21Defective buildings and subsequent owners
Where an apparently completed building is found to contain defects of design or construction, the client for whom it was originally constructed may wish to take legal action against the person or organization responsible. Such an action will normally be based on a breach of contract: the building contract if the defect is one of construction, a consultant’s terms of appointment if there has been a design error. Whether or not the client’s claim succeeds is likely to depend upon various factors which were discussed in earlier chapters: the terms (express and implied) of the relevant contract, when the defects were discovered, whether or not a final certificate has been issued and so on.
The question addressed in this Chapter is a different one. It relates to the legal rights, not of the original client, but of a person who has acquired the completed building from the original client. This person may be a purchaser or a tenant, and may have acquired the building directly or indirectly, after more than one change of ownership. Assuming that a defect comes to light only after that person has acquired the building (and has paid a price based on the assumption that there are no defects in it), the question is what remedies, if any, are available.
One point is worth making at the outset. The old legal doctrine of caveat emptor (‘let the buyer beware’) means that a contract for the sale of land and buildings, unlike one for the sale of goods, contains no implied terms relating to the quality of what is sold. Hence, a person who acquires a building and then finds that it is defective may well have no legal redress against the vendor or landlord. This is why it is so important to know whether that person can claim against whoever was responsible for creating the defect in the first place.
21.1CLAIMS IN NEGLIGENCE
If a claim in contract against the vendor is ruled out, one might well regard the obvious next step as a claim in the tort of negligence (see Section 10.5) against any designer or constructor who is responsible for the fact that the building is defective. However, as we shall see, in addition to the need to make a claim within the limitation period, the law places very severe restrictions upon such a claim. These restrictions are explained in Section 22.1.2; first, however, we trace the history of negligence claims by subsequent owners, in order to show how the law developed in this area.
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21.1.1The law’s development
It was laid down by the House of Lords in Donoghue v Stevenson1 that a manufacturer of products would be liable for negligently causing personal injury or property damage to a ‘consumer’, notwithstanding the absence of any contract between them. However, while the courts in subsequent cases soon began to treat a building contractor like a manufacturer for this purpose,2 it was held that the old immunity of an owner-builder (i.e. someone who constructs a building on land which he/she owns and then sells it) had not been affected by Donoghue v Stevenson. As a result, an owner-builder could not even be held liable in negligence for defects in the building that injured or killed people.3
This harsh situation was eventually rectified by the Court of Appeal in Dutton v Bognor Regis UDC,4 a ruling which was endorsed by the House of Lords in Anns v Merton LBC.5 The legal principles laid down by those decisions were as follows:
A duty of care to subsequent owners was owed by anyone who participated in the design or construction of a building.
A similar duty of care (covering approval of plans and inspection of building operations) was owed by a local authority with responsibility for building control.
The duty of care could result in liability, not only for injury or damage to other property, but also for damage to the building itself.
However, neither builder nor local authority was answerable in tort for all defects, but only for those creating a ‘present or imminent danger to the health and safety’ of the occupier or others. In such circumstances, the defendant was liable for the cost of making the building safe.
21.1.2The current position
General
The principle laid down in Anns v Merton, which created severe problems in distinguishing between ‘defects’ and ‘dangerous defects’, soon began to provoke criticism from the courts. In the event, the protection that had been given to subsequent owners of defective buildings lasted less than ten years, before it was removed by two important decisions of the House of Lords.
The first of these cases, D & F Estates Ltd v Church Commissioners for England,6 concerned a block of flats built by Wates in a joint development venture with the Church Commissioners. Some 15 years after the flats were completed, a tenant discovered that, due to the negligence of sub-contractors (who were described as ‘not worth suing’), the walls and ceilings of his flat needed to be
1 [1932] AC 562.
2 Sharpe v ET Sweeting & Son Ltd [1963] 2 All ER 455.
3 Davis v Foots [1940] 1 KB 116.
4 [1972] 1 QB 373.
5 [1978] AC 728.
6 [1988] 2 All ER 992.
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completely replastered. The tenant thereupon sued Wates in tort, claiming the cost of remedial work already carried out, the estimated cost of future work (some £50,000) and prospective loss of rent.
In rejecting the claimants’ claims, the House of Lords held that a builder’s liability in tort is limited to defects which cause either injury to persons or physical damage to property other than the building itself (as for instance where a defective garage roof falls on the occupier’s car). Damage to the building itself is regarded as pure economic loss and therefore irrecoverable.
