This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.
Having been away on maternity leave, it’s been very interesting to note several changes in the construction market since I was last at my desk. The key (and most welcome) difference has been the pick-up in the market. Reasons for this are well documented. A second, less obvious change has been the number of clients either taking out a latent defects insurance policy (on either completed properties or properties which are due to be built) and/or making enquiries about it. I’ll therefore be covering a few issues surrounding this topic in my next couple of blogs.
Firstly, I thought it would be useful to provide a quick recap on the Latent Damage Act 1980 (as amended in 1986) (the “Act”). The Act was brought in primarily to help purchasers of properties who discovered latent defects (i.e. defects that aren’t immediately apparent and which cannot be discovered by reasonable inspection) in their properties after the limitation periods contained in their relevant contracts had lapsed. By way of a reminder, if your contract is a simple contract, the limitation period will be six years from breach of this contract. If your contract is a deed, it will be twelve years. Provided certain conditions are met, the Act provides a route for these limitation periods to be extended.
Section 14A of the Act allows the owner of the property to make a negligence claim against the party responsible for the damage (the defendant). This claim needs to be made within three years of when the claimant had knowledge of, or reasonably ought to have had knowledge of, material facts which enable the claimant to bring a claim for negligence. How much knowledge the claimant needs to have has been the subject of much case law and it seems the courts are willing to impose a fairly low threshold of what constitutes ‘knowledge’. The Act asks for “..knowledge that [the claimant] might reasonably have been expected to acquire – (a) from facts observable or ascertainable by him; or (b) from facts ascertainable by him with the help of appropriate expert advice which it is reasonable for him to seek.” Broadly speaking, if the claimant knows the basis of his/her complaint, along with knowledge that the defendant’s acts or omissions were the cause of damage, then this will satisfy a court (Haward v Fawcetts [2006]). Full knowledge of all of the circumstances of the case is not a necessity (Eagle v Redlime Ltd [2011]).
If the claimant cannot prove the defendant was negligent, he must be able to prove fraud, deliberate concealment or mistake. Depending on the facts, this can be fairly difficult to do.
The claimant will also need to prove this is not a pure economic loss claim. This generally means that unless the damage has affected other property too, the claim will fail (although having said that, there is an exception made for ‘complex structures’ where separate parts of a building can be seen as distinct from each other). Generally, the damage done needs to be to more than just the property itself.
Finally, whilst the Act can give a claimant up to three extra years to make a claim for latent damage, section 14B also imposes an overall long-stop date of fifteen years from the breach of duty resulting in the damage.
So, whilst there are a number of hurdles to get over to enable you to make a successful claim, it is worth remembering that if latent defects are discovered in your property, all may not be lost, even if the limitation periods of your contracts have passed. And if you’re a contractor or consultant, perhaps give some thought to the fact that you could minimise the effect of the Act by including a clause in your contracts prohibiting claims being made against you after six or twelve years from practical completion (depending on whether the contract is executed as a deed or not) as this could minimise the effect of the Act.
