Latent Defects Insurance
Defects in construction projects that become apparent after completion can be expensive and complicated to rectify.
A Latent Defects policy can help to underpin the financial risk of rectifying these defects, limit the reputational damage to the developer and improve the marketability of a building for sale or let.
How can Latent Defects Insurance help?
Latent Defects Insurance (LDI) also known as Decennial Liability Insurance can provide property owners with enhanced cover including 10 years of insurance protection against physical damage arising from an inherent defect.
The security provided by a LDI policy can help to make your building more attractive to investors and accelerate sales. A LDI policy will also typically cost less than the current 2% Developer Bond.
Having a LDI policy in place also provides your prospective buyers with a greater degree of certainty around build quality, due to the technical quality assurance inspections involved in obtaining the cover.
Though taken out by the developer, the policy is transferred to the owners corporation at practical completion, providing direct access to the insurance product for lot owners. This alleviates the requirement to sue the builder for structural and/or waterproofing defects.Request a Quote or Call Back
What are the major benefits to taking out an LDI policy?
- A lower cost alternative to the Developer Bond*
In NSW, the Strata Scheme Management Act 2015 section 208 requires all developers to pay a bond on completion of any class 2 building within the state. The cost of this bond is 2% of the construction value.
In late 2022, the NSW Government approved an application for the Resilience Latent Defects Insurance product to be listed as an alternative to the Developer Bond. This is reflected in sub-section (c) of the Strata Scheme Management Act 2015 and is currently the only product with this approval in place.
*In most cases, this Resilience Latent Defects product is priced at well below 2% of the construction value.
- Improves buyer confidence
A quality build has very little to do with the cosmetics, yet a buyer must decide where to invest largely on inclusions and finishes alone.
Recent publicity in Australia around major building defects and resulting losses to consumers has impacted heavily on consumer confidence in apartment buying.
A McCrindle report commissioned by the NSW Government found that:
- Only 30% of consumers were confident in purchasing medium to high-density properties
- 64% of respondents had concerns about defects
- 74% of prospective buyers said they would be more confident with LDI in place
- 49% were prepared to pay more for a property with LDI in place
Understanding Latent Defects Insurance - FAQs
Latent Defects Insurance (LDI), also known as Decennial Liability Insurance (DLI) and other names globally, provides insurance coverage for specific defects that occur during the construction process.
The Resilience Insurance LDI product provides cover for loss from physical damage caused by an inherent defect that occurs and is claimed within 10 years of the completion of insured building work.
An Inherect Defect is any defect or fault in the structural works and/or the envelope of a building resulting from a defect in the design, materials, or workmanship which was only detected at the Certificate of Practical Completion issue date.
LDI typically provides cover for inherent defects occuring in:
- Structural works including all internal and external load-bearing structures essential to the stability or strength of the building
- Envelope includes all works forming part of external walls and roofing of the building
- Areas covered within the waterproofing extension of cover
LDI typically provides cover for the cost of repairing, replacing, and reinforcing the insured structure if an inherent defect is detected and the policy covers it within the insurance period.
It will also typically provide cover for the following, up to the policy limits:
- Interim housing fees and waterproofing
- Removal of debris
- Professional expenses
- Reinstatement costs
Subject to the policy terms and conditions, including any extension or endorsement, LDI Insurance generally excludes:
- Non-structural works, equipment, fixtures and fittings, and external works that are not part of the building envelope
- Failure to repair or maintain as reasonable and normal wear and tear
Residential Developments - Class 2 apartments of all sizes.
Commercial and Industrial Developments - Classes 3,4,5,6,7,8 & 9.
The average cost for the Resilience LDI product is 1.6% of the construction value (including GST).
LDI policies typically have a maximum standard limit of indemnity of $50 million, (higher values can be covered on application). The minimum limit of indemnity for Class 1 buildings is $2 million and $10 million for Class 2.
LDI is generally less expensive than a Strata Bond and provides full building protection for a considerably longer period of time, allowing Developers and Builders to provide much more certainty to their clients.
You will need to apply for and arrange LDI before construction activity begins. We can proceed with obtaining terms if the project is in Early Work stage, however it will be too late if actual construction has commenced.
How Coverforce can help
Coverforce are proud to provide insurance and risk advice to some of the largest and most reputable developers and builders in Australia. Our specialist team can provide you with further information or an obligation free indicative quote for your upcoming development.
Request a quote or call back
If you are looking for more information or would like a copy of the PDS, you can request a call back and one of our specialist brokers will be in touch in one business day.
Alternatively, if you would like to request an indicative quote, simply fill out the form below and we will process your request.