What is Latent Defects Insurance and Why Do I Need It?

Building a new commercial premises or renovating an existing property? Well, you may need latent defects insurance. In this post, we’ll cover exactly what latent defects insurance is, what the policy covers and who benefits from this form of insurance. 

What is Latent Defects Insurance? 

Latent defects insurance (LDI) is a form of structural warranty. It pays the costs associated with repairing, replacing or rebuilding a property or commercial premises if a design fault or construction defect is discovered after practical completion. 

Put simply, if there is a design defect, a workmanship issue, a problem with the materials used or an ingress of water to the waterproofing envelope, then rectification of the issue is covered by latent defects insurance. Plus, these policies provide ‘no-fault cover’ and there’s no obligation to prove negligence, which helps to avoid complex litigation. 

As some structural defects in new-builds and conversion projects can take months or even years to appear (particularly if faulty materials have been used during the construction process), latent defects insurance policies tend to last for a period of 10-12 years. 

Latent defects insurance is a popular product because it helps mitigate risk for property developers and funders, and provide additional security for owners and tenants. The cover is written for the benefit of the property, rather than a single entity, meaning it is transferable between tenants and owners over time. 

Latent defects insurance is usually arranged at the start of the project, before building commences. Payment is usually made upfront, via a single premium. That said, it is also possible to arrange latent defects cover for a property or project that is already underway. 

What is a Latent Defect?

A latent defect is an issue that is not apparent at the time of construction/completion. The opposite is a ‘patent’ (obvious) defect, which is usually covered by a collateral warranty. 

What Does Latent Defects Insurance Cover? 

Exactly what’s covered by a latent defects insurance policy varies on a policy-by-policy basis. For example, a latent defects insurance policy for a build-to-rent property would look different to one for a series of commercial buildings. 

However, generally speaking, latent defects insurance covers the cost of repairing structural defects and structural damage to the waterproof envelope of a building. It’s also common for the policy to cover mechanical/electrical failures, the cost of replacing faulty materials and the cost of alternative accommodation.

It’s important to remember here that latent defects cover operates on a no-fault basis, meaning there is no need for a legal claim or a requirement to prove negligence. If any defect covered by the policy causes damage, the policyholder does not need to prove who was at fault. This means the rectification process usually happens quickly. 

Remember, as the policy is designed to protect ‘latent’ defects (defects that will only become apparent after construction has finished), policies tend to last for 10-12 years after practical completion. 

Who Needs Latent Defects Insurance? 

Latent defects insurance protects against a range of risks, ensuring the building’s value and structural integrity. As a result, it’s essential for developers, property owners, investors and lenders alike. However, even though they don’t traditionally purchase the policy, latent defects cover provides the greatest benefit to property owners and occupiers. 

Of course, latent defects insurance benefits various parties depending on the type of build and its stage in the construction process. However, here’s a list of some of the people who benefit from latent defects insurance and how: 

• Property developers and house builders: LDI policies help these people protect their investment. Plus, they can pass the policy on to future owners, who are also protected and receive security. 
• Contractors: Many contractors will be required to take out a building warranty on behalf of their clients. As a result, LDI helps the contractor meet the requirements of the Defects Insurance Period.
• Mortgage lenders and third-party funders: LDI helps these people protect their investment in the project or build. 
• Property owners and renters: These people are the ultimate beneficiaries of a latent defects insurance policy. This is because, if a latent defect arises and the property they have purchased or rented is damaged as a result, they are not liable for the cost associated with fixing the issue. 

Why Arrange Latent Defects Cover with Eximia? 

At Eximia, we have decades of experience when it comes to arranging latent defects cover for residential, commercial and mixed-use properties and developments. 

No matter whether you’re converting a single building or working on a large-scale development, we can broker a policy that meets your needs. To discover more, call us on 0114 345 10 20 or email info@eximiabroking.co.uk.