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Features INSURANCE


Always read the small print


Ian Magenis explains why a Buildmark warranty may not offer as much peace of mind as flat buyers think.


Anyone buying a newly built flat that comes with a Buildmark warranty will no doubt take comfort from the fact that their


home is covered for defects for 10 years by this well-known certificate from the National House Builders Confederation (NHBC). This means that if a problem arises as a result of negligence or poor workmanship on the part of the developer, the homeowner has redress; faults will be rectified free of charge and all will be well. But is this really the case? The reality of the situation is often very different, with flat owners battling over building defects with developers for months on end, only to find that, ultimately, their NHBC certificate doesn’t cover them for as much as they expected.


So what is going on here? Surely the point of the certificate is to give anyone buying a new property peace of mind and to guarantee the home they have bought is fit for purpose? The reality is that this is true but only up to a point. In recent years, we have had a number of problems to deal with on behalf of our clients concerning NHBC and other new build policies, largely caused through a lack of awareness from people buying a new property.


The NHBC’s Buildmark warranty is probably the best known of the developer warranties and is there to provide confidence to purchasers of new build properties. But far from being a catch-all guarantee, an NHBC or other developer’s certificate is only an insurance policy which, like all cover of this type, comes with limitations - and this is where the problems frequently lie.


We have often seen claims rejected where there is no dispute that a repair needs to be


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done but the work required does not meet the claim value set by the flat owner’s policy. (see box (p57) explaining claim values). While the claim value set may only be in the order of £1000, if the defect is communal or part of the structure of the block rather than a problem with one particular flat, the claim value is based on the total number of units. Therefore in a block with 100 flats there may have to be defects valued at £100,000 or more before a claim is entertained. This certainly comes as a shock to owners where they have bought with the assumed security of a build warranty.


But claim value is not the only issue that we deal with on behalf of our clients; residents can also experience problems due to the time it takes to resolve a claim. During the pre-2008 property boom, developers were keen to offer NHBC certificates to make their schemes as attractive as possible to buyers in a competitive market. As a result they were arguably more responsive in dealing with build defects or problems themselves, because they were keen to retain their relationship with the NHBC without claims being made which would affect premiums or their eligibility to provide cover for future schemes. While we have no statistical evidence to prove that this was the case, as property managers we have certainly seen less response to build issues from developers in recent years and we now find that we are more likely simply to be referred to the NHBC when problems arise.


Our assumption here is that in the current market, developers may not be so concerned about their schemes being investigated or resolved via an NHBC claim, so it will be interesting to see if this changes over the coming years with a rise in house building - and whether developers with national


coverage become more responsive than regional firms. Of course, the impact of all this on flat owners is that, with developers showing less inclination to take on responsibility for remedying defects themselves, resolving problems is taking longer as residents have to go through the claims process with the NHBC.


In the last five years, at Scanlans we have been involved in three cases in apartment blocks where claims have been pursued and rejected on more than one occasion. These claims have ranged from £80,000 to a claim in excess of £2 million. In all three the claims have taken a number of years to be agreed. None of the leaseholders involved has been in a position to pay a solicitor or surveyor to pursue the claim and in one case the lease did not allow flat owners to recover the cost of a legal dispute with the NHBC.


That said, the problems we have dealt with have occurred more as a result of lack of understanding than due to problems with the NHBC itself. The impression we get is that as part of the sales process, purchasers are given the impression that NHBC cover gives them total peace of mind. What potential buyers need to do is look more closely at potential exclusions, policy excesses and the time frame of cover. For example, often wiring and rainwater goods have a shorter period of cover than other elements of the building.


Ultimately, the most important message for anyone buying a flat in a new development is that developer warranties do provide essential cover but, like all insurance policies, it is vital that you know and understand the extent of the cover.


Issue 20


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