Who Is Liable for the Construction Risks in Project Finance?

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Building an individual home, apartment block, or even multiple houses are potentially very profitable. Unfortunately, it also carries many risks. It’s essential to be aware of the risks and who is liable before you start any project. If you’re not sure regarding liability the effects could be devastating.

Understanding The Risks

The biggest risk as a developer is being unable to complete the project, resulting in an unfinished project which cannot be sold.

This leaves a developer having to repay a loan without the income to do so. In this instance, the developer can lose everything and the development finance partners will probably remain out of pocket.

Other scenarios include the project being finished but no buyer is found or a house being completed but an inability to find finance for the finished home. It s also worth thinking about the liability for correcting issues with the build and installation of appliances, this is usually after the build has been completed.

Who Has Liability

The commonly accepted approach to liability is that the party best able to deal with or prevent issues is liable for the risks. This is a pragmatic approach and the reason why the developer is responsible for any issues.

For example, the finance company has no control over whether the building has been built correctly and to code, this is something between the builder and the planning department. Equally, the finance firm has little influence to ensure the building is built according to the planning agreement. If t isn’t the building could, in theory, have to be torn down.

For these reasons, it is normal for the person or firm borrowing the funds to be liable for any issues with the build.

Contractors

Of course, the matter becomes more complicated when the developer has sub-contracted parts of the work to other companies.

At this point, the same liability ruling can become blurred. On the one hand, a sub-contractor should know the right standard to complete a specific part of the job too. But, on the other hand, it’s the developer who has overall liability and needs to verify that the work has been done properly.

It’s best to ensure there is a contract in place with any sub-contractor, clearly identifying the liability risks and who is responsible if there are any issues.

It can be tedious completing all the paperwork, but, it’s worth it if there is an issue.

Read Also: 4 Tips To Grow Your Construction Business

Finance Company Help

The development finance firm can do little to assist with liability. However, they will generally release the funds in stages. This ensures the developer and the local planning body have the opportunity to inspect and verify the work before a stage is signed off.

Some firms will even assist with their own experts, helping to ensure your hard work is up to code and not a waste of time.

Liability will always exist, and there will almost always be something that is overlooked and could be an issue. But, with careful management, you should be able to reduce the risks and borrow confidently.

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