Do I Need Build Warranty?

Posted by The Landsite on 26th September 2022 -

Unlike building regulation approval, a build (structural) warranty is not a statutory requirement, so it might not be top of your list when planning a new build project.  But even the best builders cannot guarantee 100% that there will be no problems with the materials or their workmanship. 

 Few mortgage providers will lend on a new build property without a warranty, so if you need a mortgage to finish your build, or you want to borrow against the property or sell it when it’s completed, then you will need a build warranty. 

For a buyer, a build warranty is an insurance policy.  It’s reassurance that the building has been constructed to a specific standard set by the warranty provider.  It also means they can sell it within ten years without difficulty.  The regular inspections by the warranty provider can also be reassuring for the builder/developer, confirming the build is progressing without issue or highlighting problems before the build progresses too far. 

It’s important not to confuse a build warranty with other types of construction insurance, like site or household insurance policies, so if you are in doubt, ask a local specialist insurance broker, but it is fairly straightforward to find a reputable build warranty provider. 

Companies that sell new build warranties must sign up to the Consumer Code for Home Builders.  Some warranty providers operate under their own consumer codes. If you are a self-builder, you want to look at specialist new build warranty providers.  You will want to ensure you have an all-risk policy or site insurance during the build and a 10-year build warranty. 

Warranty policies will vary based on the warranty and building application type, but a warranty will generally cover structural damage and defects to foundations, roofs and walls.  A residential building warranty typically lasts for ten years with differing levels of cover in the early years.  Commercial property warranties usually offer longer cover and are transferable to future owners. 

The critical thing to remember is that a warranty must be taken out before the build starts. Warranty providers will conduct inspections throughout the build and issue a 10-year warranty covering structural defects in the design, workmanship or materials used on completion. 

 Within the first two years of the warranty, the builder is held to account for any issues.  They are obligated to fix them free of charge – this is the ‘defects insurance period’.  The remaining eight years are the insurance period, meaning the builder has fewer liabilities as issues are usually due to wear and tear rather than structural problems.  

How to get a building warranty (most provider schemes will follow a similar pattern)

1.     Source a reputable warranty provider

2.     Submit plans and receive a quote for the policy

3.     Appraisal meeting and acceptance of the quote 

4.     Receive policy and contractual documents, including technical manual related to the build, site folder to log progress and inspection results

5.     The build begins, site inspections are requested at designated stages 

6.     Build completion – final inspection

7.     Subject to all stage certificates and a completion certificate being issued, the warranty cover begins.

Retrospective Building Warranties

So what you do if you do not already have a structural warranty or there is no record of one?  A retrospective policy is designed to cover completed properties which do not already have the benefit of a structural warranty and is required to allow for the sale of units, asset re-finance and for peace of mind. 

Typically, developers that are acquiring part complete or completed sites will at some stage require a finance facility (either at inception or exit) and the provider of that facility will want to know whether there is a warranty in place. If there isn’t, you won’t be able to draw down funds – thus having a warranty is key. 

A completed or part-completed property is viewed as a greater risk from the underwriter’s perspective as the insurer has not had the opportunity to inspect and oversee key phases of the build. The increase of perceived risk for the insurer directly links to the premium cost of the warranty. Instances where developers don’t secure a warranty until after the build is structurally complete can see the premiums increase by as much as 100% from the original cost.

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