New case law: Damages will remain high for Defective Premises Act claims

For net contribution clauses invalid under the Defective Premises Act 1972 ("DPA") damages will be higher than the minimum needed to make a property 'habitable'.

Often found in collateral warranties and consultant appointments, net contribution clauses can be useful for limiting risk and potential future liabilities.  

What is a net contribution clause?

A net contribution clause is where two or more parties are each responsible for the same loss, a net contribution clause will limit/apportion a party's liability to the share it is considered responsible for (or contributed to). This is important as without it an innocent party can elect under English common law to recover its full loss from either party.

The party that paid out can then seek a contribution from the other culpable party under the Civil Liability (Contribution) Act. However, if the other party is insolvent the paying party could find itself liable for 100% of the damages awarded when in real terms it was only responsible for a fraction of the total loss (e.g. 30%).

A valid net contribution clause is therefore a really useful tool in reducing a party's potential exposure to risk.   

The decision in Mr and Mrs Vainker v (1) Marbank Construction Limited (2) Mercer & Miller (3) SCD Architects Limited [2024] EWHC 667 (TCC) is however a stark reminder that net contribution clauses, as a defence, will not come to the rescue for claims brought under the DPA.

The court in Vainker considered issues including the applicability of net contribution clauses as well as the potential for increased damages beyond the minimum necessary to bring a dwelling back into a habitable condition. These two points, summarised below, are followed by a short description of when a property will be considered unfit for habitation and a reminder of the extended limitation periods which now apply for DPA claims.

Invalid net contribution clauses

The Court confirmed that where a liability arises under the DPA, net contribution clauses will fall foul of section 6(3) of the DPA 1972. Section 6(3) states that any term of an agreement which purports to exclude or restrict liability shall be void.

This is an important reminder that whilst net contribution clauses can often be an effective defence for claims for breach of contract and breach of duty, they are not operable as a defence for claims pursued under the DPA. As such, contracting parties are likely in these claims to be liable for the full amount claimed, not just the % of the damage they were responsible for.

Increased damages

For DPA claims (including those claims which might otherwise have been contractually time barred) damages will not be limited to the minimum necessary to put the dwelling back into a habitable condition. Instead, the court will take into account design briefs and aspirations (e.g., high end, modern, luxury) and recoverable damages may include the costs incurred in making the dwelling fit for habitation in the way it should have been (i.e. potentially up to the original high end spec) had the services been supplied in a professional manner.

This means that damages beyond those necessary to simply bring the dwelling back into a habitable condition may also be recoverable. The outcome is that damages for DPA claims are being considered akin to damages for breach of contract claims – the innocent party being put back into the position it would have been in but for the breach.

The significance of this should not be understated. In circumstances where the underlying contractual claim may be time barred, this judgment will provide a lifeline for developers and homeowners - any damages awarded under the DPA will not automatically be limited or capped at the amount necessary to simply put the dwelling back into a habitable condition – a standard which may well be very different from the brief.

Fit for habitation test – section 1 of the DPA 1972

As a recap, section 1 of the DPA provides that a person undertaking work in connection with the provision of a dwelling owes a duty to ensure that the works undertaken are carried out in a workmanlike/professional manner, with proper materials so that the dwelling is fit for habitation once complete.

Whether a property is 'unfit for habitation' will be decided on a case-by-case basis. In Vaniker, the Court re-affirmed the key factors it will consider when deciding if a property is fit for habitation. These are:

• The intended purpose of the construction.

• Whether the defect is only aesthetic or inconvenient in which case the defect is unlikely to render the dwelling unfit for habitation.

• Whether the defect and, as a consequence, the condition of the dwelling is likely to deteriorate over time. If deterioration is likely the dwelling could well be deemed unfit for habitation at the time of completion.

• The aggregate effect of the defects. 

Limitation periods for 'unfit for habitation' claims

The Building Safety Act 2022 ("BSA") introduced a significant extension to the limitation period for bringing claims for defective work that renders a dwelling 'unfit for habitation'. Prior to the BSA, a claim under the DPA could be brought for up to 6 years after practical completion. Now building owners, homeowners and leaseholders can bring claims for defective works relating to a dwelling under the DPA 1972:

• 15 years from when the relevant building or works were complete, if completion occurred after 28 June 2022; or
• 30 years from when the building or relevant works were complete if completion occurred before 28 June 2022.

The practical effect of this is that previously time barred claims may no longer be time barred and future works on dwellings will have significantly greater limitation periods.

Contractors, developers and consultants should therefore consider whether there are any historical claims which could now be pursued and should check that they have sufficient insurance cover in place to cover the extended limitation periods that have recently been introduced.

It's also worth noting that the BSA significantly expanded the scope of the DPA to cover refurbishment or rectification works, where work is done in the course of business, which was previously excluded under section 1 of the DPA.

For more information on claims under the Defective Premises Act 1972 and the Building Safety Act 2022, get in touch with our specialist construction disputes and dispute avoidance teams.

Please visit the Building Safety section of our website for more information on the BSA 2022.