Structural Warranties, otherwise known as Building Warranties, provide protection to the home owner against latent defects in their dwelling’s design or construction. They are not mandatory and are not governed by any statute but, almost without exception, lenders providing mortgage finance will insist on warranty protection. So much so that, even if a relatively new property is exchanging hands after the warranty has expired (usually 10 years), not having had one in the first place can blight the property’s appeal and reputation. So, to all intents and purposes, they are an essential requirement and you should not build a house without one.
Their origins go back decades and were developed to provide the home owner with an insurance backed guarantee on behalf of their builder to protect them against that builder going bust during any subsequent guarantee period. As such, and although they are called warranties, they are fixed term insurance policies provided by insurance companies. The provider takes the risk that the house has been designed and built correctly and then, in exchange for a single premium, will provide protection for a fixed term, usually 10 years, against a limited range of risks. It’s difficult to provide a more detailed overview as these are insurance policies and, as we all know, insurance cover is all based upon the provider’s small print. Most will have clear marketing material which explains exactly what is, and is not, included and so you should take the time to read this before deciding to proceed.
Usually the first question a consumer will want to know is how much they cost? And the answer here is not straight forward as they are crafted individually based upon your project’s specific criteria. The key variables include; size of dwelling (gross internal area), indicative construction costs, rebuilding cost (usually slightly more than your initial construction costs), method of construction management (self build or builder appointment), location and sometimes the property’s end valuation. Our best advice before you start approaching providers is to budget for 1% of your construction budget, so if you are planning to spend £200,000 on building your home, allow £2,000 for your structural warranty on top. But, be prepared to shop around as the market is now quite competitive and there are lots of options for you to consider.
The only other option for you to consider would be an Architect’s certificate, however, these are less popular with lenders as either you or your lender, or any other successor in title, would first have to prove negligence on behalf of the Architect to cover the cost of any otherwise qualifying remedial work.
Warranty scope and selection
Warranty products have become much more sophisticated over the last few years and there are now a whole host of options dependent on your type of project. These are not really at your discretion but instead the project type will dictate which warranty option is most appropriate. Typical popular product types include:
- New homes/dwellings which are being procured by a builder or a developer either through new build, refurbishment or the conversion of an existing structure. These are likely to be part of a larger development project (multiple units) but could also include your own plot whereby you engage a bonafide builder who delivers the warranty as part of their building package.
- Self-build warranties whereby the consumer applies for the warranty for their own specific project on the basis that they intend to live in the property as their principal private dwelling for a minimum period of time after completion (usually 1 year minimum). In these circumstances, the procurement channel, i.e. one builder or multiple contractors, is to some extent irrelevant.
- Retrospective warranties, whereby a warranty is required after the project was completed. As you might expect these are more expensive but can be a useful ’get out of jail card’ to meet any lending criteria. Usually these will be for the balance of the term and will be subject to a full structural survey on the property.
- There are different warranties for exceptionally high value projects, as most of the standard warranties have capped values, options for build-to-let scenarios and of course commercial buildings. Some providers make a distinction where conversions are concerned, as the retention of the existing building will be subject to much more scrutiny.
- And there are also insurance backed collateral warranties where an original design team need to be connected directly to subsequent building owners on a direct channel of liability for which the insurance will protect both the designers and the beneficiaries.
The most well-known provider is the NHBC as they have been in the market for the longest period and are almost synonymous with the brand. Although they are still at their core just an insurance company, they do have a large technical presence and their published standards are very detailed in terms of providing industry benchmark standards in addition to Building Control. However, and whereas they would have historically dealt with self-build applications through their Solo product, they no longer provide this and have restricted their proposition to warranties provided through their own registered builders only. An A1 registered NHBC builder will be able to provide a warranty to a customer at the most competitive level but, until proven, a new builder will start their registration at the default D1 level. Warranty provision at this level is very much more expensive.
