How valuable is it to know that if something goes wrong with your apartment, you won’t be left chasing a developer, builder or tribunal for years?

Recent changes to developer licensing laws mean developers are now accountable for major defects for up to 10 years. But while that’s a win for consumers, it raises a practical question for everyone involved in construction: who actually fixes defects when they arise and how quickly?

As Allinsure’s Tate Harris points out, for buyers and strata committees, the current reality can be frustrating.

“When defects appear, whether it’s water ingress, structural cracking or building services failures, the process often means going back to the developer, a process that is often lengthy and potentially prove costly,” he says.

For developers, the new legislation raised the stakes significantly. A 10-year liability window for major defects creates ongoing financial and reputational risk long after a project is completed.

Naturally, this pressure flows directly to the builders, who bear the brunt of the physical remediation. For them, defects are far easier and cheaper to fix during construction rather than years after the cement has dried.

“Once a project is complete, getting trades back on site, reopening finished works and managing disputes can be complex and costly,” Tate says.

“Issues would be easier and cheaper to fix if they were identified early, when both builders and trades are still onsite and the work is accessible.”

The industry has long needed a mechanism to shift from reactive litigation to proactive protection. Now, Latent Defects Insurance (LDI) has emerged as the solution.

Tate Harris says the Latent Defects Insurance can seem like a headache for developers and builders, but it’s not without some major benefits. Photo: Michelle Kroll.

Already widely used globally, LDI is relatively new to the ACT. In simple terms, it flips the traditional process.

Instead of owners chasing developers or builders, they claim directly through an insurer, who assesses the defect and pays for rectification if it meets the policy criteria.

The cover typically runs for 10 years and includes major structural and building system defects from waterproofing and façade issues to mechanical, electrical, hydraulic and fire services.

Crucially, responsibility doesn’t need to be argued before action is taken because LDI operates on a strict liability basis, meaning the insurer can respond to a valid defect claim without needing to prove who was at fault or establish negligence first.

And while any LDI claims come in after construction, the benefits come in much earlier in the form of measures to minimise defects and subsequent claims in the first place.

That’s because a core requirement of LDI is the independent Technical Inspection Service. This third-party engineering team is engaged before construction begins to review design documentation and inspect work at key stages throughout the build.

“They’re effectively another set of expert eyes on the project,” Allinsure’s Peter Chamberlain says.

“Imagine a fix to a wet seal on a balcony. To fix it after the fact, you have to tear up tiles, remove balustrades and access underlying layers. It’s an expensive process.

“But if you pick it up early, while the right trades are still on site, it’s a straightforward fix.”

In one major apartment project, this type of inspection process reduced defects dramatically and delivered cost savings equivalent to around 1.3 per cent of construction value through early rectification, according to a study by Resilience Insurance.

While additional insurance and oversight might seem like an added cost, the benefits for consumers, of certainty and speed and confidence at the point of purchase, are also benefits for developers and builders.

Projects with LDI are seeing stronger buyer demand and, in some cases, higher sale prices, turning what looks like a cost into reputational protection and commercial advantage.

“Which property would you choose, the one with the protection of Latent Defects Insurance or the one without?” Peter says.

Tate says many developers are realising LDI effectively transfers long-term defect risk away from them and can even improve project viability.

“Lenders are responding positively,” Tate says. “It’s recognised as a strong risk management tool and can make it easier to secure project funding.”

For more information, visit Allinsure.