Although the House of Lords in D & F Estates was highly critical of Anns v Merton, it did not specifically declare the earlier case to have been wrongly decided. Two years later, however, that final step was taken. This was in Murphy v Brentwood DC,7 which concerned a house-owner’s action against a local authority for having negligently approved what turned out to be inadequate foundations. The House of Lords by now had clearly decided that the time had come for a thorough reform of this area of law. Their lordships acknowledged that the House’s power to reverse its own previous rulings should be used sparingly (to avoid creating too much uncertainty in the law). However, the unanimous view was that this was an appropriate occasion for its use. Anns was declared wrong (following detailed criticism of its inherent illogicalities), and the local authority’s appeal against liability was accordingly successful.
Since Murphy, the general rule is that economic losses will be treated as entirely a matter of contract, with no avenue of recovery available in negligence unless the court finds there was a Hedley Byrne v Heller8 type assumption of responsibility.9
Exceptions
The House of Lords in Murphy emphasized once again that the loss suffered by the owner of a building who discovers defects in it is pure economic loss, which is not normally recoverable in the tort of negligence. Even so, some of their lordships suggested that, in two exceptional cases, a subsequent owner might still be permitted to recover damages (based on the cost of repair) from a negligent designer or constructor. It has to be said, with respect, that neither of these suggested exceptions is very convincing. However, both of them have been applied in subsequent cases, and they must therefore be treated as the law, at least for the time being.
The first exceptional case, in which a subsequent owner can still sue in negligence for damage to the building itself, is where the defect in the building creates a danger to adjoining property and the subsequent owner incurs expense in averting that danger. This exception was applied in Morse v Barratt (Leeds) Ltd,10 where a row of houses was constructed on a sloping site, in such a way that their gardens led down to a road. When a retaining wall at the bottom of these gardens was found to be defective and in danger of falling outwards on to the road, the
7 [1990] 2 All ER 908.
8 [1964] AC 465.
9 Robinson v PE Jones (Contractors) Ltd [2011] EWCA Civ 9.
10 (1992) 9 Const LJ 158.
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local authority served a dangerous structure notice on the house-owners, as a result of which they were compelled to pay for the necessary remedial work. It was held that the owners were entitled to recover this cost from the builders whose negligence had created the danger.
The second exception suggested by the House of Lords is where different parts of a building are designed or constructed by different persons, and the negligence of one (in relation to the part for which he or she is responsible) causes damage to another part. It was suggested, for example, that a subsequent owner would be entitled to recover damages from a central heating sub-contractor whose negligent installation of a boiler caused an explosion damaging the rest of the building. Another example given was that of an electrical contractor or sub-contractor, whose negligent installation of a wiring circuit caused a fire.
It must be said that this exception seems likely to cause problems, if only because the division of construction work between a number of contracting organizations is normal practice in the industry. Hence, unless the exception is kept within strict limits, it could ultimately swallow up the basic rule, although this does not appear to be what the House of Lords intended.
The only reported case in which this exception has been considered is Jacobs v Morton & Partners,11 which concerned a house with defective foundations. The owners of the house engaged the defendants, a firm of consulting engineers, to design a scheme to remedy the defects and, some time after the relevant work was completed, the house with its new foundations was sold to the claimant. The claimant subsequently complained that the foundations were inadequate and alleged that this was due to the defendants’ negligent design. It was held that, if the defendants could indeed be shown to have been negligent, they would be liable to the claimant for the resulting damage to the rest of the house.
In Linklaters Business Services v Sir Robert McAlpine,12 insulation around pipework was alleged to have been poorly installed. This allowed water vapour into a boiler room that caused damage by corroding the pipework. The court formed the view that the insulated chilled water pipework was one ‘thing’ for the purposes of the law of negligence (as there could be no chilled water pipework without the insulation). The insulation was a key component of that pipework but remained a component; it could not be said that damage of one component resulted in damage to ‘other property’ under the so-called complex structure theory. As a result, it followed in this case that there was no cause of action in tort. This case suggests that where it is not possible to differentiate between two components, then the physical damage would be considered to be damage to ‘the thing itself’ and not damage to ‘other property’, so there would be no cause of action in tort available.
