Limitation under the Defective Premises Act is now up to 30 years – understanding and mitigating the risks posed
What are the issues around the limitation periods under the Defective Premises Act being extended?
The Building Safety Act 2022 significantly extended the limitation periods under the Defective Premises Act 1972.
This retroactive change creates a risk that those involved in designing, building and working on dwellings may face stale claims that they lack the evidence to defend. What are the issues, and how can they be mitigated?
New limitation periods under the Defective Premises Act
The Building Safety Act (‘BSA’) was born from the tragedy of the 2017 fire at Grenfell Tower and came into force on 28 June 2022. It brings in far-reaching changes to building safety law and oversight.
Some of the BSA’s provisions are yet to come into force – but one major change came in immediately, and its effects are already being felt: the extension of limitation periods for Defective Premises Act (‘DPA') claims. It is important to note that this applies to any and all DPA claims, not just those relating to fire safety.
As of June 2022, the new limitation periods for DPA claims are:
- 15 years for claims regarding works completed after 28 June 2022;
- 30 years for claims regarding works completed before 28 June 2022.
In addition, there is a one-year ‘grace period’ (to 28 June 2023) for claims close to limitation when the BSA came into force.
A further change brought in by the BSA is that DPA claims can now be brought in relation to defective work to existing premises (previously the DPA applied only to the ‘provision’, i.e. creation, of new dwellings.
A challenge for the construction industry – document retention
The DPA allows a claim to be made against a wide range of individuals and businesses involved in creating (and now also working on) dwellings that have defects making them unfit for habitation (which the courts have consistently interpreted widely).
Until last year, the limitation period under the DPA was six years – and businesses may, quite reasonably, have based their document-retention policies on this timeframe.
The position has now changed – and quite significantly. 30 years is an unusually long limitation period - and it is also unusual for new legislation to have retrospective effect.
What does this mean for developers, contractors and the myriad professions involved in construction work (architects, engineers, QSs, etc)? It means that they face claims for current work far into the future, and also claims for work undertaken as far back as the early ‘90s, which would until recently have been long time-barred. New claims are going to be made, and claims thought gone-away will be revived. This is already happening, and there will be more to come (see the commentary from my colleague Luiza Balan on a recent decision to allow a DPA claim to be added to existing proceedings, which would have previously been time-barred).
Documentary evidence will be key in establishing the details of the designs, materials, working methods deployed, and so to defending such claims – but will it remain available?
What can be done?
In some cases, it will already be too late – businesses may have destroyed documents from old projects some time ago, after, say 12 years (the limitation period for contracts signed as a deed, as construction contracts and professional appointments often are). That may have been perfectly reasonable in the context of the law at the time.
Those involved in construction work should now try and protect themselves by keeping for longer their documents relating to both current and future projects.
For how long should project documents be retained? The specifics of document-retention policies will be something that businesses will need to consider in light of risk, cost, insurance considerations and such, but:
- at least 15 years for works from June 2022 onwards would seem sensible;
- consideration should also be given to reviewing archived files from projects completed from 1992 onwards, and extending how long they are retained, to at least 30 years.
Businesses might consider a ‘triage’ approach, opting to retain for longer some but not all old project files, weighing up risk and cost (of storage, management and personnel time and so on). If so, they should be careful – remembering that whilst the changes in the law have been triggered by fire safety concerns, the DPA is not so restricted, applying to a much broader class of defects. They may also be called on to explain and justify the approach taken – see below regarding the potential human rights escape. And the fact that the client was delighted with a job completed years ago, and there has been no complaint since, does not mean that issues might not yet be raised: some problems take time to manifest; what was once deemed a reasonable approach or material might no longer be; refurbishment works can reveal hidden defects.
Businesses should also be careful to avoid prejudicing any cover under relevant insurance, including checking the provisions regarding document retention.
On that insurance front, businesses should also consider whether their present and future policies will provide cover for claims relating to historic works up to 30 years ago, as well as for 15 years for current and future projects (for example, it is not uncommon for construction professional indemnity policies to contain retroactive provisions, cutting off cover for claims regarding work undertaken prior to a specified date).
Contractors and construction professionals will also need to consider the contractual provisions regarding insurance arrangements for new projects – do they accord with the cover held? This point also applies to clients/employers - they will want to try and ensure that the contractors and professionals they engage have cover that will respond to any future claims.
There will also be various considerations for those insurers of contractors and construction professionals. Aside from any exclusions or restrictions on cover for fire safety and cladding claims, consideration will be needed of warranties and conditions, to try and ensure that documents are retained to allow claims to be defended properly; also, that the policyholder has procedures to ensure that subcontractors and consultants retain their documents for long enough (and maintain insurance); there may also be questions as to which year’s cover is triggered by a claim (is it truly a new claim, or really a development on a claim or circumstance notified to a previous insurer some time ago?).
Potential unfairness – mitigated by the BSA’s human rights provision?
The new limitation regime for DPA claims provides that the court can dismiss a claim if necessary to avoid breaching the defendant’s human rights.
The most obvious basis for a defendant to try and invoke this provision would be to argue that it would be denied a fair trial – because it has no documents to help it prove that its work was sound, having (quite properly) destroyed them some time ago.
What precisely this human rights provision means, and how the courts will interpret and apply it, remains unclear and, so far, entirely untested. It is drafted in brief terms, leaving great scope for interpretation one way or the other. Clearly it is intended to mitigate what could otherwise be an extremely unfair and blameless predicament for defendants – but if applied too liberally, it could thwart the clear intention to allow redress for historic safety defects.
In considering whether a claim should be dismissed to avoid a breach of human rights, we might expect the courts to look at how long now-destroyed documents were retained and whether that period was reasonable; also, what attempts were made to preserve documents once the law changed last year, and what attempts have been made to find documents once a claim was intimated or expected.
The limitation cut-offs for claims under the Defective Premises Act are now greatly increased – and with retroactive effect: 15 years going forward, 30 years for historic projects.
This creates new risks for contractors and construction professionals - who may now face claims for historic work but lack the documents needed to defend themselves.
Where documents have already been legitimately destroyed, the human rights safety net might offer some protection – but the scope and interpretation of this is untested, with challenges and decisions awaited.
All those involved in the construction of and work on dwellings should review their policies and procedures for retaining project documents – not just going forward, but also preserving historic project files. They should also review their insurance arrangements in light of the new regime, and their arrangements with subcontractors and consultants, with the aim of ensuring that what may prove critical evidence is preserved to allow future claims to be understood and defended as robustly as possible.
If you would like further guidance and help reviewing your policies and procedures, please contact one of our professional risk and construction solicitors.