new processes and procedures to follow such as the Gateway approval process for higher-risk buildings and the need to store a building’s information by maintaining a ‘golden thread’ of accessible data. But it is still very much an Act that is in development and there is plenty that might yet change. Whatever happens the risks for all involved in the construction process have increased. We are in for some interesting times. I recommend checking your insurance cover and updating your policies for data retention.
About the author
Susan Francombe is a Chartered Civil Engineer, registered Barrister and a Fellow of the Chartered Institute of Arbitrators. She works as an independent consultant, Adjudicator, speaker and trainer.
Providing advice on construction contracts and dispute resolution, she is particularly interested in adjudication. She is currently Senior Vice-Chair of the Adjudication Society and sits on the steering committee of Women in Adjudication.
Susan has supported the Institution of Civil Engineers for a number of years sitting on their Law and Contract Management Examination committee and Dispute Resolution Board.
https://businessofbuilding.co.uk/
