Defects in the construction industry
Despite best efforts, defects are a common occurrence in the construction industry. Whether caused by unforeseen challenges, material inconsistencies, or the complex interplay of various teams, many factors can lead to defects that may require rectification.
A question that often comes up is how long are you on the hook for these defects and when do they stop being your problem? While this may seem like a straightforward question, people often have misconceptions about the duration of their liability under a contract.
In this newsletter, we look at what the law says about this, how construction contracts interact with the law, and what steps you can take to protect yourself and your business.
How long am I liable for defects for?
The Limitation Act 1980 says that parties are liable for a breach of contract (and defects are a type of breach of contract) for either six years, or for twelve years depending on how the contract was originally made.
- For contracts executed as a Deed, the limitation period is 12 years from the date at which the cause of action accrued (often taken to be the date of practical completion). Deeds must be in writing and must meet certain formalities. They often state on the face of them that they are Deeds.
- For other contracts, you are liable for six years from the date at which the cause of action accrued. Simple contracts (sometimes referred to as contracts ‘under hand’) are contracts that are not executed as a deed. They could be written contracts or verbal contracts.
The JCT forms have execution sections that allow the contract to be executed either as a Deed or not as a Deed. It is important to understand which of these is being used and what effect it has.
It is also important to note that very different limitation periods may apply if the party claiming is a third party (i.e. is not a party to the contract), and you should seek professional advice if this is the case.
What happens after the limitation period expires?
You are generally no longer liable for construction claims after the relevant limitation period expires. The courts are very willing to throw out otherwise good claims because they have been issued outside of the limitation period!
But what about the defects liability period?
Construction contracts often specify a ‘defects liability period’ of between 6 and 24 months. The JCT previously adopted this common name, which is unfortunate because it gives the impression that you are no longer liable for defects once the period has expired. This is not the case, and the defects liability period does not replace or override the limitation period set by law (the JCT has since adopted the term rectification period instead, to try and reduce confusion around this point).
So what is the defects liability period for?
Despite not limiting liability for defects, the defects liability period (or rectification period) is generally beneficial for the party whose work is defective. During the defects liability period, you have the right to correct defects yourself rather than being sent a bill for someone else to fix them. In most cases, this is going to be the cheaper option for you.
Even if the contract does not have a defects liability period, the party asking for the defect to be corrected still has a duty to limit their losses. This typically means that in many circumstances they should ask you first unless it would be unreasonable for them to be expected to do so. If they do not ask you to correct the defect which arises in the defects liability period, then there is case law that suggests that their claim against you should be limited to what it would have cost you to have corrected the defective work.
Can I just refuse to correct defects?
Yes, but this is likely to be a breach of contract if you are in the rectification period. In such cases, the other party might employ others to fix the defects and claim the additional costs from you. These costs could be deducted from the retention or claimed separately if the retention has already been paid.
The defects that I am being asked to correct are additional work – do I have to carry them out?
This is an issue that commonly results in disagreements.
Your obligation is to carry out your work in accordance with your contract. If the work you are being asked to carry out is not in the scope of your contract, or you are being asked to carry out work to a standard which you are not required to meet under your contract, then it is likely to be a variation.
The obligation to prove that there is a defect generally sits with the party that is claiming that the work is defective, so do not be afraid to ask them to tell you where in the contract it says you are required to carry out the work at all or to the standard they are requiring.
How to protect yourself
- If you have your own claims, you must make sure they are issued within the limitation period. That means taking steps a sufficiently long time before the limitation period expires.
- If you are engaging sub-contractors, align their contracts with yours so they are “back to back”. If you are working under a Deed, then so should they. This consistency means that if you face a claim under your contract that is your sub-contractor’s fault, you should be able to pass it down before the sub-contract limitation period expires.
- Where a liability can be insured (for example professional indemnity insurance of design liability), ensure that you have appropriate insurance that covers the whole duration of your liability.
- Maintain thorough records of all work done, including communications, changes to the scope of work, and any agreements or disputes. This documentation can be crucial in resolving any disputes or claims that arise relating to defects.
- Check whether the defects you are being asked to address are actually defects.
How can CCC help?
CCC have decades of experience assisting parties in resolving all manner of construction disputes, including:
- Disputes over defects
- Disputes over valuations
- Disputes over payment
- Adjudication and arbitration
