Why are Approved Inspectors toughening their stance on new contractual obligations?

Due to a period of reduced insurer appetite as result of suppressed premium volumes and a surge of post-Grenfell cladding claims, Approved Inspectors have struggled to find insurance cover.

A number of Approved Inspectors have reportedly stopped work and those who remain in the market have toughened their stance on agreeing to new contractual obligations.

Background

The role of checking whether building works comply with the Building Regulations lies with building control bodies, either Local Authority Building Control or private sector Approved Inspectors.

Unlike Local Authority Building Control, Approved Inspectors have appointment contracts specifying the services they will provide and are required to maintain professional indemnity insurance under section 47 of the Building Act 1984 and 5A of the Building (Approved Inspectors etc.) Regulations 2010.

Due to hardening of the insurance market, many Approved Inspectors are no longer prepared to enter into bespoke appointments or provide collateral warranties in favour of third parties.

Contractual remedies and collateral warranties are often sought as part of a comprehensive security package in development financing and the role of the private sector Approved Inspector is no different. Contractual rights, specifically collateral warranties, provide a means of safeguarding third parties' rights to claim against the Approved Inspector for a wrongfully issued building certificate.

Without a contractual remedy, claims against an Approved Inspector in negligence for failure to perform the building control function are unlikely to succeed.

Alternatives

If unable to obtain a collateral warranty, lenders may be able to take a charge over the Approved Inspector's appointment by way of security.

The client under the appointment may also have the right to assign the whole or any part of the rights or benefits under the appointment to any party providing finance for the project.

For a claim in contract to succeed, a party to the appointment or beneficiary under a collateral warranty will still face an uphill battle in proving that the Approved Inspector did not exercise reasonable skill and care required by reference to the industry standard.

A further alternative may be to rely on a warranty from the person specifically signing off on the design and seeking an additional clause in that designer's appointment or collateral warranty stating that any approval from a third party shall not reduce their liability.

Although not yet in force, parties in the future may be able to claim damages under section 38 of the Building Act 1984 for breaches of the building regulations.

Comment

As the Approved Inspector's role is similar to that of Local Authority Building Control, which a party, in most situations, has no legal recourse against for defective work, the Approved Inspector's toughened stance perhaps does not come as a surprise.

Although an Approved Inspector does get paid for the role and can turn down appointments, unlike Local Authority Building Control, there has also been judicial commentary that there is no real distinction to be drawn between the position of Local Authority Building Control and an Approved Inspector (Herons Court v Heronslea and others [2019] EWCA Civ 1423).

In addition, the role of Approved Inspector is likely to change in any event given the Government's current plan to establish a national building safety regulator and remove the choice that developers currently have between utilising Approved Inspectors or Local Authority Building Control overseeing construction at least for high rise buildings that fall within scope of the proposed changes to the building regulatory system.