LETTER OF THE LAW
From time to time I am asked to advise on the effect of a letter of comfort, writes Kim Franklin. You will be familiar with the sort of thing. A construction professional, usually with some letters after their name - RIBA, for example - is asked to inspect works at key stages during their construction. They are required to provide a letter, or certificate, to the effect that the works appear to have been constructed in accordance with the drawings, the speci'cation, or the Building Regulations.
Sometimes, but by no means always, the works are being built to their design.
Usually the opportunities for inspection are limited.
Invariably the fee is measly.
The professional duly signs on the dotted line, pockets the £100 plus VAT and thinks nothing more of it. That is until about three or four years later when they receive a solicitor's letter sent on behalf of some outfit they have never heard of, notifying them of a potential claim for the cost of remedying very expensive defects.
Is the unknown outfit entitled to claim the cost of putting the building right from the hapless professional on the strength of such a letter? Or, to put the question in a legal context, is a subsequent purchaser entitled to rely upon a statement by a professional, with whom they have no contract, to recover economic loss? The key to this question lies in one word: 'reliance'.
During the 1990s, the courts held that the cost of repairing construction defects was economic loss, and that subsequent purchasers had no common-law claim in tort against the responsible builder or the local authority. While it was generally thought that this exclusionary rule also applied to design professionals, the door was left open in the case of those possessed of a special skill, who gave advice which was relied upon by the recipient to their detriment.
Thus, in the case of Payne v Setchell (2002), engineers both designed the foundations for a clutch of cottages in Norfolk and certi'ed that they had been constructed to their design. The court held that the engineers were not liable to subsequent purchasers for the defective design but were liable for the negligent certification. Why?
Because the certificate was intended to stand in place of an NHBC certificate and the engineers knew that purchasers would rely on it.
Conversely, in Machin v Adams (1997), the architect was not liable to the purchaser for defects in a large nursing home, despite certifying that the works were of a satisfactory standard, because they were unaware that their advice would be relied upon by the purchaser.
When asked to provide certificates of this sort, construction professionals should be clear as to the purpose for which they are required. Is it simply so that the developer can receive funding from the bank, or is it intended that a host of unidentified prospective purchasers will rely upon it when deciding whether to acquire the building? If nothing else they should ensure that the fee reflects their potential liability.