In the context of this chapter, when we talk about “certification”, we are referring to the increasingly common use of documents required to satisfy residential mortgage lender’s requirements. However, the issues highlighted are equally applicable to other types of certificate.
"The key point was that from April 2003, a lender would not release the mortgage funds for a new property unless the buyer had received confirmation that the property had received a satisfactory final inspection and that a new home warranty was in place."
Those with long memories will recall that changes to mortgage lending practices for new homes came into being in 2003. These were driven, amongst other factors, by a campaign to solve the problem whereby buyers of newly built homes were moving into properties that were far from completed.
The hapless buyers may have had the benefit of a home warranty, but that did not stop them living in an incomplete property, in some cases for a considerable period of time.
The key point was that from April 2003, a lender would not release the mortgage funds for a new property unless the buyer had received confirmation that the property had received a satisfactory final inspection and that a new home warranty was in place.
This sought to match ‘legal’ completion of the sale of the property, with ‘actual’ completion of the building works to a satisfactory standard.
The rules do not apply to self-build schemes, or where the construction of a property is being supervised by a professional consultant without a new home warranty scheme, and so the Professional Consultant’s Certificate was born. Absent the more usual home warranty, this certificate is now a lending requirement for newly built properties.
Although the Council of Mortgage Lenders (‘CML’) certificate is the most widely adopted, there are a myriad of bespoke documents, all attempting in one way or another to bind the consultant to statements in respect of the works undertaken.
Whether there is a problem with such certificates needs to be considered in the context of how they are being used, what the certificate actually says and what your role on the project is.
Two claim examples have been selected from Griffiths and Armour's files which typify the type of claim we regularly come across in relation to the issue of certificates to third parties.
The first concerns a claim under the CML certificate. In this case Griffiths & Armour's client was appointed as structural engineer for the new build of a prestigious multi-million pound private dwelling.
This case concerned a consultant appointed in 2000 to inspect the progress of a project, which involved the construction of a small private dwelling.
Certificate wordings are often designed to extend a certifier’s liability, either by expressly requiring him to confirm that another’s work has been performed properly or by requiring the certifier to warrant something for the benefit of a third party with whom he has no contractual relationship.
As a result, they can give rise to significant liabilities and all requests for certificates should be considered carefully.
“Whilst it was apparent that problems were predominantly down to poor quality construction workmanship, the contractor was insolvent and unable to meet any claim. This left the consultant the principal target for litigation.”
One problem with certificates is that they are often requested late in a project, long after contract terms and fee levels have been agreed and at a point when most of the design team’s work is complete.
As a result, certificates are not always given the same rigorous attention to risk management as other contractual obligations. Whilst it would be easy to advise consultants never to sign certificates, we recognise that there are times when this is simply not an option.
However, if you are presented with a request for a certificate of any form, we would suggest you consider the following points before accepting it:
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Introduction
Understanding contractual terms
Indemnity clauses
Strict liabilities
Certification
Net contributions and limits of liability
Novation
Closing remarks