Following the Grenfell disaster in June 2017, many of those with an interest in residential buildings, especially those over 18 metres (ie including student accommodation and whether as building owners/funders/tenants) have been carrying out investigations on their buildings to see if, from a fire safety perspective, they were built in accordance with the Building Regulations in force at the time of construction. Anyone who has been following the Grenfell inquiry in any detail will be unsurprised to hear that many of these building owners, funders and tenants are discovering that their buildings were not built in accordance with the relevant Building Regulations.
Following the discovery of such fire safety defects, many of these building owners, funders and tenants have been seeking legal redress from those responsible for designing and constructing the building (in most cases the design and build contractor), and in this blog we set out some of the key considerations for those involved in such claims.
Is there a contractual link?
Many building owners, funders and tenants, such as institutional investors, will not be the entity that employed the contractor to construct the building pursuant to the original construction contract (the employer under the construction contract will often be an SPV set up by the developer). Accordingly, such entities cannot bring a contractual claim under the original construction contract as they are not a party to it. Given that most construction contracts exclude the Contracts (Rights of Third Parties) Act 1999, in order to bring a contractual claim they will need a collateral warranty in their favour. This, essentially, is an additional contract pursuant to which the contractor warrants to the recipient that it has complied with its obligations under the construction contract.
This is an important point because it is well-established in English law that the cost of remedying defective construction work constitutes pure economic loss, meaning that, absent a special relationship, it is irrecoverable in the law of tort. Ordinarily, therefore, in order to recover such losses a contractual link is required.
Many of the buildings that it has now been discovered are suffering with fire defects will have been constructed some time ago. As such, another key issue is limitation.
Unless the building owner, funder or tenant in question has a claim in tort against the contractor (ie can establish a special relationship) or is able to run an argument that the contractor has deliberately concealed the defective work (see RG Securities v R Maskell last year), then, in respect of their contractual claim, they will have six years from the date of breach to bring a claim if such claim arises under a simple contract and 12 years from the date of breach if the claim arises under a deed. In respect of the date the breach occurs, under a design and build contract this will ordinarily be the date of practical completion.
What should be clear from the above is that those with potential cladding claims should not delay in carrying out the necessary investigations and establishing whether their building is suffering with defects that give rise to a claim. If they do delay, they risk any claim they may have becoming time-barred.
Experts, experts, experts
Numerous experts are ordinarily required when dealing with cladding claims. Firstly the building owner, funder or tenant will need to engage a fire consultant to produce a report assessing whether or not their building has been constructed, from a fire perspective, in accordance with the Building Regulations in force at the time of construction. Of course, the defendant contractor will then need to engage its own fire consultant to pass comment on that report.
In addition to fire consultants, each side will most likely be required to engage architectural experts as well. In short, many cladding claims arise due to the specified cladding materials not complying with the Building Regulations in force at the time of construction (ie they concern design issues). In the vast majority of design and build construction contracts, the contractor’s liability for design issues is limited to that of an architect. To put it broadly, what this means is that the contractor will only be liable if it can be established that they have made an error in design that no other reasonable member of the architectural profession would have made. In order to establish whether such an error has been made, expert opinion from architectural experts will be required.
Set out above are some of the key points that are likely to apply in almost all cladding claims. Of course, each matter will have its own specific facts that will give rise to many other issues. What should, hopefully, be clear from this blog is that it is vital for parties involved in cladding claims to establish the contractual position and for those with potential claims to move quickly in order to prevent limitation from becoming an issue.
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