Lack of Building Regulation consent – why legal indemnity policies may NOT be the cure
It is quite common for conveyancing solicitors to spot within conveyancing transactions that a property has had building works carried out without the necessary Building Control consent having been obtained, for whatever reason (e.g. ignorance of the law, cost cutting or a builder poorly advising the customer of the requirement).
1. Do nothing and proceed. But this exposes the buyer to various consequences. Firstly, if the offending works lead a buyer to put in a home insurance claim, the insurance company may refuse to pay out if they do not have appropriate Council consent. This is not widely appreciated. Secondly, doing nothing puts the buyer at danger due to the potential bad build quality of the offending works. Thirdly, it exposes the buyer to discovery by the Council resulting in official (and probably costly) intervention. The Council have a 2 year window for enforcement, but unlimited injunction powers if there is danger to health and safety. However, this is not an option where a buyer is obtaining mortgage finance, as it would have to be reported to them and they would surely insist on the next few options.
2. Apply to the Council for retrospective consent. This will take time, though each Council varies, and some are willing to come out quickly and provide a letter confirming that from their limited inspection, they look like they comply and they do not intend to take any action. Full consent can be more time consuming. In either case this still fails to address with 100% certainty the build quality, so again your surveyor should pay the closest inspection. However, the seller may refuse either of these avenues as it could ‘open a can of worms’ for them – though the ‘can’ would surely be something the buyer would want to know about and have the seller address at their expense – as it might cost the seller quite a bit of money depending on what had to be done. But this is the best course for the buyer as the Council could insist on an offending structure being taken down.
3. The most common avenue is for the seller’s conveyancing solicitor to invariably offer to take out at their client’s expense, a very cheap one-off ‘legal indemnity insurance’ for lack of building control consent. As common practice as it is, do buyers’ conveyancers really appreciate the dangers (and possible negligence claims they are opening themselves up to) in thinking this is some magic cure?
To start with, these policies only deal with enforcement action by the Council, they do not address the question whether the offending works were carried out to a high build standard and so do nothing to remedy the works if they present a danger to health and safety.
However, if the buyer is not concerned with the build quality, only Council consent, then it also needs to be realised that each insurer – as many companies offer these policies – all have varying strict qualifications for the valid inception of a policy. These can be often overlooked and they can include:
a. No policy can be issued within the first 12 months of the offending works, and some policies require the property itself to be at least 4 years old;
b. If the buyer – as most would at some point wish to do – then carries out further building works the policy can be invalid – unless prior consent is obtained from the insurer;
c. If the offending works had already been refused by the Council then the policy is invalid;
d. The policy usually only covers ‘enforcement’ action (statutory enforcement notice or injunction) not other investigation;
e. Some polices require a valuation or survey to have been first carried out on the Property and there must be no remedial action recommended in any valuation/survey in respect of the offending works.
As you can see, offending works have a limited coverage within such insurance policies, and so they can often be far from a cure. There will be many policies in the market place that are invalid, have become invalid or were taken out under the mistaken impression that they cover the cost of repairing any of the offending works (a bit like a builder’s guarantee). But, cynically, the deal was completed and people are in houses – but how ‘safe’ or free from Council action is another matter.