However, the market is now very competitive with a whole host of options including, Self-Build Zone, Protek, Premier Guarantee, LABC Warranties (Local authority option), ICW (International Construction Warranties) amongst others. BuildCare from Buildstore links back to Build-Zone and Build Safe is an independent broker who will place your warranty from a range of market options, including many of the above as well as insurers like BLP (Building Life Plans) for what they call Building Defects Insurance.
Some provide optional insolvency add-ons through a number of their products which, in exchange for an additional premium, you can secure deposit protection and/or house completion, in the event that your approved builder/developer does not start the project or fails to complete it through insolvency. There’s a lot of small print here but, if you are buying through a custom build scheme, then this might be highly appropriate.
Technical Audit & MMC
In most circumstances the process will start with a technical review of the project drawings known as a design risk assessment (DRA). It’s very reassuring that many of the providers are now happy to embrace innovation especially where this is linked to off-site construction and overall energy and performance improvements. However, the assessor carrying out the DRA will need to be satisfied that the chosen mix of products has been robustly tested and prepared for market with all the appropriate test certification. Your provider may well ask for more information from you (and thus your supply chain) to substantiate certain details.
Some warranty products, through certain providers, may be able to issue a warranty with a limited number of exclusions but, when it comes to the standard new homes product, generally no exclusions are allowed. So, if you are thinking of specifying some new types of product, make sure that they have the appropriate test certification from a recognised body, BBA or BRE or similar, as your warranty provider will check this thoroughly at the DRA stage.
Thereafter the warranty providers risk is usually based upon the activity on site, with workmanship standards leading to most subsequent failures rather than poor design. Most warranty providers will undertake strategic site inspections to mitigate this risk, usually being a minimum of four which form part of their technical audit service. It’s difficult to see how a warranty provider could offer a product without undertaking any site inspections, but some of the products available on the market do not include these.
Building Control
It has also become increasingly popular to consider new home warranties in conjunction with building control. For some years now we have been able to use Approved Inspectors for building control regulation rather than the Local Authority. The NHBC were first to fill this space but, since then, a raft of specialist companies have developed to provide Approved Inspector building control services. It’s broadly the same as using the Local Authority but the legislation is slightly different and there are one or two minor variances in their services.
Some prefer the rigour of using the Local Authority and others prefer the familiarisation of using a national independent private firm. Regardless, there is some synergy with warranties and building control and when booked together there is often a financial incentive. Most warranty providers use independent firms of Approved Inspectors to undertake their technical audits anyway and so any requests for additional building control functions are then passed directly through to these companies. Working in reverse, you could approach a firm of Approved Inspectors for building control services and then this could lead you through to their partners for the warranty.
As far as I am concerned, I like to use the Local Authority for building control and then pick a separate warranty provider for the warranty. As I generally find all Building Control Officers and Approved Inspectors to be both knowledgeable and helpful, this way the client gets double the exposure on site.
What is, and is not, covered
In all instances, you must read your providers small print. Cover varies widely between policies.
Typical inclusions
- In years three to ten (of the ten-year warranty term), major damage to the buildings structure or external envelope. The definition of major damage is usually a recognised defect in the design or workmanship of the structure or the waterproofing elements of the structure.
- Similar protection in the first two years in the event that your builder is no longer trading or fails to discharge their obligations.
- Land contamination issues.
- Professional costs and any consequential costs of repair for qualifying defects.
Typical Exclusions
- During the first two years following completion (and issue of the certificate), the provider will expect you to deal with your builder/contractors – except for self-build warranties where there is no obvious builder to approach.
- Anything which is not considered to be a major damage defect. For the avoidance of doubt, snagging items to the property which are not covered might include shrinkage cracks to walls, ceilings and joinery and any Internally produced damp – viz; condensation or possibly plumbing leaks (grey area)
- Problems arising through a lack of appropriate maintenance
- Anything installed after initial completion
- External works
- Contractual disputes with your builders
- Accidental or storm damage, which would be covered by your building and contents domestic insurance
These are not exhaustive lists but are reflective of the general limitations of the policy cover.
Written and published in February 2017
