News and Publications

Home warranty certificates – are they worth the paper they are written on?

Posted: 08/10/2021


Where a new home is being constructed, it is essential for it to be constructed under a new home warranty scheme that will be acceptable to a registered provider and their lender, and any lender to a shared ownership purchaser.

NHBC offers new home warranties for around 80 per cent of the new completions, but other providers are entering the market. Each scheme has different terms and conditions, and the protection afforded by the policies varies with each provider.

However, in all cases, following the case of Sehayek v Amtrust Europe, it is essential the new home warranty provider's cover is checked to ensure it has been issued in favour of the correct entity.

Facts of the case

In Sehayek v Amtrust Europe the homeowners had acquired a newly built apartment from Grove End Gardens Limited (Grove End). The apartment cost £5 million.

Unfortunately, the new homes structural warranty insurance policy had been issued by Local Authority Building Control (LABC) in the name of Dekra Developments Ltd (Dekra).

Dekra was a company associated with Grove End and they shared common shareholders and directors, but Dekra was not a party to the agreement for lease or lease entered into with the homeowner.

In 2016, LABC issued a new homes structural warranty insurance policy that named Dekra as the developer. In 2017, the homeowner made a claim under the insurance policy and the value of the claims exceeded £735,000. By this time, Grove End had entered into insolvent liquidation.

Initially, LABC rejected the claim because, they argued, there had been significant reductions in the purchase price, and the homeowners were aware of reported issues prior to purchase.

Proceedings were issued by the homeowners against LABC in 2019 almost two years after the first claim had been made. At this point, LABC rejected the claim because Dekra was not a party to the agreement for lease, and therefore Dekra was not the ‘developer’ within the definition of the new homes structural warranty insurance policy.

Court’s decision

The court was asked to consider the definition of the term ‘developer’ under the new homes structural warranty insurance policy and whether Dekra was the developer for the purposes of the insurance policy. Alternatively, if Dekra was not the developer, given Dekra and Grove End shared the same directors and shareholders, whether by implication, the insurance policy included Grove End as connected entities. The homeowner argued the name on the insurance policy should include ‘associated companies’.

The court held that the seller under the agreement for lease (Grove End) was not the developer under the insurance policy. The court further held that it was not necessary to imply a term that the definition ‘developer’ should include associated companies. Nor had there been any mistake, on the facts, in naming the wrong party in the insurance policy.

What does this mean for registered providers?

Handover and completion of new build acquisitions can be a stressful time, particularly when there are several properties to be handed over, and customers want to complete. However, it is important the new homes structural warranty certificates are read carefully to ensure they include the party with whom the buyer or leaseholder has entered into a contract.

Often the building contractor is an associated company of the developer. In which case, does the definition of developer extend to the seller/landlord? If there is doubt, ask the new homes structural warranty provider to confirm in writing the policy can be relied upon.


Return to news headlines

Penningtons Manches Cooper LLP

Penningtons Manches Cooper LLP is a limited liability partnership registered in England and Wales with registered number OC311575 and is authorised and regulated by the Solicitors Regulation Authority.

Penningtons Manches Cooper LLP