Buying a Self-Build Home – Beware of Insurance Snags

A couple who bought a newly-built home for more than £770,000 – only to discover that the construction guarantee that came with it was not worth the paper it was written on – have been awarded more than £50,000 in damages by the High Court.



The couple were the first occupiers of the property, which they had chosen because it was suitable for the needs of their disabled son. The house had been self-built by the vendors and it was a condition of the purchase contract that they would provide a suitable construction guarantee, backed by insurance.



An insurance certificate, which purported to extend cover of £250,000 in respect of construction defects, was duly handed to the couple on completion. However, the insurer later cancelled the policy on the basis that the sale had taken place within 24 months of the completion of the building works and that it was not prepared to agree to it being assigned to the new owners.



The policy was also invalidated by the fact that the vendors had never intended to live in the property and that it had been issued in the name of their son, who did not own it and therefore had no insurable interest in it. In those circumstances, the vendors conceded that they had failed in their obligation to provide a valid guarantee.



The couple, who were ‘understandably disturbed’ to discover that they were not insured, had to find alternative cover in the marketplace on narrower terms and at substantially greater cost. The Court awarded them damages to compensate them for that loss and the risks associated with the gaps in their cover. They were also awarded sums in respect of various ‘snags’ in the property’s construction that had emerged since they bought it.