Latent defects insurance: What you need to know

Latent defects insurance: What you need to know

When completing a new build or a conversion on an existing property, structural defects can be present that don’t actually show themselves for months or years, until after the project is complete.

These repairs can be disruptive and costly without the necessary protection in place.

This is where latent defects insurance comes in.

What is latent defects insurance?

Latent defect insurance is a type of property insurance that covers the cost of repairing or rebuilding a property if structural damage appears months – or even years – after the completion of the project.

These defects could be caused by either poor workmanship from the builders or developers, or through faulty material supplied for the project.

This type of defect insurance is available on new build properties, and also conversions on existing properties.

How does latent defects insurance work?

Although latent defects insurance is in place to protect the homeowner from the costs associated with defects, it is put in place by the developers or builders of the project.

A basic latent defects insurance policy will cover the structure of the property and weatherproofing (to cover potential rain or flood damage).

It can also, in some circumstances, be used to cover non-structural defects like electrical defects and can even be extended to include rent loss.

It will provide financial cover for the full rebuild costs of the property, as well as for smaller repairs and emergency work to prevent sudden damage to the property in the event a structural defect is discovered.

How long does latent defects cover last?

Typical latent defects cover is provided for between eight and 12 years once the certificate of completion has been issued on the project.

It is possible to secure cover for a longer period, but these need to be discussed on a case-by-case basis.

What is an example of a latent defect?

A homeowner recently moved into a new build property. A few months later they discover a structural defect that is causing the roof to partially collapse.

When the fault is investigated, it’s uncovered the defect was caused by poor workmanship and faulty construction.

This is the definition of a latent defect.

In another example, a homeowner has just completed a conversion on their property adding an extension.

A year later they notice the sidewall is bowing outward and the structural integrity of the property is now in question.

On investigation, it transpires the materials used in the project are faulty and shouldn’t have been provided.

This would also be covered by latent defects insurance.

Do you need latent defects insurance?

Simply put, yes. If you’re involved with a new build property or conversion on an existing property, you will need latent defects insurance.

This is because while professional indemnity insurance will cover the costs of defects caused by professional negligence, it won’t cover costs associated with poor workmanship or faulty materials.

Plus, The Council of Mortgage Lenders requires that latent defect insurance is in place for all new properties (both residential and commercial) when they enter the market before mortgages can be secured against them.

What kind of projects does latent defects insurance cover?

Latent defects insurance is available for a range of residential and commercial properties, as well as those in mixed-use.

It is however only to provide cover on new-build properties and developments, or for extensions and conversions of existing properties.

Advantages of using latent defects insurance

While latent defects insurance is required, there are several advantages to having it in place:

  • Financial protection: The main benefit of course is the financial protection gained from having this type of insurance policy in place. If the homeowner discovers a latent defect, the money will be there to cover the repair or rebuilding costs
  • Duration of the protection: With most defect insurance policies covering a period between 8-12 years, it means your coverage will last long before the likelihood of a latent defect presenting itself
  • No need to establish fault: Trying to figure out who was responsible for the latent defect can be a lengthy and costly exercise. But with latent defects insurance there’s no need to establish fault. The finances are simply made available. Depending on the period in which the defect are found, either the original contractor will be brought back in to make repairs, or another contractor can be used instead.
  • Improve the saleability of your project: Because many mortgage lenders or banks require a structural warranty or latent defects insurance to be in place on a development before they’ll issue a mortgage, having defects insurance opens up the number of people you can sell your property to. Without it, you’ll be relying on cash buyers (who also don’t mind potentially being stuck only selling to cash buyers when they move).

Get your latent defects insurance from an expert broker

As an independent advisor, Coeus Insurance can save you time and effort finding and comparing quotes for your latent defects insurance to find you the best deal at the right price for your budget.

As specialists in the property and insurance market, we have access to all the major providers and a range of more specialist suppliers who could fit your needs based on your individual project.

Our experts will be with you every step of the way to ensure you move quickly through the application process and end up with a policy that’s right for you.

Want to know more?

Get in touch or ask for a quote