This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.
If you are purchasing or taking a lease of a new residential development, you may be offered NHBC warranty protection in relation to the building. Please remember that the protection afforded by NHBC Buildmark warranties (there are a number of types of NHBC warranty protection, Buildmark being the type we currently see the most of at present) and a collateral warranty are not the same. Key differences are:
- If a collateral warranty is executed as a deed (which it commonly is) it will provide 12 years of protection for the beneficiary. The NHBC Buildmark warranty lasts for 10 years.
- A collateral warranty normally provides that the professional consultant/contractor has complied with the terms of the underlying appointment/building contract. The strength of the warranty of course depends on the strength of the underlying appointment/building contract is but, in general terms, if a suite of collateral warranties is given to the purchaser from the whole professional team, the beneficiary should have the benefit of protection in relation to each set of services. The cover from the NHBC is restricted. It does not cover mechanical and electrical services, nor does it cover lifts.
- NHBC warranties cap the amount of cover they will provide under a policy, both in relation to direct losses (e.g. the cost of remedying defects) and consequential losses (e.g. payment for having to move to alternative accommodation). The level of protection given by each warranty will depend on whether a cap (or other form of limitation of liability) is included.
- The level of cover given by the NHBC is also tiered: the level of cover in the first 2 years after completion is different to the level of cover in years 3 to 10.
So, whilst NHBC cover may be sufficient for an individual purchaser of a residential unit, the protection it gives may not be sufficient for a commercial client.
