#4902 - Construction And Procurement - Advanced Property Law

Liability for Defects in Construction 1 Role of the Lawyers * * Property Lawyer: o Deals with all aspects of property law including construction o Focus is on selling, buying, leasing or letting land Construction Law Specialist: o Deals solely with all aspects dealing with construction o Have good knowledge of contract and tort o May deal with contentious and non-contentious issues relating to building contracts, terms of appointment and duties of care The Professional Team The Developer Building Contractor Architect Quantity Surveyor Engineers Sub-contractor * * * * * The Developer: o Unlikely for the Developer to have the skill and knowledge to design and build the construction independently o Often employs/contracts out work to specialists: The Building Contractor/Sub-contractors: o Building contractors contracts with the sub-contractors o Developer may sometimes choose the sub-contractors ('nominated subcontractors) but usually main contractor who chooses ('domestic sub-contractors') o Usually engaged in standard contracts * One of the Joint Contracts Tribunal ("JCT") Contracts o Basic developer contractual obligations: * Give up possession * Not to interfere with the execution of building works * Appoint an architect for purposes of the contract * Nominate sub-contractors * Pay the price payable as contract provides o Basic contractors obligations: * Complete work set out in architects plans - judged by architect when granted certificate * Exercise reasonable care and skill/s.13 SGSA'82 * Provide satisfactory quality and fit for purpose building materials/s.4 SGSA'82 The Architect: o Often Project Manager o Designs the building o Often appointed project manager * Oversee successful completion of construction o Responsible for signing off the various stages of construction * Produce certificates to verify the completed stage * Often needed to that the building contractor/sub-contractors can be paid o Produces a Certificate of Practical Completion * Practically complete and fit for occupation triggering final payment The Quantity Surveyor: o Can be Project Manager o Responsible for costing materials necessary for construction o Based on specifications produced by architect o Involved throughout the construction The Engineers: 2 o Maybe a number of engineers required o Usually structural steel engineers o Depending on specification may appoint a: Methods for 3rd Parties to Deal with Inherent Defects Contracts (Rights of Third Parties) Act 1999 * Applies where entered on or after 11 May 2000 * Allows a 3rd party to bring an action under a contract despite not being a party to it * Contract must expressly provide for Act or purports to confer such a benefit * 3rd party must be expressly identified by name, a class or as answering to a particular description * Need not be in existence when the contract is entered into Assignment of Rights/Declaring a Trust of Rights * Full Assignment: o Puts 3rd party in position of the Developer (the original beneficiary of the contract) o Can only be assigned once - once assigned, gives up right to sue under contract (therefore not appropriate to assign the Tenants, as Landlord will want to maintain their contractual rights) o Therefore, not a popular method generally BUT is suitable where selling the development as a whole o Developer will require an indemnity from the beneficiary of the assignment for any loss they incur which they would have had a right of action for under the assigned rights. * Declaring a Trust of Rights: o Instead of outright assignment o Developer retains an interest in the contract o E.g. Developer becomes landlord and will hold interest on trust for benefit of himself and his Tenants Latent Defects Insurance (No need for litigation) * Insure against unidentified latent defects in construction (common period of 10 years after practical completion) * If defect occurs then insurance will cover the costs of repair (depending upon amount insured for) and often economic loss (e.g. lost rent, use) * Will cover developer and subsequent owners Advantage: * No requirement to establish legal liability/avoids litigation * Guarantees recovery of costs etc... (subject to breach of terms etc...) Disadvantage: * Can be expensive (common 1.5% of development costs) * Common for there to be a substantial excess (e.g. PS50,000) * Need to be sure that the correct cover is obtained (check small print) Limiting Repair Covenants * Tenant (of a new build) may wish to remove any repair covenants relating to inherent defects from the tenancy agreement and ensure the liability falls back to the landlord. * Wholly or partially (e.g. first 3/6 years after the grant of the lease) * Will depend on the bargaining strengths of the parties * Landlord reluctant to accept where purpose for seller on to institutional/investments bodies as they require a 'clean' lease (i.e. no repairing obligations etc...) - will decrease overall sale price * Unlikely Tenant will take on repairing covenant as to structure if only lease of part Defect Liability Periods Funder * An alternative to limiting repair covenants if Landlord will not accept (will keep the lease 'clean') * E.g - 6 to 12 months after Practical Completion o Landlord covenants to repair any inherent defect within first 6 to 12 months o If Landlord has benefit of construction contract - can recover costs from the relevant building contractor Forced Enforcement of Remedies Developer Tenant * Agreement with the person with Purchaser benefit of contract with the relevant building contractor (i.e. the developer) will rd enforce the contract if instructed to do so by a 3 party * 3rd party will need enforcement rights protected by a formal letter or deed Collateral Warranties What are they? Professional * Agreement between members of Professional Team and 3rd party * Creates a contractual duty Team of care in favour of 3rd party (who has an interest in seeing that the development is free of defects) without contractual relationship with Professional Team * May be given in favour of purchaser, funder or tenant - often a requirement in letter 3