Homebuyer Beware! Developer able to avoid liability…

… under new build warranty policy due to incorrect entity being named – Sehayek & Anor v Amhurst Europe Limited [2021] EWHR 495 (TCC)

In a recent Technology and Construction Court (TCC) decision, homeowners in a new build development in St John’s Wood were left without the benefit of cover for defects under their home warranty policy due to the incorrect legal entity being named as “developer” on the policy.

The Claimant, Mr Sehayek, purchased a penthouse in the development in 2016. The New Homes Warranty Certificate provided to his conveyancing solicitors defined “developer” as:

“Any person, sole trader, partnership or company who is registered with the LABC New Home Warranty and has registered the New Development and (i) with whom the Policyholder has entered into an agreement or contract to purchase the Housing Unit on either a freehold or leasehold basis; or (ii) who constructs the Housing Unit and with whom the Policyholder has entered into an agreement or contract to purchase the Housing Unit on either a freehold or leasehold basis.”

The certificate (incorrectly) named the developer as Dekra Developments Limited (DDL), which shared the same directors as the actual developer/vendor – a company named Grove End Gardens Limited (GEG).

In early 2017, DDL went into liquidation. Later that year, Mr Sehayek sought to make a defects claim on the warranty policy. This claim was rejected by insurers on the basis that DDL did not meet the definition of “developer” under the policy, being neither the vendor nor the builder of the property.

Mr Sehayek subsequently brought proceedings in the TCC seeking to enforce the terms of the policy.

The court held that this was not a “misnomer” case as the evidence underlying the transaction clearly showed that the relevant policy was entered into between DDL and the Defendant insurer – there was no “misnomer” in the sense that there was no clear mistake on the face of the document when it was read in accordance with its background and context. Furthermore, the court considered that the “correction” that should be made to rectify the alleged misnomer was by no means clear (as can be seen from the fact that various alternatives were advanced in the pleadings).

Mr Sehayek, in the alternative, argued that a term should be implied into the policy so that the definition of “developer” was extended to cover all associated companies and subsidiaries of the named developer. He also advanced arguments of estoppel and waiver based upon the Defendant’s alleged initial conduct in relation to the claim. These arguments were ultimately rejected by the court, which held that the test for implication was difficult to surmount and is one of necessity. There was no “necessity” in implying the words “and associated companies” into the definition of “developer” under the terms of the policy. The court further held that Mr Sehayek was unable to prove that insurers had represented that the insurance would cover the premises regardless of whether responsibility for the relevant defect was the responsibility of DDL or another associated company including GEG and his argument of estoppel was therefore unsuccessful.

This decision highlights the utmost importance of ensuring that parties are correctly named in insurance policies. Through no fault of his own, Mr Sehayek was left without cover under the relevant policy, notwithstanding that he was not involved in the initial placement. Purchasers of new build properties (and their conveyancing solicitors) would be wise to investigate thoroughly the warranty documentation before completion to ensure that the parties are correctly named so that the policy responds as intended should defects arise in the future.

If you have any queries about this matter please contact Kate Dwyer or any member of our Insurance Litigation or Property teams.

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