Christmas Comes Early!

If you have ever purchased a new house it is highly likely that it came with a building warranty provided by the NHBC, Zurich or similar organisation. The Council of Mortgage Lenders makes clear that they are unwilling to lend money to fund the purchase of a new domestic home unless the homes come with such a warranty.
 

Christmas Comes Early - A Building Lifetime Warranty

 

If you have ever purchased a new house it is highly likely that it came with a building warranty provided by the NHBC, Zurich or similar organisation. The Council of Mortgage Lenders makes clear that they are unwilling to lend money to fund the purchase of a new domestic home unless the homes come with such a warranty.


Domestic mortgage providers are not daft. They know that in order for their security in the mortgaged property to have any real value, they need to ensure that the property is insured annually from the usual perils and for the first 10 years by a warranty in respect of major defects.


The commercial property market is based on a somewhat different model with funders insisting on being provided with a raft of collateral warranties from all those involved in the design and construction of a commercial property.


Commercial funders work on the principle that they will be able to sue anybody and everybody if the building concerned develops a major fault which impacts on the building’s value. Developers tend to follow the funders lead as do tenants and the net result is that more warranties are negotiated than there are confetti flakes at a wedding!


The cost of procuring these warranties is high and the reality is that the Employer pays for these warranties either directly or indirectly through bank facility and increased professional fees. But given that so many parties in the supply chain have or will disappear in the midst of this recession, is this not all just a waste of money and is there not a better way forward?


Readers of this column will know that I am a huge fan of Latent Defects Insurance (“LDI”). LDI policies are procured for the benefit of the building and other stakeholders such as funders and tenants. If a problem with the building arises, the beneficiaries of the policy claim under the insurance policy. There is no need to sue every party in sight and hope that the money doesn’t run out or the Defendants go bust before you get to trial.


And to make things even better, there are now insurers entering the market, which in exchange for a modest monthly fee will insure the building in respect of losses arising from structural defects for as long as the premiums are paid. So, in reality, and as long as the monthly premiums are paid, we are talking about a lifetime warranty! Now if this is not a good idea then I don’t know what is.


Too good to be true? No - Christmas has just come early!

 


Peter Vinden is Managing Director of Vinden. Vinden advises on all aspects of property insurance and building warranties. Peter can be contacted by email at pvinden@vinden.co.uk 
 

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