21.2STATUTORY PROTECTION
The right of a subsequent owner to recover damages for negligence have thus been drastically cut back, and this has served to focus attention on whatever other legal rights may be available. We consider first a number of statutory provisions (of
11(1994) 72 BLR 92.
12[2010] EWHC 2931 (TCC).
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which the most important is the Defective Premises Act 1972), which may offer at least a partial solution to the problem.
21.2.1Defective Premises Act 1972
Section 1(1) of this Act imposes a legal duty on any person ‘taking on work for or in connection with the provision of a dwelling’, a definition which includes cases where the dwelling is provided by the erection or by the conversion or enlargement of a building. This duty is owed to any person to whose order the dwelling is provided. More important for our present purposes, it is also owed to ‘every person who subsequently acquires an interest, whether legal or equitable, in the dwelling’.
The nature of the duty created by Section 1(1) is to see:
that the work which has been taken on is done in a workmanlike or professional manner;
that proper materials are used; and
that the dwelling will be fit for habitation when completed.
This wording clearly applies to every person who contributes to the process of design or construction, including the property developer or public sector equivalent.13 All the participants are then strictly liable in respect of their respective contributions to the dwelling. It has been held that this liability attaches, not only to what a person does badly, but also to what that person fails to do.14
On the face of it, this provision seems to be of great potential importance, but its practical value is severely restricted by four factors:
The Defective Premises Act 1972 applies only to ‘dwellings’; there is no equivalent statutory provision relating to commercial property.
The Act only applies to creation of new dwellings, not alterations to existing dwellings, even where the entire layout is changed.15
Claims under this Act are subject to a relatively short limitation period, since they must be commenced within six years from when the dwelling is completed.
Although the duty itself looks to have three limbs (workmanship, materials,
fitness for habitation), it was held in Thompson v Clive Alexander & Partners16 that this is not the correct interpretation. ‘Fitness for habitation’ is the standard by which the other two (workmanship and materials) are to be judged. If this is correct, it means that the Act will only apply to those defects of workmanship or materials serious enough to render a dwelling ‘unfit for habitation’.
Although any attempt to contract out of the Defective Premises Act is void,17 Section 2 provides that the Act does not apply to any dwelling which is subject to
13Section 1(4).
14Andrews v Schooling [1991] 3 All ER 723.
15Jenson & Anor v Faux (Rev 1) [2011] EWCA Civ 423.
16(1992) 59 BLR 77.
17Section 6(3).
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an ‘approved scheme’. This was at one time an extremely important restriction, for the scheme in question was the one administered by the National House-Building Council, which covered the vast majority of new dwellings. However, the current version of the NHBC Guarantee Scheme (known as the ‘Buildmark’, and in force since 1988) is not an ‘approved scheme’ for this purpose. As a result, the purchaser of a house or flat may now have two forms of protection. First, assuming that the house or flat is covered by the Buildmark, the builder or developer undertakes to remedy defects in the first two years and the Council provides insurance against major structural defects in the next eight years. Second, and in addition, the purchaser is also entitled to claim under the Defective Premises Act 1972.
21.2.2Other statutory remedies
Consumer Protection Act 1987, Part I
Part I of this Act, which was based on an EU Directive, imposes a form of strict liability (i.e. liability independent of negligence) upon manufacturers and certain other producers in respect of defective products that cause injury or damage. There is no doubt that these provisions are capable of applying to construction, since building materials (both raw materials and manufactured components) clearly fall within the statutory definition of ‘products’, although the completed building itself does not. The way the Act applies to buildings is as follows:
A builder or developer who constructs a building and then sells it, together with the land on which it stands, is outside the scope of the Act. Such a person ‘supplies’ neither the building nor its component materials.
A building contractor who carries out work on someone else’s land is within the scope of the Act in respect of all goods and materials that are supplied in the course of that work.
In both these cases, the Act will apply to sub-contractors and suppliers of materials, since they undoubtedly supply products to the main contractor.
In situations to which the Act applies in principle, the following limitations should be noted:
The Act is concerned solely with ‘products’ containing a ‘defect’. It does not therefore apply where damage results from an error of workmanship, rather than from a defect in the materials used.
The Act permits actions for damages to be brought in respect of death or personal injury, and also for any loss of or damage to any property (including land). However, a claim for property damage can only arise where the damaged property is of a kind ordinarily intended for private occupation or use (and actually so intended by the claimant).
No action can be brought under the Act for damage to the defective item itself.