The issue of Latent and Inherent Defects was recently brought abruptly to the forefront of the national media following the unprecedented closure of 17 schools in Edinburgh constructed under the Public Private Partnership 1 (PPP1). Setting aside the obvious cost implications these closures have had, there have also been much further far reaching effects, disruption and stress on the affected families and larger communities.
For developers, funders, landlords and tenants the vast scale of the closures and associated cost liabilities brings a timely reminder to the issue of Latent and Inherent Defects, an area often neglected especially at due diligence stage, in my view.
What had originally appeared to be an isolated incident affecting Oxgangs Primary School where a wall collapsed during Storm Gertrude in January revealed during investigation that there were several problems with the way the external walls had been constructed. The width of the wall cavities was incorrectly measured and the wall ties not correctly installed to the required embedment depth, ultimately resulting in their failure and the collapse of the wall. Further and ongoing surveys are revealing the true extent of Latent and Inherent Defects across the portfolio requiring rectification.
What are Latent and Inherent Defects?
A suggested definition would be a defect existing but typically not visible at the relevant date (such as lease commencement) that is the result of defective design, defective supervision of the construction of the property, defective workmanship or defective materials used during its construction.
Landlord and Tenant Situations
The issue of Latent and Inherent Defects is especially important in commercial Landlord and Tenant situations, where in Scotland the Lease Agreement will dictate liabilities on these.
The majority of Latent and Inherent Defects will fall within the scope of Extraordinary Repairs and the lease requires clear drafting to pass these obligations onto the Tenant.
In my experience the vast majority of leases in Scotland pass responsibility for Latent and Inherent Defects onto the Tenant, bringing increased unmeasurable risk whilst also impacting on dilapidation liability and blunting possible defences against a myriad of claims.
How to mitigate risks
In new build or refurbishment situations the end user committing to entering into a new lease or acquisition of the development should mitigate their risks by appointing a Project Monitor. The Project Monitor manages the client's risks throughout the project and advises on their interests in the completed development. As such the risk of Latent defects should be diminished.
Another route to mitigate risk is to obtain Latent Defect's Insurance where possible through insurers/insurance brokers although consideration to the cost of same is required.
For older buildings, a Building Survey should be commissioned by an incoming Tenant and the Chartered Building Surveyor requested to provide condition based advice utilising their specialist knowledge and experience as a matter of course. A Building Surveyor in doing so may be able to provide advice on Latent and Inherent Defects that may be expected in a particular form of construction and the associated risks of same.
Finally and most importantly, increased communication between the appointed surveyor and solicitor is of prime importance to providing a joined up approach to mitigating risk, adding value and providing best service to clients.