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Construction And Procurement Notes

LPC Law Notes > Advanced Property Law and Practice Notes

Updates Available  

A more recent version of these Construction And Procurement notes – written by Cambridge And Oxilp And College Of Law students – is available here.

The following is a more accessble plain text extract of the PDF sample above, taken from our Advanced Property Law and Practice Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Liability for Defects in Construction

1 Role of the Lawyers

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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

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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

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