New build flats (only 4 years old), owners charged with £425,000 repairs, no insurance

mertywerty

As an owner of one of a block of 50 leasehold flats I have just been informed by the management company that I am liable for about £8,000 worth of repairs on the roof and associated drainage which is not covered by the building insurance. 

The flats are not yet even 5 years old, and were sold with a 10 year old new build warranty (CRL/CGICE 10 year Structural Warranty). The management company after commissioning some surveys and remedial works quotes, applied to the insurer for the costs of the roof repairs, but the claims were subsequently rejected. 

The insurer rejected because in their words "the works are not required because of a failure of a load-bearing element of the property or a structural defect, and the works are therefore not covered under the policy". Furthermore there were comments made by the insurer that "the failure of the roof and drainage was due to a poor design and poor-quality workmanship".

The original developer / builder of the flats are no longer associated with the development as they sold the freehold to another company for the flats shortly after completion of the build. 

I have looked in my lease and it notes the freeholders obligation to "insure the building and development .. and in the Communal Areas for such sum as is the full reinstatement value against loss or damage by fire lightening explosion earthquake landslip subsidence riot civil commotion aircraft aerial devices... together with such other risks as are usual for a normal comprehensive policy of buildings (including liability to pay rent) similar to those on the Development..." 

Comparing this to the CRL/CGICE 10 year Structural Warranty given with this flat, the wording in this warranty just covers load bearing / structural elements, and it also has an endorsement to say "all claims relating to or resulting from the flat roofs are excluded from policy cover". It sounds like the original freeholder (the developer) did not insure the building fully as it should have done as stated in the lease? 

Could anyone please advise what the best course of action would be, as I don't understand we could be left in this position with substantial repairs for a block of flats that is still very new?

Everyday the water ingress is getting worse as it has already penetrated down into the middle of the building and has caused significant damage to the common walkways and internally in some flats. The management company has informed us that they have already tried every avenue to recover costs to pay for the repair but have failed, and so they require us to pay the £425,000 repair bill. However we are aware that the management company ultimately acts in the best interests of the freeholder, and if the freeholder could be liable for the costs, it would not be in their interest to declare that to us? 

A small group of us flat owners are already trying to contact all other flat owners (although this is hard as a lot of the flats are rental properties), to see if we can get collectively some legal advice, but beyond that we don't know what else we can do or turn to for help? 

user1977

You seem to be conflating building insurance and the new build warranty. They're completely different things. 

HampshireH

Have they served you a section 20 for these works? Or is this just a conversation at the moment?

eddddy

It sounds like a terrible situation - but you're very confused about 10 year Structural Warranties, and Buildings Insurance. It sounds like the situation is as follows:

• The roof and drainage are defective because of poor design, poor workmanship and/or poor materials.

• 10 year Structural Warranty from CRL provides limited cover for poor design, poor workmanship and/or poor materials. But CRL seem to be saying that roof and drainage aren't areas that are covered. (The warranty takes the form of an insurance policy - so it's sometimes referred to as a "Warranty" and sometimes as "Insurance", which might be adding confusion.)

• Buildings Insurance is arranged by your management company each year. It covers specific unforeseen events like fire, storm, flood, etc. So if the roof had been damaged by fire or storm, it would have been covered. Buildings Insurances specifically does not cover anything resulting from poor design, poor workmanship and/or poor materials.

So maybe some areas for you to investigate:

• The management company say that they have contacted CRL and been told that the 10 year Structural Warranty doesn't cover roof and drainage. You might want to get your own professional adviser to read the warranty documents, to see if they agree.

• The management company say that the cost of repairs will be £425k. You might want to get your own surveyors to investigate the problems to see if they agree. They might say that £425k is excessive and/or they might find a lower cost way of fixing the problems.

The original developer seems to be the one to blame for the poor design, poor workmanship and/or poor materials. You can take legal advice on whether you have any recourse against them - but unfortunately. I think it's unlikely.



Edit to add...

Another angle to investigate...

• Sometimes developers offer more warranty cover in the first 2 years - which might have included the roof and drainage. If that's the case with your developer, were any problems reported to the management company during those first 2 years? If so, did the management company report them to the developer?

daveyjp

As the the management for evidence of 'every avenue' they have tried to get the warranty company to pay.

mertywerty

Hi thank you all for the replies and advice.

No they haven't not served a section 20, they basically just said the costs will be added onto the next Service Charge bill which will be due on 1st January next year. 

I've confused building insurance and the 10 year structural warranty as the one and same thing, because that is the only details we have been given when we purchased the flat. Also from the communications so for from the management company we have been led to believe are the one and same thing, as this is the only route they have presented to us for claiming. 

From the replies above I suppose that the building insurance (if one has been taken out by the freeholder) is a separate policy held by the freeholder and details of this are only available to the management company ? 

The management companies latest correspondence to us: 

" I am writing to let you know that we have received a response from Nexus, the structural warranty insurers in relation to the claim we submitted to cover the cost of the works required to repair the roof and drainage.

Full details of the works required are detailed in the report provided by White Hindle & Partners, a copy of which is available on our Tenant Portal.

Nexus have confirmed that the works are not required because of a failure of a load-bearing element of the property or a structural defect, and the works are therefore not covered under the policy.

We have been advised that the failure of the roof and drainage is due to a poor design and poor quality workmanship.

We are therefore writing to the developer, requesting that they provide the funds for the works required. It should be noted, however, that the developer do not have a statutory obligation to fund such works, and it is not anticipated that they will be cooperative.

