If you are developing a property and are going to sell it, rent it or refinance it you will need a Professional Consultants Certificate or Latent defect insurance in place.
Mortgage lenders will only lend where the property is covered by a warranty scheme or a Professional Consultants Certificate (PCC) recognised by The Council of Mortgage Lenders (CML) and you will not be able to sell the unit to anyone raising finance if this is not in place.
The reason for this requirement is firstly to protect the end user of the property against unscrupulous building practices and secondly (perhaps more importantly from the perspective of the council of mortgages lenders) is to protect the lender who has taken security over an asset in the provision of a mortgage. Of course when funds are lent against a property the lender must ensure that the property is structurally sound.
A Building Warranty (AKA Latent defect insurance and a structural warranty) is a policy that insures the structure of a building against negligence throughout the design & build process. It ensures that any new build, conversion or refurbishment of a property is built to a certain standard and protects the end user and mortgage lender generally for a period of 10 years against the possibility of structural issues and in some cases water penetration. There are varying policies available for new builds, self-builds, completed/retrospective, properties in receivership, mixed use and commercial properties.
A professional Consultants certificate confirms to the lender (or its conveyancer) that a professional consultant
- has visited the property to check its progress of construction, its conformity with drawings approved under building regulations and its conformity with drawings / instructions issued under the building contract
- will remain liable to the first purchasers and their lender and subsequent purchasers and lenders for the period of 6 years from the date of the certificate;
- has appropriate experience in the design and/or monitoring of the construction and conversion of residential buildings; and
- will keep a certain level of professional indemnity insurance in force to cover his liabilities under the certificate
Professional Consultants certificates are usually more cost effective and are now widely accepted by the high street banks as a way of providing comfort that the residential unit has been built to the correct standards and if there are any defects in the first 6 years a claim can be made against the surveyor’s professional indemnity insurance.
Unfortunately building warranties and PCC’s are often viewed as a necessary evil by developers and builders who are often the parties who must commission them. However, all stakeholders throughout the construction process must consider their importance in the current regulatory environment. Many development finance lenders recognise the importance of building warranties for two main reasons; firstly to ensure the quality of the build over which they are taking a charge and secondly to ensure the strength of an exit strategy. Most High Street banks and retail lenders will not provide a mortgage on a property that has been built within the last 10 years and does not have a warranty. Consider the impact this can have on a 10 unit residential development being sold to the retail market without warranties in place, if 8 of the 10 buyers are financing their purchase that sale will not proceed without a warranty which can cost 5 times more retrospectively than if the policy was put in place prior to construction. Will the buyer pay for this? In most cases I think not. So although the developer/builder may not be the end user of a warranty they do end up benefiting from them in the form of fast less complicated sales and therefore repayment of gearing.
There are a small number of providers of building warranties in the UK that are approved by the high street lenders. Each provider has differing policies, criteria and pricing depending on the specifics of each particular project. Determining which provider & policy is right for each project and if you are getting the best price can be a logistical nightmare and of course if asked each provider will sing their own praises. It is therefore always beneficial and more cost effective to seek independent advice and whole of market quotes.
There are a few small, independent architects and surveyors who carry out PCCs in additional to their major business streams. The problem with this option is that you are often a secondary consideration alongside their bigger clients and prioritised projects and you often will not receive the level of service you should expect.
We are an independent organisation offering best advice for which warranty provider to use as well as providing a complete independent monitoring service that includes the provision of professional consultant’s certificates.
Our Team has in excess of 20 years’ experience in the UK property sector including surveying, development, asset management and Insurance.