With certain limited exceptions the Ley de Ordenación de la Edificación 38/1999 (Law of Building Regulation) which came into force on 6th May 2000 imposed on all builders the obligation to provide a 10 year guarantee of their work to a property. This obligation applies not only to new building, but also to work of reconstruction and reforms which changes the layout of a property in any way. The guarantee has to cover defects in construction and must be provided by an insurance policy, known as a “seguro decenal” taken out by the builder, which provides cover on a reducing basis for 10 years after completion of construction.
For the whole 10-year period the guarantee must cover the structure, and all load bearing elements of the property.
Within this time, for the first year after completion, the guarantee must cover, not only structural defects, but also defects in finishes and what might also be called “snagging”. This part of the guarantee may also be covered by allowing the developer or owner to retain 5% of the cost of the building work as security for the cost of repairing any defects. From years one to three after completion of the work, the guarantee must cover the installations for plumbing, sewerage, electricity, insulation, and normal use of the property.
The time periods are calculated from the date the completed building work is handed over to the owners, and should any defects arise it is vital that the builder is notified in writing immediately, as defects not notified to the builder within two years after they arise are not covered under the guarantee.
The value of the insurance policy must be for the entire cost of the building work together with professional fees and any other necessary expenses, together with an allowance for inflation and there must not be any excess on the policy.
The guarantee does not cover financial losses; damage caused to adjoining property; damage to furnishings; damage caused by work done after completion of the building, apart from that done to rectify original defects in construction; damage caused by misuse of the property or failure to carry out adequate maintenance; and finally any damage caused by fire or explosion unless resulting from a defect in the original installations.
Should it be necessary to make a claim on the guarantee the insurer can either settle the claim by providing a cash payment to the owner, or by arranging for the repair of the defects.
“Self-built” property to use as your own home is exempt from the requirement to be guaranteed, unless you want to sell the property during the 10 year period following the completion of construction and the buyer agrees to release you from the obligation to provide a guarantee for the remainder of the ten year period that is still outstanding.
If you are a self-builder or carrying out substantial renovation of older property which you may want to sell in the future, you may be obliged to provide a guarantee of the work to your buyer.
All building work must be covered unless it is work which is not intended for residential or for public use, and which is only on one floor, or which does not alter the layout, structure, external appearance, or size of a building.
There are a number of insurance companies that will issue policies to provide the necessary guarantees for properties that lack them, and some will even provide quotes “on-line”. Remember that the policy only covers the value of the buildings themselves and not the value of the land that the building stands on.