There is significant damage being caused to the communal areas and some apartments due to the failure of the roof and drainage system which does need to be rectified as soon as possible. We have taken advice in relation to temporary repairs but have been advised that there is little which can be done by way of a temporary repair and the full roof works are required to prevent further damage to the property. Please therefore be advised that the full cost of the works will be included in next years’ service charge budget. The cost of the works is estimated to be in the region of £425,000"

The freeholder / management company in all their communications intermingled the the term "insurance" with the structural warranty. In another letter from them:
 
"You will recall that I previously wrote to leaseholders in relation to a proposed warranty claim regarding latent defects to the building. The response we have received from the warranty provider has unfortunately rejected the claim. Their comments are noted below for your reference:

I write further to the above matter, which is a claim being made against the Structural Warranty Policy in place with CGICE, in respect of the development following reports of water ingress. 

You will recall that we instructed a surveyor, Paul Davies of GHPC, to attend the property and inspect the defects and report back to Insurers on the defects and resultant damage

We now have Insurers’ instructions in respect of these claims.  

It was noted during Paul’s inspection that there were defects with the communal roof and a failure of  the external drainage system which allowed water to enter the high level walkways and ultimately lower level walkways alike. There was also a lack of good detailing to the falls of the walkways and little or no upstands at the access doors to the common stairwells, therefore allowing water to surcharge the threshold into the stairwell and communal areas.  

• In order for a claim to succeed under the Structural Warranty Policy, there must be evidence of Major Damage. Major Damage is defined under the Policy as:
  
  Destruction of or physical damage to a load bearing element of the Residential Property caused by a defect in the design workmanship, material or components of the Structure which adversely affects the structural stability or compromises the effectiveness of the waterproofing elements of the Waterproofing Envelope; or
  
  
•  A condition requiring immediate remedial action to prevent damage to a load bearing element of the Residential Property which adversely affects the structural stability of the Residential Property or compromises the effectiveness of the waterproofing elements of the Waterproofing Envelope; or
  
  
• A condition requiring immediate remedial action to prevent imminent danger to the health and safety of the occupants caused by a defect in the design, workmanship, material, components of the Structure or failure of the developer to comply with Building Regulations in respect of chimneys and flues; which is discovered and notified to the Insurer during the Structural Damage and Contamination Insurance Period.

During his visit, Paul found no evidence of any Major Damage as defined under the Policy. As such, insurers are unable to offer any indemnity in respect of this loss. Should you disagree with this position, you will need to provide evidence that there is in fact major damage as defined above under the Policy.

In addition to this, as the defects are communal areas, a claim would need to be made against each of the certificates for the properties that benefit from the communal areas, namely all 52 of the properties. This means that for each defect, of which there are 2, an excess of £1,000.00 per Policy would apply. In this case as there are 2 separate defects, 2 excesses would apply, and therefore the total excess to be applied to these claims would be £104,000.00 (£2,000 per Policy x 52 Policies). It is likely that the cost to remedy the defects and resultant damage would fall well within this deductible amount, and therefore the Insurer’s liability would not be engaged in any event"

From the above is it safe to assume that there is no separate building insurance in place at all for this property? If that is the case then this would be a contravention of the lease, with respect to the building insurance coverage that should have been in place? 

Do other blocks of new build flats have building insurance cover separate from that of the new build structural warranty? 

As a side note, the blurb above mentioned that the costs were likely to be less than £104,000. This report was done before the tender was made to contractors resulting in a bid of £425,000 being recommended. I don't understand how the costs could have been underestimated so much by a professional?

user1977

mertywerty said:

From the above is it safe to assume that there is no separate building insurance in place at all for this property?

No, it isn't. I expect they probably do have buildings insurance in place. But as explained above, any normal buildings policy is going to be irrelevant, because the risks it insures (i.e. the ones you listed in the clause) aren't anything to do with the problems you're having.

I expect the insurers they're talking about are the ones underwriting the warranty. You'd need to look at the terms of the warranty to see what it covers - you should have got a copy when you bought. Didn't your solicitors mention anything about it? They certainly would have checked that it was in place.

Lunchbox

They cannot just add it to the service charge bill unless the works will cost less than £250 per property. If more, they must serve the Section 20 notice. If it is less than £250 it probably isn’t worth the fight.

AdrianC

mertywerty said:

No they haven't not served a section 20, they basically just said the costs will be added onto the next Service Charge bill which will be due on 1st January next year.

They can't do that.

If the work is going to be more than £250/property, it HAS to be s20.

That s20 process includes getting quotes from several suppliers, including the option for leaseholders to nominate suppliers.

I've confused building insurance and the 10 year structural warranty as the one and same thing, because that is the only details we have been given when we purchased the flat.

You wouldn't confuse your car insurance with the warranty the manufacturer gave on it, would you? Same difference.

The warranty covers against major damage. There hasn't been any major damage... yet. That doesn't mean they can leave it until such damage DOES occur.

mertywerty

eddddy said:

Another angle to investigate...

• Sometimes developers offer more warranty cover in the first 2 years - which might have included the roof and drainage. If that's the case with your developer, were any problems reported to the management company during those first 2 years? If so, did the management company report them to the developer?

I think another flat owner did report this within the first 2 years (their flat was directly affected by the roof leaks), at that time I think the original developer/builder still owned the freehold and hence were also running the management. I think the flat owner has email trails of the builders saying they would come and fix the leak in the flat, but they never did and then they sold the freehold to another company, which then installed a new management company. 

AdrianC

When they sold the freehold, they sold it in the condition it was in at the time. The purchaser took responsibility for that condition.