June 22, 2023

Understanding Latent Condition Clauses in Building Contracts


In the realm of construction projects, unforeseen physical conditions can arise during the course of construction which poses challenges for builders and clients, and potentially impacting project timelines and costs. These unforeseen conditions are known as latent conditions. Understanding the implications of latent conditions and the clauses addressing them in building contracts is crucial for all parties involved in construction projects. This article provides an overview of latent condition clauses, their elements, and their significance in managing risks and allocating responsibilities.

What Constitutes a Latent Condition?

A latent condition refers to a physical condition on or near a construction site that could not have been reasonably anticipated by the builder during the tendering process. It typically includes factors such as hazardous materials, contaminated soil, hidden building services, and other unexpected physical features. It is important to note that weather-related conditions are generally excluded from the definition of latent conditions.

Differentiating Latent Conditions in Contracts

Latent condition clauses may vary in their wording and interpretation, impacting the contractor’s rights and obligations. Several factors can differentiate latent condition clauses in contracts, including the type and location of conditions, the level of pre-contract due diligence expected, and the timing of assessments (e.g., tender closing or contract date).

How to Manage the Risk of Latent Conditions?

Often, the biggest issue with latent conditions is whether it is a variation and therefore a cost to the principal (on the basis that the latent condition arose due to the nature of their site and should be known to the principal) or a cost absorbed by the builder (on the basis that the principal is relying on the builder’s expertise).

To manage the risk associated with latent conditions effectively, both parties (principals and contractors) should carefully consider the following:

  1. Allocation of Risk: Determining whether one party bears the entire risk or if the risk and cost should be shared between the parties.
  2. Site Investigation and Assessment: Allowing contractors sufficient time for a thorough risk assessment and site inspection to identify potential risks and associated costs.
  3. Historical Searches: Considering the availability of historical searches related to the site or neighbouring properties to gather information on potential latent conditions.
  4. Sharing Knowledge: Establishing a process for sharing information regarding potential latent conditions discovered during site investigations.

How to Draft an Effective Latent Conditions Clause?

Latent Conditions Clauses play a crucial role in building contracts, addressing key issues to prevent confusion and disputes. Here are the main aspects covered by a well-drafted latent conditions clause:

  1. To avoid confusion and disputes regarding responsibility for latent conditions, it is essential to incorporate a latent conditions clause into your building contract. The latent conditions clause addresses key issues, including:
  2. Definition of Latent Conditions: Establishing a clear definition that encompasses unforeseen conditions beyond the contractor’s reasonable anticipation, leading to increased costs or delays.
  3. Delay in Completion: Specifying the procedure for claiming an extension of time if the presence of a latent condition results in project delays. Contractors should have the opportunity to request additional time to complete the work.
  4. Cost Allocation: Determining who bears the costs and risks associated with latent conditions. While it is common for principals to assume liability due to their site knowledge, the shifting of costs to contractors based on their expertise is increasingly observed. Cost allocation should be a commercial decision agreed upon by both parties.

Understanding and addressing latent conditions through well-drafted clauses in building contracts are crucial for successful construction projects. By defining the scope of latent conditions, allocating responsibilities, and establishing transparent procedures for claims and relief, parties can mitigate risks and ensure fair outcomes.

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