The Ministry of Transport, Infrastructure, Housing, Urban Development and Public Works on 20th April 2020 published the National Construction Authority (Defects Liability) Regulations, 2020. The Regulations, which have received opposition from contractors and lobby groups in the construction industry, aim at conferring protection to developers of commercial properties by regulating the industry limitations on period within which a contractor may be liable for flaws during construction. Prior to the Regulations, model construction contracts used in the construction industry provided for a patent defect liability period in six months from the practical completion date while providing none for latent defects. The Regulations have introduced a latent defect liability period which is geared towards protecting commercial building owners from concealed structural flaws that may not be detectable during the ordinary patent defects liability period, which has itself been extended.
Patent Defects Liability Period
The interpretation section of the Regulations defines a patent defect to mean a defect which is detectable upon reasonable inspection during the construction period and can be notified to the contractor either before practical completion or during the defect liability period. Notably, unlike the current industry practice where practical completion is defined to mean the date when the architect issues their certificate of completion, the Regulations define practical completion date to mean the date when the certificate of occupation is issued by the County Government.
The regulations provide that every contract for the construction of a commercial building shall prescribe a patent defects liability period and this period shall be a minimum of twelve months after practical completion. During this period, a contractor, a relevant professional and a sub-contractor shall be liable for the rectification of the patent defects. During this patent defect liability period, the owner and the contractor, relevant professional or sub-contractor, shall jointly prepare a schedule specifying the patent defects identified. Then the contractor, relevant professional or sub-contractor, shall rectify the respective defects specified in the schedule. Upon doing this, the owner shall certify that the defects identified have been rectified.
Latent Defects Liability Period
A latent defect has been defined in the interpretation section to mean a concealed structural flaw in a commercial building or fixed installation that exists but is not apparent or readily detectable during the latent defects liability period. The Regulations provide that every contract for the construction of a commercial building shall prescribe a latent defects liability period and the period shall be a minimum of six years from completion of the patent defects liability period. The Regulations impose liability on a contractor for the rectification of patent defects that become apparent during the latent defects liability period. The relevant professional shall also be liable for the rectification of such patent defects. This has received a lot of criticism from professionals in the construction sector as well as the contractors’ lobby group who argue that the period is unreasonable as it extends this liability beyond the globally agreed timeframes. The regulations prescribe that a sub-contractor shall be liable for the rectification of patent defects that become apparent during the latent defects liability period.
Insurance Cover for Latent Defects
The Regulations obligate a contractor to obtain insurance cover for latent defects that may become apparent during the latent defects liability period. A relevant professional is also obligated to obtain a professional indemnity cover for latent defects that may become apparent during the latent defects liability period. A sub-contractor shall obtain insurance cover for latent defects that may become apparent during the latent defects liability period.
In addition, every owner of a commercial building is required to insure the commercial building at all times against structural damage attributable to him/her.
The Regulations have come into place to regulate defect liability in commercial buildings and to ensure that these buildings meet the required standard quality. On the other hand, developers have raised their concerns about the new law saying that prolonging the defect liability period would increase the cost of construction as contractors’ payments valued at five percent on a project’s cost would be withheld further thus hurting cash flows. It is also not clear the regulations are limited to commercial buildings only, without extending to residential buildings that have received most public scrutiny due to occasional building collapses especially in the middle and informal settlements in Nairobi.
It is important to note that the Regulations seem to have been passed without a comprehensive stakeholder participation. They are also silent on whether they apply to existing contracts. There is need for a review of the agreements to take into account the concerns raised by the stakeholders in the construction industry as is required under the law. While that happens, practitioners preparing and reviewing construction contracts relating to commercial buildings will need to consider these regulations when reviewing or drafting the standard building contracts to ensure compliance.