New Build Warranties

Amongst the multitude of legislative changes in the sector brought about by the Building Safety Act 2022 (“BSA”), are reforms to the law in respect of new build home warranties. The changes align with the government’s objectives to improve building control standards and avenues for redress, following the Grenfell Tower fire.

Marking a change from the standard 10-year warranties that we are used to seeing in the industry, from 28 June 2022 onwards, developers of new build developments or conversions in England must provide (prior to sale) a new build home warranty with a minimum cover of 15 years. Should they fail to do so, financial penalties may be imposed upon them.

The government guidance on new build warranties, which was withdrawn on 25 July 2022, stated that the amendments would “provide greater protection for all buyers of new homes by providing peace of mind that they will hold a warranty of at least 15 years.”

Application

Sections 144 and 145 of the BSA deal with new build home warranties. The BSA applies where a developer undertakes or commissions (a) the construction of a building or (b) a conversion (or other works) to a building with a view to granting or disposing of relevant interests created because of the construction or works, in England. The development must result in the creation of one or more dwellings (i.e. “new build homes”).

A developer (in respect of qualifying new builds and conversions) must at the time of or before granting or disposing of a relevant interest in a new build home, provide to the purchaser (being the person to whom the relevant interest is granted or disposed of) a new build home warranty for the new build home and provide to a prescribed person (being a person prescribed by regulations made by the Secretary of State) a new build home warranty for any common parts.

Common parts are defined within section 144 as any part of a building comprising a new build home where that part is provided for the use benefit and enjoyment of the residents of the new build home and the residents of other dwellings and where the right to use that part is given in connection with the grant or disposal of the relevant interest in the new build home.

A relevant interest is defined in the BSA as a legal estate which is either an estate in fee simple absolute in possession (i.e., where there are no conditions or restrictions imposed on an owner’s rights in respect of the land) or a term of years absolute granted to an owner for a term of more than 21 years from the date of the grant.

What is a new build home warranty?

Under section 144(2) of the BSA, a new build home warranty is an arrangement for a “thing” (a new build development or conversion) under which the developer agrees, in specified circumstances, to remedy any specified defect (or any defects) in the “thing” occurring in a specified period. Under a new build warranty arrangement, a prescribed person obtains the benefit of a policy of insurance relating to specified defects (or any defects) in the “thing”. For the purposes of the relevant section of the BSA, “specified” means anything specified within the warranty agreement itself which of course means that the terms of such warranties ought to be carefully considered.

The BSA provides the Secretary of State with the ability to impose requirements relating to new build home warranties, including in particular requirements as to (a) the kinds of defect which the developer must agree to remedy, (b) the circumstances in which the developer must agree to remedy a defect, (c) the developer agreeing to meet prescribed costs incurred by a person occupying a new build home, where works to remedy a defect are carried out, (d) the policy of insurance (including the risks to be covered, the minimum amount of cover, the minimum duration of the period of cover and the maximum excess amount), (e) the solvency of the insurer or underwriter, (f) the standard of service provided by or on behalf of the insurer in relation to the policy and (g) the ability of the person who has the benefit of the warranty to transfer that benefit to another person.

Importantly, the regulations imposed by the Secretary of State must provide that the period of cover under the policy of insurance must be a minimum of 15 years beginning with the day on which the relevant interest is granted or disposed of.

Financial Penalties

The Secretary of State is entitled to produce regulations which make provision for the imposition of financial penalties in cases where it is satisfied beyond reasonable doubt that a person has failed to comply with section 144(2) of the BSA, without reasonable excuse. What constitutes a “reasonable excuse” will no doubt be tested in due course.

Such regulations may include provision about the procedure to be followed in imposing penalties, the amount of such penalties, the imposition of interest or other penalties for late payment and the rights of appeal against penalties. However, the amount of the financial penalties (excluding interest or any additional penalty) may not exceed the greater of 10% of the value of the relevant interest at the time the person granted or disposed of it or £10,000.

Should you wish to discuss the BSA, the new regulations regarding Warranties and how these changes will impact you, please contact our Building Safety Team: Buildingsafety@jbleitch.co.uk