Insurance for New Properties

July 17, 2017

When buying a brand-new property, the developer should offer the benefit of structural insurance such as NHBC or a similar scheme. This provides the buyers and successive owners with insurance against certain structural defects for a period of, usually 10 years, after construction.

The sale contract should provide for such cover to be obtained without cost to the buyers and the cover note will be supplied on Exchange of contracts and the full warranty issued on completion

The NHBC certificate or similar should cover the buyer against the insolvency or fraud on the part of the builder.   The deposit will be reimbursed for instance if the builder does not complete the building of the new home.  It also offers assurance that the building will be constructed to a certain standard.

During the first 2 years, the builder should rectify at their expense any damage caused to the building and if you must move out storage and removal costs plus alternative accommodation costs should be met. The cover does not extend to wear and tear or damage resulting from lack of maintenance or neglect, damp or condensation not resulting from the builders failure to comply with the standards set, storms, severe weather or flooding, fire and smoke or anything else mentioned in the certificate as not being covered.

Within the following 3 to 10 years there is a minimum claim value. This means that the cost of any claim must exceed a certain amount before it will be considered.  This will depend on the date the property was built.

There may also be contaminated land cover if it is likely a statutory notice about contamination of the land on which the property has been built is likely to be or has been issued. The contamination must have existed at the time of completion.

If the builder appointed NHBC Building Control to inspect their site for compliance with Building Regulations, then the Policy will also act as a Building Regulations Consent certificate and cover against certain breaches of Building Regulations if they pose a danger to the physical health and safety of the owners.  The certificate will reveal this if so.

It is generally a requirement of any Mortgage Lender that some form of insurance cover is supplied with any new build property.  Some Lenders may accept a Professional Architect’s Certificate for a small development (where a JCT contract is being used for example), but if no policy is available this could affect the future marketability of the property as most buyer will require finance to buy.  Any subsequent purchaser during the first 10 years of a property’s life will expect to have the benefit of a warranty assigned to them.  If a professional architect’s certificate is in place it is important to check that they have a valid current professional indemnity insurance policy in place at the time the liability is notified to the insurers.  Therefore, if the architect has died or ceased practice since completion of the building and before liability is discovered the insurance policy may be invalid and the architect’s own assets may be insufficient to meet any claim

In most cases, it would always be preferable for a suitable warranty to be provided.  The Council of Mortgage Lenders supply instructions to lawyers who practice residential conveyancing indicating which policies are acceptable to them.  There are no a variety of policies and insurance companies available who provide these policies so it may not always be an NHBC backed policy which is provided.  It is always important to check the terms of any such policy to ensure the relevant issues referred to above are covered.  This should be checked by your practicing conveyancer although copies will be available to check and most policies accepted by the Lenders under both the Council of Mortgage Lenders and the Building Society Association cover the basic needs identified by NHBC policies

The information provided in all of our blogs reflects only a narrative of some elements to consider on the topic. The blogs do not contain considered legal advice and should not be relied upon as advice. Please see our website terms and conditions for full details of our disclaimer. If you are interested in obtaining advice, please contact one of our lawyers who will be happy and able to advise you on your own particular circumstances.

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