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Insights // 13 June 2019

New Build Warranties – A Summary When Buying a New Build Home

Manisha Bhula and Jessica Smith, in our Residential Property team, explain the warranties available when buying a new build home.

Are you purchasing a new build property? Take a moment to consider the protection offered by new build warranties, which are available to cover against construction defects.

What are the benefits of new build warranty cover? 

  • If (after contractual exchange) the builder becomes insolvent or fails to complete construction, you should be able to re-obtain your deposit without suing the builder.
  • Most warranty providers require additional inspection of the completed construction, re-assuring you that construction has been sufficiently monitored and assessed.
  • If construction defects arise, you will have the support of an experienced, reliable and solvent warranty provider. You will not have to rely on suing the builder.

Do mortgage lenders insist on new build warranty cover?

 Although a warranty is not legally required, mortgage lenders who are members of UK Finance require a valid warranty for properties built or converted in the past 10 years, or to be occupied for the first time. The builder should decide which warranty provider to use, from a selection of providers acceptable to the lender.

 What is usually included in new build warranty cover?

 The most commonly used warranty provider for new build residential property is NHBC Buildmark. By way of example, the NHBC Buildmark warranty provides the following cover:

  • After contractual exchange but prior to completion: insurance against the builder failing to build the property due to death, insolvency or fraud.
  • During the first two years after completion: insurance for damage caused by the builder failing to build to the standards. The builder is responsible for rectifying the problems.
  • For ten after completion: insurance to cover the cost of putting right any physical damage to the property caused by the builder failing to comply with the standards. NHBC is responsible for rectifying the problems.

What is usually excluded from new build warranty cover?

  • Anything that you knew about before purchasing the property that resulted in a reduced price or other compensation;
  • Anything done to the property after the completion date (except construction undertaken to meet the standards imposed by the warranty);
  • Anything that can be claimed under a different warranty or compensation scheme;
  • Damp, rot, condensation and/or shrinkage (which is not resultant from the builder’s failure to meet the standards imposed by the warranty);
  • Flooding and/or changes in the water-table level; and
  • The builder’s failure to get planning permission or to comply with planning rules.

What financial limits are usually imposed on new build warranty cover?

  • For the period after contractual exchange but prior to completion: the lesser of 10% of the original purchase price for the housing unit or £100,000.
  • For the remainder of the warranty:
    • Up to £1,000,000 for a newly constructed housing unit;
    • Up to £500,000 for a converted or refurbished housing unit;
    • Where the housing unit is part of a newly constructed continuous structure (flats or a terrace), up to £25,000,000 for the structure; and
    • Where the housing unit is in a continuous structure (flats or a terrace) and has been converted or refurbished, up to £5,000,000 for the structure.

For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800. 

This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.

Manisha Bhula

Manisha Bhula

Partner, Residential Property

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