Retrospective structural warranties: the financial implications of arranging cover late
A retrospective structural warranty provides long-term protection for completed or substantially completed developments where a warranty was not arranged before construction began.
Cover may be required to support the sale or refinancing of completed units where no suitable structural warranty is already in place. Fully or partially completed developments are generally subject to greater underwriting scrutiny because insurers have not had the opportunity to monitor the construction process from the outset.
The Cost of Arranging Cover Retrospectively
This perspective directly impacts the premium cost. Arranging cover after construction has started can increase both the premium and the level of technical due diligence required.
The extent of any increase will depend on the construction stage, inspection history, available technical information and the insurer’s appetite for retrospective risk.
Use our calculator to get indicative warranty costs for your retrospective structural warranty.
Not having a warranty from the start of a construction project can lead to several significant financial implications:
1. Repair Costs
Without a structural warranty, any latent defects or structural issues that arise post-construction will have to be addressed at the expense of the property owner. This can lead to substantial repair costs, especially if the defects are extensive or require significant structural work.
2. Legal Expenses
Resolving disputes related to construction defects can result in costly legal proceedings. Without a structural warranty, the burden of proof regarding liability for the defects may fall squarely on the property owner, potentially leading to legal expenses.
3. Reduced Property Value
Properties without a structural warranty may be viewed as higher risk by potential buyers or investors. This can lead to a reduced market value, making it more challenging to recoup the initial investment or achieve desired returns.
4. Difficulty in Obtaining Financing
Most lenders may be hesitant to provide loans or mortgages for properties without a structural warranty. This can limit the owner’s ability to secure funding for the project or its subsequent sale.
5. Potential Delays in Project Completion
Addressing latent defects or structural issues after the project is completed can lead to delays in occupancy or utilisation of the property. These delays can result in additional carrying costs and lost revenue opportunities.
6. Impact on Insurance Premiums
Property owners may find it more challenging to secure comprehensive property insurance coverage as the insurer has not had the opportunity to monitor the work.
This directly correlates with the premium cost of insurance. Premiums can increase by as much as 100% from what they would have been, had the policy been taken out before the development work had started.
7. Diminished Market Appeal
Properties without a structural warranty may be less attractive to potential buyers or tenants, particularly those seeking assurance of long-term structural integrity. This can lead to longer vacancy periods and potential income loss.
The Importance of Early Warranty Planning
In summary, not having a warranty from the outset of a construction project can expose property owners to a range of financial risks, including unexpected repair costs, legal expenses, reduced property value, difficulty in obtaining financing, potential project delays and higher insurance premiums.
If you have a project that requires a retrospective building warranty, call us on 020 3096 0718 or fill in our enquiry form.
