(New Home) Buyer Beware
Recent case law highlights the importance of adequate insurance cover for buyers of new homes, to remediate any latent defects identified post-completion, whilst the Building Safety Act 2022 implements significant changes to the new build warranty landscape.
In Griffiths and another v Gilbert [2022] EWHC 3122 (TCC) (6 December 2022), HHJ Sarah Watson (Principal Judge of the Technology and Construction Court in Birmingham) dismissed allegations that a director of the building contractor responsible for construction of the claimants’ property had fraudulently misrepresented that £2 million worth of NHBC cover would be obtained, covering the full build cost, rather than the standard £1 million limit for defects claims under the NHBC Buildmark policy.
After practical completion, a dispute arose concerning building defects and contamination of surrounding land. The claimants referred matters to the NHBC’s dispute resolution service but subsequently withdrew from the process, unhappy with the initial response. Court proceedings alleging personal liability for fraudulent misrepresentation were commenced in 2014 and then stayed, pending the outcome of an arbitration pursued by the claimants against the contractor. In 2018 the arbitrator awarded substantial damages and costs to the claimants, which the contractor was unable to meet, and it went into insolvent liquidation. The claimants successfully recovered £1 million under the NHBC warranty, and court proceedings against the director were revived seeking recovery of outstanding losses.
The Judge held that elements of the tort of deceit were not made out in this case and the fraudulent misrepresentation claim failed. The director had confirmed the property would be built to NHBC standards and a Buildmark warranty would be obtained, but premium figures in the contract costings were estimates not representations. It was inherently unlikely the contractor would fraudulently represent the situation to save a small fee on a £2 million contract, knowing this would come to light when the NHBC certificate was provided. Further, NHBC was advised of the sale price at the outset with no question of “underinsurance”, analogous to standard property policies, where claims might be reduced if a building was insured for less than full reinstatement costs.
The judgment illustrates the limitations of new home warranties and how parties can extend the scope of cover for a price. In 2011, NHBC had offered to increase the cover to £2 million for an additional fee of approximately £4,500 but that proposal was not accepted by the claimants.
The importance of sufficient protection for buyers of new homes is also reflected in legislative changes under section 144 of the Building Safety Act. These provisions impose legal requirements on developers to provide new build warranties with a term of at least 15 years (increased from the usual 10 years period applicable previously), in line with the new prospective limitation period for claims under the Defective Premises Act 1972. Regulations are anticipated in 2023 imposing additional requirements on the kinds of defects covered, minimum policy limits, period during which the developer remains responsible, and financial penalties for non-compliance, following further industry consultation. Mandatory parameters of coverage should increase transparency for all concerned, helping to minimise the prospect of disputes.
Amy Lacey is a Partner at Fenchurch Law
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