What Is The Difference Between the Defects Liability Period in Construction Contracts and the Statutory Liability Period for Contractors?
The concept of a Defects Liability Period (DLP) in construction contracts exists alongside the principle of ‘practical completion’.
Under practical completion, the principal can take occupancy of the building even though it may not be 100% complete on the contractual proviso that the contractor has a right to come back on-site and address any defects during the Defect Liability Period.
The statutory liability period also concerns defects and omissions but is a liability under the construction contract. The two are often confused, resulting in some contractors thinking their liability for defects ends when the DLP concludes.
It does not.
What is The Defects Liability Period (DLP)?
The DLP allows contractors the right to rectify any errors and finish any incomplete works. Defects Liability Periods can also be referred to as rectification provisions.
Typically, the principal will retain monies, sometimes called the second retention payment, to ensure any defective or incomplete work is finished correctly.
Some contracts will contain a provision for a new Defects Liability Period for the work done during the first Defects Liability Period.
The Defects Liability Period protects the contractor from costs for which they may be liable if the principal engages someone else to finish the work and remedy the faults. It allows the original contractor the right to come back and complete the work themselves.
By allowing the original contractor to remedy any defects, the principal can avoid the risk of invalidating the contractor’s warranties for their work — which can happen if a third party is called in to complete the project.
The length of the Defects Liability Period will vary according to the nature of the project and its complexity. In JCT contracts, the period is typically between six to twelve months but can be as long as two years.
A principal or employer who does not advise that the rectification of defects is needed and/or refuses the contractor access to the site may be in breach of contract.
It is also advisable that an employer who wants to use a different company for rectification works still notify the original contractor. Otherwise, it could affect their ability to recover any associated costs.
Not every construction contract will contain a provision for a DLP.
If there is no term in the original agreement, the contractor does not have the right to return to the site to complete works or remedy defects without permission.
What is the Statutory Liability Period?
Statutory liability is distinct from the Defects Liability Period, although the two are often confused.
The DLP ends at a time determined by the construction contract. However, the statutory liability period continues after the DLP has ended. This is usually 6 years from the date the right to claim arose or 12 years if the contract is executed as a deed.
The statutory limitation period is the time during which the contractor may be held liable for defects in the building according to the contract. Different periods may apply where the contractor may be liable to someone other than the original employer under the contract.
For example, under the Defective Premises Act 1972, the contractor could owe a statutory liability to a person such as a resident in an apartment building who takes occupancy two or three years after the block was built. Liability for defects is 6 years from when the defect or element was last worked on.
The Limitation Act was passed in 1980 and set specific statutory liability limitation periods for what is described as simple contracts and deeds. The Limitation Act covers many areas of law, not just construction.
Actions for breach of contract and torts such as negligence may be brought for a period of six years for simple contracts and twelve years for deeds. The time period runs from the date of the breach of contract or the negligent act or omission.
A statutory liability period of six years applies to a negligent act or omission by a contractor. During this time, the occupier of a building could take legal action in the civil courts.
In 1986, the Latent Damage Act introduced an extension to the standard six-year statutory limitation period.
The extension is for negligence claims relating to latent defects. A latent defect is a fault in design, materials or workmanship that existed when the construction was completed but was not apparent or could never have been evident at that point in time.
The extension applies to the date of accrual or discovery of the defect, adding a further period of three years subject to a backstop of 15 years. The statutory liability period ends definitively after 15 years in order to introduce a level of certainty.
What are the Differences between the Defects Liability Period and Statutory Liability Period?
Point of Origin
The Defects Liability Period arises from the construction contract between the employer or principal and the contractor.
The statutory liability period arises from legislation. It may not involve all the original parties to the contract but will include the contractor.
Length of Liability Period
The DLP is usually shorter than the statutory liability period. The DLP is defined in the contract and will be anywhere from six months to two years.
Statutory liability period, which runs concurrently with the DLP, is six years for standard contracts and twelve years for deeds.
A Defects Liability Period only arises if it is included in the original contract.
Contractors need to be aware of this, and employers should also take advice when there is a DLP if they are considering hiring another contractor to fix mistakes and defects on a project.
Helix Law’s expert construction team can help you negotiate the best contract terms, whether you are an employer or a contractor.
We can also provide specialist advice when there are issues surrounding a DLP or claims arising under statutory liability.