What is Latent Defects Insurance?
Latent Defects Insurance is a first resort policy that covers loss or damage to Class 2 buildings- caused by a major defect in design, materials, or workmanship. LDI provides cover for structural defects after a building is completed and is taken out by developers when a project starts.
The trigger for a claim would be the discovery of a major defect. The claim would be made by the property owner.
Latent defects cover allows the developer and/or builder the ability to provide a 10-year major defect guarantee. Supported by this additional insurance protection the developer is in a stronger position in selling LDI insured property units by virtue of the additional value they can provide to potential purchasers. It symbolises that the developer is trustworthy and has passed the quality examination through the insurer’s quality assurance processes.
“Establishing a market for LDI will mean untrustworthy developers are weeded out, creating a stronger, more competitive market where consumers can purchase with confidence,”
– NSW Better Regulation Minister Kevin Anderson.
How does the product work?
Why would a Developer or Builder be carrying out Class 2 building need LDI?
It is extremely cost-effective, for example in NSW it is considerably more cost-effective than the 2% Strata Building Bond currently mandated and charged to future owners.
There has now been a formal announcement from the NSW State Government for Latent Defects Insurance to be utilised as an alternative instrument to the costly, and often ineffective Strata Defects Bond.
For more information contact your local MBIB broker.