This change is being introduced via the Building Safety Bill introduced to Parliament on 5 July 2021. The Bill is extensive and covers a multitude of issues. It contains many laudable and beneficial aspects which ought to improve the standard of construction work undertaken in the UK. However, two of its 145 sections, appear to go further than Mr Jenrick suggested because they will significantly extend the potential liability for construction claims and those who insure them (not just in a cladding context).
The Defective Premises Act 1972 (“DPA”)
The DPA imposes a duty on anyone involved in the construction of a dwelling to ensure it is completed in a workmanlike or professional manner, using proper materials to ensure it is fit for habitation when completed.
The limitation period for bringing an action is currently six years from completion (generally speaking, that will be interpreted as being practical completion). The benefit provided by S14A of the Limitation Act 1980 to extend time for claims in tort where knowledge of defects is acquired later, does not apply.
Sections 125 and 126 of the Bill propose a number of important changes
- Section 125 broadens the scope of the DPA which currently only applies to the “provision” of a dwelling where work is carried out on new builds or conversions (e.g. from offices to flats). The changes will now apply to all building work in connection with the construction of a dwelling, thus ensuring the DPA will apply to work undertaken on an existing building which makes it unfit for habitation (which it does not presently cover).
- Nothing in the Bill would limit its changes to only cover cladding or fire safety related liabilities, which is what Mr Jenrick appeared to suggest. Cladding may be the primary focus of this initiative but the Bill will amend the DPA to impact on any building work in connection with the construction of a dwelling.
- Section 38 of the Building Act 1984 imposes a civil liability for a breach of the building regulations which causes damage. However, it has never come into force. The Bill will establish such a breach as a cause of action, the effect of which appears to be an attempt to make the building regulations stronger and more effective.
- Section 126 amends the Limitation Act 1980 to extend the limitation period for claims under the DPA and section 38 of the Building Act from 6 years to 15 years. Of critical importance, this extension will apply retrospectively. This potentially creates a liability on projects for an additional nine years.
- This retrospective action will not apply to claims that have been finally determined or settled prior to the Bill coming into force. They cannot be reopened.
- While a 15 year limitation period will apply to the newly created rights under the DPA to bring claims in relation to work on existing buildings, that is only of prospective effect, i.e. it will not retrospectively give rights to make claims on projects completed before the Bill comes into force.
A carve out – one for the litigators?
The retrospective extension of a limitation period is unusual and controversial, not least because in many cases it will remove limitation defences that have already accrued.
Limitation periods are important because they create certainty, finality and help to avoid stale claims being made. The general view is that they should not be tampered with. Therefore, and in order to provide a level of fairness to potential defendants, the Bill introduces what may become a fertile ground for argument, namely that if the extension of the limitation period would breach a defendant’s human rights, the claim must be dismissed.
There is unlikely to be any “one size fits all” defence so what might be sufficient? What if all of the defendants’ documents have long since been destroyed as part of a standard document destruction process? Or what if a crucial witness has died, or a living witness simply cannot any longer recall events from 15 years ago? Will Claimants argue that parties involved with large projects regularly work under Deeds where a limitation period of 12 years is already in force, so an additional 3 years does not impinge on a defendant’s human rights?
The way in which the courts interpret this provision will be of significant interest (assuming, of course, the Bill comes into law)
The long-term benefits of a stricter safety regime should bring about better working practices, more checks and balances and ultimately an improvement, certainly in the longer term, in the standard of construction work undertaken in the UK. That should also translate into fewer defects and less claims. On one view the potential claims exposure faced by the construction industry should reduce as a result, but that will all take time.
The reality, certainly in the short to medium term, is likely to be an increased claims exposure because:
- Increased regulation tends to increase the likelihood of breaches occurring as parties get to grips with new requirements.
- The retrospective change to limitation will come as a surprise and concern to many. The contractual obligation to maintain insurance will rarely, if ever, extend to 15 years. Some may not have cover extending that far back. Insurers may seek to apply retroactive dates.
- While Mr Jenrick’s focus appeared to be on “shoddy workmanship”, the DPA imposes a duty on anyone involved in the construction process of dwellings whether involved in the construction (i.e. “workmanlike”) or design (i.e. “professional manner”). Contractors, subcontractors, architects, engineers and surveyors are all potentially caught by this.
On the face of it, these greater rights ought to be beneficial to building owners. However, the manner in which the interpretation of the DPA has evolved over the last 50 years creates its own challenges. For example whether a premises is “fit for habitation” is fact specific. In a fire safety context, for example, if a certain component of a cladding system fails to comply with building regulations, does that render the building unfit for habitation? It is also almost always an expert led question which makes it expensive to prove.
Finally, the Bill takes no account of existing insurance regimes and many in the construction industry already have significant limitation on their cover. That is particularly the case in a fire safety context, but there have been wider implications of the hard market, for example, cover for “any one claim” has largely given way to aggregate limits of cover. Many are unable to afford the limits previously purchased and as a result hold less cover. Prospective claimants may well find that even if a valid claim can be made out, defendants do not have the cover, or means, to pay any damages awarded.
Anyone connected to the construction or insurance markets will tell you the construction sector sits in the centre of very hard market conditions. Insurers will be watching progress of the Bill, and particularly the operation of sections 125 and 126 of the Bill, very closely. The retrospective extension of a limitation period is controversial, while the broadening of causes of action under the DPA potentially increases the liability of companies operating in the construction sector. As a result, there is every chance that the hard market may yet become harder.