Building commercial premises without a structural warranty is irresponsible
In the light of the writ being filed in the High Court in relation to the Wimbledon Media Centre, Peter Vanderweele of Oval Insurance Broking discusses the need for responsibility in commercial construction.
Reading a recent story in the Building magazine, I was disappointed, but sadly not surprised to see yet another high profile court case involving latent defects issues, this time with the broadcast and media centre at Wimbledon.
When a person buys a washing machine or a car, they receive a warranty which they are statutorily entitled to and which protects them should the product develop a defect. Similarly, when a mortgage is required for a new build residential property, the Council of Mortgage Lender members usually require a minimum 10 year warranty to be in place. However, when a builder or construction firm applies for financing for the building of a commercial property, no such warranty is required. We are amazed that it is still common practice.
It is often assumed that a warranty is not necessary on commercial property since owners are free to sue the builders, subcontractors or professional team should a defect develop. And indeed this is exactly what is happening with the media centre. However, in order to successfully recover losses, the injured party will need to prove negligence and this almost always leads to a difficult and drawn out legal battle as the finger of blame is usually pointed at a number of parties involved in the construction. Meanwhile, the owner will be left with an unsuitable building and no way to finance the necessary repairs in the interim.
With recent reports showing that eight building firms are now going bust daily (Building Magazine Issue 06 – Feb 08), this is particularly concerning, as the right to sue will mean even less if there is no firm left to take legal action against and this is likely to leave many commercial property owners with little or no recourse should the building develop a defect.
For these reasons, it should be a matter of course that all commercial buildings have long term structural warranties in the form of latent defects insurance. Latent defects insurance covers the risks associated with defective design, workmanship or materials and is insurance backed from day one. Claims are paid by insurers irrespective of whether the firm responsible for the defect is still in existence, enabling owners to have the defects to their property repaired, while the insurer carries out any necessary litigation to recover costs, if appropriate.
Put simply, building on commercial properties without the security provided by latent defects insurance is irresponsible and reckless and puts the funder at risk unnecessarily.