Warranties aren’t just for appliances, they’ll help hedge your bets on your self-build or renovation too…
In the previous issue we covered the insurance cover that’s required on a self-build, extension or renovation project; while a warranty is in contrast usually optional, it’s a good idea to consider getting one too.
A structural warranty policy on a house works much in the same way as it does on your appliances, e.g. washing machine. It guarantees the structural integrity of your building and steps in to pay for the correction or repairs subject to policy terms, conditions and exclusions.
Although a warranty scheme effectively becomes an insurance policy upon completion of the construction works, it should not be viewed as an alternative to insurance during the construction phase.
As there is no public liability or employers’ liability cover contained within warranty schemes, there must be appropriate insurance cover during construction to manage the risk, and subsequently, suitable Home Insurance put in place after construction, otherwise your assets will be in jeopardy.
The wall falls down…
Consider the scenario where a wall within a newly constructed building collapses. If this wall collapses during the construction phase and there is insurance in place either under the building contractor’s insurance covering liability and contract works or a specific self-build policy then:
– It will be rebuilt under the Self Build policy Insurance and/or Contract Works Insurance and/or Contractor’s All Risk Insurance policy.
– Any injury to a neighbour or damage to his property will be covered by the Public Liability Insurance section of the contractor’s liability insurance or the Public Liability section of the Self Build policy.
– Any injury to subcontractors will be covered by the Public Liability insurance section or the Employer’s Liability section of the contractor’s liability insurance or the Public Liability section or the Employer’s liability section of the Self Build policy.
If the wall collapses after the construction phase and there is a home insurance policy in force covering the building then:
– It may be rebuilt under the Buildings Insurance section of the Home Insurance policy depending on what has caused the wall to collapse and providing there is accidental damage cover on the building. There will be exclusions such as any loss or damage arising from defective design, defective materials or faulty workmanship, or building settlement.
– Any injury to a neighbour or damage to his property will be covered by the public liability or personal accident section of the Home Insurance policy.
If the wall collapses during the period provided by a warranty scheme, whether during or after the construction phase, then:
– It may be rebuilt under the warranty scheme subject to the terms, conditions and exclusions of the policy.
The small print
Most warranty providers will inspect your approved design drawings before offering you their terms. They will then carry out periodic inspections of the work in progress to validate the warranty. Like the building control inspector in NI or the assigned certifier in ROI they may require you to notify them that construction has reached a certain stage and invite them to verify this, prior to work continuing. They may also turn up unannounced.
It is important to note that warranty inspectors are not in any way linked to building control and certification, they may require standards above that which would normally satisfy statutory requirements.
Deregulation in NI has allowed Building Control to offer a warranty scheme option but this does not change or overlap with your statutory obligations. Where warranties differ from statutory building control compliance is that they eventually become an insurance policy against which you or a future owner can make a claim in the event of specified defects.
From a resale perspective or if you intend to convert your home to a conventional mortgage after construction, it is important to ensure that your warranty scheme is accepted by your potential mortgage lender.
There have been cases where a new mortgage lender to the local market has had to be furnished with additional ‘professional certificates’ before accepting an existing warranty provider. Although the costs of providing this additional information fell to the warranty provider, it can lead to a considerable delay in the legal process in a seller/purchaser scenario or a frustrating and stressful cash-flow problem for a self-builder converting to a mortgage.
Full responsibility: who pays?
Some warranty providers offer schemes whereby the builder is solely responsible for any defects occurring in the first year, while others offer joint liability between the builder and the warranty provider in the first year.
It is however possible to find some providers who will take full responsibility from the point where construction is fully completed. If you are project managing your self-build and using subcontractors, then a structural warranty which takes full responsibility for the guarantee from completion of construction may be the best option.
It is best not to inform your builder if your warranty provider takes full responsibility after completion.
There have been instances where a builder did not employ best practice methods as he knew there would be no redress against him.
Schemes that require the builder to be approved and registered may offer additional protection in this regard.
It is not essential to have a warranty scheme in place, but regardless of whether you are building a new house or converting, renovating or extending an older property, warranty schemes provide an additional incentive for a potential future buyer should you ultimately have to sell your property.
Many lenders also require you to have a warranty before they are willing to lend you money, primarily because it will further validate the quality of construction they are lending against, but also because they wish to protect themselves from having to sell an un-warrantied property in the future.
In fact in NI, your mortgage provider will often require that you have a 10-year warranty in place while in ROI this isn’t typically a condition of approval.
But why not get a building professional to certify your build stages instead? Having an architect or building surveyor certify your build stages with a final certificate stating that they are satisfied with the quality of the work is indeed a tried and tested alternative. In fact most lenders are happy to accept such certification as long as the construction professional is suitably qualified and carries Professional Indemnity Insurance (PI).
However having problems rectified under a warranty scheme is much easier than having to sue an architect for professional negligence as s/he is unlikely to volunteer the costs of remedial works in the first instance. In practice in ROI very few homeowners have gotten redress via this means (the legal fees being one reason but also difficulty to assign blame).
How to choose the right warranty
The identity and relative security or financial strength of the Structural Warranty provider is of the utmost importance. Unlike other forms of insurance which deal with claims occurring in the short term, e.g. during the construction phase or the twelve month term of your house insurance policy, Structural Warranty Insurance will typically provide protection for a period of ten years from completion of construction.
For the policy to be of any value to the homeowner there must be a high probability that the insurance company who issued the warranty will still be in existence much further down the road when a claim may occur, typically seven or eight years after completion.
For this reason the homeowner should be discerning when choosing their warranty provider. Look behind the name of the warranty product / promoter and find out who the insurance company / underwriter is, what is their financial rating (as issued by a credit rating agency, which you can check online), and then make an educated decision on whether the warranty is likely to be of any value to you or whether you would be better putting the cost of the warranty in the bank for a rainy day!
Both insurance and warranties are therefore a necessary cost to protect your investment – and ensure that due to action, inaction, accident or calamity you don’t end up homeless and broke.
Early research will allow you to consider your options carefully: ensure there are no gaps in your insurance cover and plan for the costs within your project budget. And remember, your insurance and warranty provisions may also have a huge impact on your ability to finance the build or eventually sell the property.
As with all legal and financial arrangements it is best to consult with a suitable professional
Billy Redmond, Group Development Director, Arachas, The Courtyard, Carmanhall Road, Sandyford Business Estate, Dublin 18
tel: 01 213 5000 M: 087 219 7197
Jim Majury FCII, Chartered Insurance Broker, Kerr Group Insurance, 10 Lisburn Street, Ballynahinch, BT24 8BD tel. 9756 3114
Federation of Master Builders, Unit 10, Kilbegs Business Centre, Plasketts Close,
Antrim BT41 4LY tel: 9446 0416