In a world where the adequacy of our Building Regulations is increasingly being questioned and the insurance market becomes ever harder to navigate, Approved Inspectors (AIs) have found themselves featuring recently in both the press and the Courts. Whilst the recent judgments from the Technology and Construction Court and the Court of Appeal give comfort to AIs (and their insurers) in illustrating how difficult it can be to bring a successful claim against an AI, these are difficult times for AIs and there are a number of issues that developers need to consider.
Key facts about AIs
- AIs can be engaged as an alternative to the building control department of a local authority to verify that Building Regulations have been complied with as required by the Building Act 1984.
- AIs must be registered with the Construction Industry Council Approved Inspectors Register (CICAIR).
- It is a statutory requirement that AIs hold appropriate professional indemnity insurance from an insurer approved by the Government. Without the insurance they cannot act as AIs.
What has happened recently?
There is now only one approved insurer (other than NHBC) which offers cover for AIs. This has meant it has become increasingly difficult to obtain insurance and some firms have been refused insurance and/or gone out of business. This includes Aedis Regulatory Services Limited, which was wound up in July this year. Other firms are coming under increasing pressure from the insurer in relation to the terms of appointment that they can agree with their employers. Where AIs can no longer obtain insurance, they cannot continue to act and in most cases (unless works have not yet commenced) the task of providing Building Regulations sign off will need to be transferred to already busy local authorities, causing delay to ongoing developments.
What does this mean for developers?
If you are mid project:
- Check that your AI can still act as AI – ask it to provide a broker’s letter confirming that it is still maintaining professional indemnity and public liability insurance.
- If your AI no longer has insurance it should have cancelled the initial notice (in accordance with section 52(1) of the Building Act 1984). If it fails to do so, the person carrying out the work or intending to carry out the work (which could be you or your contractor) needs to do so or risk criminal sanctions.
- You should ask your retiring AI to provide details of all inspections and any certificates issued to date to assist in the transfer of the project to the local authority.
If you are about to commence a project:
- You are likely to find that there are fewer AIs in the market and that negotiating the terms of your AI’s appointment is more difficult than in previous years.
- Happily for AIs, the Courts have made it clear
that claims for fraudulent misrepresentation or breach of the Defective
Premises Act against AIs are unlikely to succeed; claims for negligence are
also difficult. However, you will
probably find that AIs will no longer agree to provide collateral warranties in
favour of third parties including funders, thereby reducing the risk of
potential claims even further. So how do
you satisfy your funder in this situation?
- Do ensure that the benefit of your appointment can be assigned to a funder.
- Check that your building contract and/or design appointments make clear as to who is ultimately responsible for compliance with Building Regulations – this is not the AI; it is there to check as far as can reasonably be determined that the Building Regulations have been complied with. The Building Regulations make clear that a completion certificate issued by an AI is evidence but not conclusive evidence that the requirements specified in the certificate have been complied with.
- It is your design team that has real influence on what is built. Your funder should have warranties from those parties which are likely to be much more useful to it than a warranty from an AI.
Comment
Responsibility for compliance with Building Regulations needs to be carefully considered and documented on complex projects alongside the terms of the AIs appointment. Greater certainty in this regard will ultimately benefit developers, funders and occupiers and is important to the long term success of a project.