There has been an increase in notifications to the Consumer Agency by building inspection authorities about the lack of insolvency securities. Small building firms still seem to be surprised to learn that they have to prepare an insolvency security to protect the consumer before they can start marketing their product.
Insolvency security is used to safeguard the situations when for example hidden defects are found in a building. Without such a security, the residents may be left in an intolerable situation if the builder becomes insolvent.
Current legislation demands that an insolvency security must be supplied at the latest when the final inspection of a building is conducted, before starting to sell homes to consumers. However, in practice homes are being marketed to consumers before the building work is completed. The security should also be ready at this time. However, sometimes the building inspector’s demand for an insolvency security during the final inspection may come as surprise to the builder.
Most of the larger building firms supply an insolvency security long time before they start to market the homes to consumers. It is advisable that smaller firms also adapt this procedure. Also, on legal level it would be advisable to plan how to time the inclusion of supervision and the accompanying information into the building projects. Supervisory experiences show us that supplying the insolvency security during the final inspection may, in many cases, be too late.
Banks or insurance companies should be included at the initial stage
Insolvency security is 25 percent from building expenses, which means that scratching together the funds in an unexpected situation when the project is in its final stage might prove insurmountable. Builders should start creating the insolvency security at the start of the project, if they wish to get some help from an insurance company, for example. An insurance company will probably be happier to become a partner if they can have their own supervisor included in the project from the initial stage.
Due to the weak economical situation small building firms have found it more difficult to obtain securities from banks, a fact, which probably has also created problems with insolvency securities.
Repair building has more than its fair share of interpretation problems
Impressive loft-homes from an industrial hall or an office building – is insolvency security required?
This is a difficult question, because the law is not very clear on this. Sometimes the question is about such a massive renovation that the project can be compared to house building. At other times only smaller repair work is required, without the need for work on the basic structure of the building, thus avoiding costly installation of water pipes and electricity cables.
Proof of an insolvency security is supplied to the building inspection authority. The Consumer Agency supervises insolvency securities and the building inspector will inform the Agency if the security has not been supplied.