Commercial latent defects insurance explained
What CLDI is, what it usually covers on an industrial building, who it protects and how it sits alongside the collateral warranties your funder or tenant may also ask for.
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What it is
What is commercial latent defects insurance?
Commercial latent defects insurance - often shortened to CLDI, and sometimes called inherent defects insurance or a commercial structural warranty - is a policy that pays for putting right damage caused by a defect in the design, workmanship or materials of a building that was not apparent at completion.
It is usually arranged by the developer before work starts, usually runs for 10 or 12 years from completion, and can usually be assigned to later owners and tenants. The provider inspects the building during construction, which is one reason cover is simplest to arrange before the first ground works.
We are a broker: we arrange the policy with a specialist provider, the insurer named in the policy carries the risk, and the policy wording sets out the cover.
What it usually covers
Core cover and optional extensions
Usually part of the core cover
- The structure - foundations, frame and load-bearing elements
- The weatherproof envelope - typically the roof and cladding
- The floor slab, where the policy includes it
- Cover usually for 10 or 12 years from completion
Available from some insurers, at extra cost
- Loss of rent while a defect is put right
- Mechanical and electrical installations
- Other extensions set out in the quotation
Extensions are not standard. Wear and tear, maintenance and fit-out are usually excluded. The policy wording is what counts.
Compared
Latent defects insurance or collateral warranties?
On commercial schemes the traditional protection for buyers, funders and tenants has been a package of collateral warranties from the contractor and the design team. The two work in quite different ways.
Collateral warranties
A contractual promise from the contractor or a consultant to a third party, such as a funder or tenant, giving that party a right to claim against them. To recover anything you usually have to show a breach of their contract or appointment, and the firm has to still be around and able to pay, or have insurance that responds. Pursuing a claim can take time and legal cost.
Commercial latent defects insurance
A policy with a provider or insurer that responds to damage caused by a covered defect, usually without anyone having to prove who was at fault, subject to the policy terms and claim conditions. It does not rely on the contractor or consultants still trading, and it can usually be assigned to later owners and tenants.
Repairing leases and why tenants care
Industrial buildings are often let on full repairing and insuring (FRI) leases, where the tenant is usually responsible for keeping the building in repair. Depending on how the lease is drafted, the cost of putting right a hidden structural defect can land on the tenant, even though the tenant had nothing to do with the build. An assignable latent defects policy gives the tenant a route to have covered damage put right without chasing a contractor it never appointed.
That is why occupiers and their advisers often ask about CLDI when they take a new building, and why it can help a landlord let a new unit. See investors, funders and tenants.
Commercial latent defects insurance questions
What does CLDI stand for?
Commercial latent defects insurance. It is also called inherent defects insurance or a commercial structural warranty, and it covers damage to a commercial building caused by hidden defects, usually for 10 or 12 years from completion.
Does commercial latent defects insurance replace collateral warranties?
Sometimes, not always. Some funders and tenants accept it instead of some collateral warranties, and others want both. It is a matter for the parties and their advisers.
Who takes out commercial latent defects insurance?
Usually the developer, before work starts, with the benefit passing to later owners and tenants by assignment. An owner-occupier building for its own use can take it out too.
Is loss of rent included as standard?
No. Loss of rent is an optional extension offered by some insurers, and it adds to the premium. It covers rent lost while covered damage is put right, within the policy limits. Stock, business interruption and other trading losses are not normally part of latent defects cover. The same goes for mechanical and electrical cover.
Ask about commercial latent defects insurance
Tell us about the building and who needs to rely on the cover, and we will come back with the underwriters likely to take it on.
- Takes under a minute
- Instant reply by email with your reference
- Insurer quotes usually within one working day of your completed proposal
- Sites anywhere in England, Scotland, Wales and Northern Ireland
- Free and no obligation
Already filled in a proposal form? Email it to us or send it on WhatsApp with any drawings you have and we will take it from there.
