Latent Defects Insurance

What is latent defects insurance?

Latent defects insurance covers the cost of repairs or rebuilding for structural damage that appears months or years after completing a new-build or conversion project. These defects can be caused by design or construction faults, or faulty materials, which can be disruptive, costly, and have a serious impact on your business, or future purchasers of new homes.

Latent defects insurance helps mitigate risk and is essential for property developers, funders, owners, or tenants. It provides security, encourages investors, accelerates sales and lettings, and makes future property sales easier. There are two distinct policy types of latent defects insurance:

• Residential structural warranties (also known as building warranties)
• Commercial latent defects Insurance (also known as inherent defects insurance).

Both insure against property damage due to defects in design, materials, and workmanship for 10 or 12 years. They benefit the premises owner and respond to damage without requiring proof of negligence.

Who needs latent defects insurance?

Latent defects insurance can benefit various parties depending on the type of build and its stage in the construction process. The ultimate beneficiaries are usually the owner and/or occupier, although they might not be the ones purchasing the insurance. Here are a few examples:

• Property Developers/House Builders often buy latent defects insurance to protect their investment or pass on the coverage to future owners, whether they plan to sell the property or retain it as an asset.
• Main Contractors may be required to obtain a building warranty on behalf of their clients. While they may not directly benefit from the warranty, they need to meet the requirements of the Defects Insurance Period.
• Registered Providers/Housing Associations often rely on appointed main contractors to secure a Building Warranty. However, they can benefit from the coverage if they choose to retain housing units for rent or shared ownership arrangements.
• Property Owners are the ultimate beneficiaries of a building warranty and latent defects policy. They typically receive the policy after purchasing a commercial or residential property, and it transfers to subsequent owners.
• Mortgage Lenders and 3^rd Party Funders have a vested interest in protecting their investment, so they often have their interests noted under a warranty. This ensures financial security in case of damage caused by latent defects.

What are the benefits of latent defects insurance?

Latent defects insurance provides numerous benefits. It covers post-completion structural damage repairs without the need to establish fault or prove negligence, avoiding complex litigation. The policy can be transferred to future owners without limitations, reducing risk for property developers, funders, and owners or tenants. It includes coverage for defects in design, workmanship, or materials, with optional extensions for Mechanical & Electrical defects and Loss of Income. Additionally, it reduces reliance on Collateral Warranties and Professional Indemnity insurance.

What does latent defects insurance cover?

Gallagher can help with latent defects insurance for a range of residential, commercial, and mixed-use developments. Whether you're working on a self-build project or a large-scale development, we've got you covered. Our policies can protect you from inherent or structural issues, and we offer coverage for speculative, non-speculative, and completed projects.