What is excluded from a latent defects insurance policy?

Amy Fenton
Authored by Amy Fenton
Posted: Friday, June 14, 2024 - 17:32

If you’re a property developer in charge of a new project, you’ll want to ensure you’re protected against all kinds of potential mishaps. As you won’t be laying every brick yourself, you must obtain some level of insurance to protect yourself financially.

That type of cover could be latent defects insurance. Not sure exactly what a latent defects insurance policy can do for you or what it covers? Do not worry, as we have all of the answers below – including what’s not included in a latent defects insurance policy.

Continue reading to find out.

What is a latent defect?

A latent defect is a hidden flaw – or defect – in the workmanship, design, materials or construction of a building that isn’t visible during a property inspection.

Latent defects can show up months or even years after a construction project has been completed. Examples of latent defects are:

  • Mould and damp
  • Water damage or leaks
  • Insect infestation
  • Electrical issues
  • Roofing problems
  • Plumbing problems

What is latent defects insurance?

A latent defects insurance policy covers the cost of fixing structural defects within a property. This helps to take the financial burden off the building owner, developer and/or contractors. When the design, workmanship, or materials used during the construction of a building aren’t up to a good standard, latent defects can go undetected for several months and years.

A latent defects insurance policy is available for up to 10 or 15 years from the building’s completion certification date under the Building Safety Act 2022. The insurance policy can also cover the full value of rebuilding the property if the latent defects are that serious.

What is covered by a latent defects insurance policy?

Latent defects insurance covers a wide array of issues within a building. If you were to obtain a latent defects insurance policy from a trusted provider, it would cover the costs of:

  • Fixing defects due to poor design or materials.
  • Fully or partially rebuilding to rectify latent structural defects from incorrect building methods.
  • Repairing damage caused by water ingress due to faulty waterproofing.

If the policy is taken out by the buyer of the property, it can offer protection in the unlikely event that the contractor or developer becomes insolvent. Latent defects insurance policies can also be tailored to the individual obtaining it, helping to cover other situations, including:

  • Alternative accommodation costs
  • Loss of rent/income
  • Mechanical and electrical defects
  • Contaminated land cover
  • Removal of debris

What is excluded from latent defects insurance?

When considering a latent defects insurance policy, it’s important to know what’s not covered so you’re not left surprised.

Typically, a latent defects policy doesn’t cover a property’s fixtures and fittings or mechanical systems, like central heating. It will only cover structural defects that aren’t found during initial surveys and those that do not become apparent until months or years after construction has been completed.

This means it won’t cover the costs for damage resulting from:

  • Known defects or defects discovered before obtaining the policy
  • Abnormal use of the building or poor maintenance
  • Non-approved alterations to the building, such as an extension
  • Normal wear and tear
  • Accidental damage, weather damage, vandalism, arson, etc.

Is latent defects insurance expensive?

There is no one-size-fits-all approach when it comes to latent defects insurance prices. It all depends on several different factors, including:

  • The number, size, and type of building or buildings
  • The experience level of the main contractor or developer
  • The construction methods and materials being used
  • The rebuild value of the property

The insurance policy will cost more the larger and more expensive the building is. However, if you use well-respected builders with building materials and designs that comply with building safety regulations, you may see a reduction in the cost of your policy.

One thing that’s sure to increase the price of your latent defects insurance policy is waiting until after construction has started to obtain the protection. If your chosen warranty provider does not have the chance to sign off on designs and building materials, there’s a much greater chance of structural defects appearing in the future.