It is important that all parties to a contract understand the difference between the Defects Liability Period (‘DLP’) and the limitation period. These provisions must be discussed at an early stage and all parties agree to the principles for each, as often the confusion between these two elements causes disagreements later in negotiations. The time periods and provisions included for each of these within any relevant contract must be clearly identified or defined.
DLP - often referred to as a rectification period
The DLP is the period for which a contractor is contractually both entitled and obliged to return to site to remedy defects. It is usually 12/24 months from the date of practical completion (‘PC’) and provides a mechanism for remedying defects which become apparent and are notified to the contractor after PC. It is not implied by statute and only applies where expressly included in the relevant contract. A DLP provision benefits both parties as it allows a client to request for a contractor return to site to remedy a defect, which will often be more cost effective than using an alternative contractor.
DLP v Limitation Period
It is often assumed that once all defects arising during the DLP have been rectified, no further claims can be brought against a contractor in respect of the relevant works. This is not the case. A client may bring a claim against a contractor in relation to defects at any time until expiry of the relevant limitation period. If a claim is not brought within the limitation period, a defendant can plead that the remedy sought is time-barred. The Limitation Act 1980 sets out the time periods for England and Wales:-
- For contracts signed as a simple contract under hand, the period is 6 years; and
- For contracts signed as a deed, the period is 12 years.
These periods run from the date on which the cause of action accrued. In construction contracts, this is often considered to be the date of PC if there is an obligation on the contractor to carry out and complete the works.
There are other remedies and limitation periods applicable to other causes of action, but we are focusing on contract law for the purposes of this article.
Extending/Shortening the limitation period:
The limitation periods above can be expressly amended using clear and unambiguous wording in a contract, but if the intention is to exclude the Limitation Act defences when extending a limitation period, this must be expressly stated – it is not implied. The following wording is often included with this intention: ‘No action or proceedings for any breach of this agreement shall be commenced against [x] after the expiry of 12 years following Practical Completion’ - but we would raise the following concerns with this (assuming a simple contract rather than a deed)
This operates as a cut-off date for bringing a claim, but does not prevent the party from relying on any exclusions in the Limitation Act (the limitation period is still 6 years from the breach);
This operates as an additional contractual limitation on the ability to make a claim (rather than replacing or extending the statutory limitation periods), therefore acting as a ‘longstop date’;
This wording does not affect when the cause of action is deemed to have taken place and does not extend the limitation period to 12 years from PC where it would have otherwise expired sooner - the Limitation Act defences still apply unless expressly excluded.
This wording is unlikely to be a practical problem in documents signed as a deed as the inference is that the cause of action accrues on PC, so the limitation period would be 12 years from the breach. However, this clause could limit claims accruing after PC.
Practical Tips:
- Include the agreed DLP in your heads of terms;
- Include the agreed limitation period in your heads of terms (differentiate this from the DLP);
- Ensure any limitations clause expressly excludes the Limitation Act defences if you wish to lengthen the limitation period;
- Consider whether the intention is for the limitation period to run in sections or from PC of the whole project (applies to both deeds and simple contracts) – for contractors, it may be beneficial to have the former apply, so that the limitation period for earlier sections is shorter;
- Ensure that your limitation periods with your sub-contractors/consultants are back to back with those which are agreed to with your client.
