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Collateral Warranty


QUESTION: “A defect has appeared in a property I recently bought. At time of buying, I received a collateral warranty from the contractor, but it has since gone bust. I understand the defect was caused by a subcontractor. What can I do?”

Generally, a party cannot sue for damages on a contract to which it was not a party. Therefore, it is a question of whether you have acquired the right to sue the subcontractor and, if not, how such rights may be acquired. There are now several points to consider:-

Who else may be liable for the defects? You should not assume the defects were caused solely by the subcontractor. It is possible others – consultants or other subcontractors – may be liable. You should consider casting your net widely, at least at the outset, particularly as there may be limitations on the extent of each party’s liability.

You should check whether any of the construction contract documentation was assigned to you by the vendor at the time of the sale.

Even if there was no assignment at the time of the sale, you should consider asking the vendor to assign certain documentation retrospectively. Following the Court of Appeals recent decision in Technotrade v Larkstore, the fact that the assignment took place after the property was sold and after the defects appeared will not necessarily invalidate the assignment.

Undertake a review of the purchase agreement to establish whether the vendor gave warranties relating to the condition of the property. Although the vendor is not obliged to disclose anything to the purchaser, depending on the extent of the warranties given, you may have a claim for breach of this agreement.

Are the defects covered by latent defects insurance? This will depend on the nature of the defect. Typically, only defects in the weather proof envelope and structure of a building are covered by the policy.

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