Contractor's Liability for Defects in Private Works - International Law Office

Apparent and Latent Defects

Performance of construction works is considered to be defective if discrepancies or defects are evident in the works.(1)

The Portuguese regulatory framework distinguishes between two types of defect: apparent defects and latent defects.

Defects are apparent if the owner is aware of them, or if the owner would have been aware of them had he exercised the diligence usually expected of him.

Defects are latent if they are not known to the owner and would not have been noticed by the average observer.

According to Portuguese law, the contractor's liability is not limited to defects which existed on the date of delivery of the works; it also extends to those arising at a later stage - that is, latent defects.

Presumption of Fault

The contractor's liability is based on fault and is thus not merely a guarantee obligation. The owner must prove the existence and seriousness of the defect. Where proof is forthcoming, it will be presumed that defective performance is attributable to the constructor.

Inspection of the Works

It is the owner's duty to verify whether the works are in the agreed condition and free of defects before accepting them. To this end, upon completion of the works, the contractor must inform the owner that the works are ready for inspection and must allow such inspection to take place.

As such, the inspection of the works is a right, but also a burden that the law imposes on the owner, since failure to carry out the inspection implies acceptance of the works without reservation. Inspection must occur within a reasonable period of time.

After inspecting the works, the owner must inform the contractor of the outcome, also within a reasonable time. This is another burden imposed on the owner, to the extent that failure to inform the contractor also implies acceptance of the works without reservation.

Acceptance of the Works

Acceptance of the works is an act of will through which the owner declares that the works have been performed to his satisfaction and acknowledges his obligation to accept the works and to pay the corresponding price.

Acceptance can be express (normally by means of a document signed by the parties), implied (eg, where the contractor is informed that the works were performed as agreed and are defect free) or presumed by law.(2)

Is it possible to presume that the works have been rejected if the owner does not respond? The law makes no provision in case of failure to accept, but some argue that the solution set out in Article 1218(5) of the Civil Code in case of failure to inspect and provide information should apply in such instances: that is, if nothing is said as to acceptance, it will be presumed that the owner has accepted the works.

Acceptance can be with or without reservation. If the owner notices apparent defects, he may accept the works with reservation, indicating the defects he has found; the reservation will have the value of a declaration by the owner that he does not waive the rights conferred by law.(3)

If the owner notices no defects, he will accept the works without reservation, which releases the contractor from any obligation with respect to any known or apparent defects (the contractor can never again be held liable for defects that were - or at least should have been - known on that date).

As regards latent defects, acceptance is always made with reservation.

Guarantee Period

The guarantee period is the maximum period during which the contractor is responsible for defects in the works. Once this period has expired, the contractor can no longer be held liable for any defects.

The law presumes that if the owner failed to notice the defects within the guarantee period, he arguably failed to exercise the required diligence, since in most cases this period is sufficient to notice latent defects. The guarantee period is also underpinned by the concept of legal certainty, since it would not make sense to hold the contractor indefinitely responsible for defects in works performed a long time ago.

The general guarantee period(4) is two years after delivery of the works. However, in certain cases the legal guarantee period is five years, although the parties are free to establish a different period.

Application of the longer five-year period is subject to the fulfilment of two requirements: (i) the works must be long lasting; and (ii) the works must have totally or partially collapsed, be in danger of collapsing or have serious defects.

The guarantee period begins on the date of delivery of the works, since it is from that point onwards that the owner can more easily notice defects in the works.

Limitation Period to Exercise Certain Rights

In addition to the guarantee period, the law provides for shorter limitation periods for the exercise of the following rights applying within the guarantee period:

• notifying the contractor of defects and demanding their repair;
  
  
• seeking a reduction in price;
  
  
• seeking termination of the contract; and
  
  
• claiming an indemnity.

These begin to run as of the acceptance with reservation or the refusal to accept, in the case of known defects, and as of notification, for latent defects.

Notification of Defects

The owner must notify latent defects to the contractor within 30 days of becoming aware of them.(5) In the case of buildings or other long-lasting works, defects must be notified within one year.(6)

The contractor's acknowledgement of a defect amounts to notification of the same. However, if the defect was acknowledged before acceptance of the works, the defect is a known defect; if the owner accepts the works without reservation in such cases, he will no longer be entitled to avail of the remedies against defects set out in the law. Legal doctrine is of the opinion that if the constructor has concealed the defect with malice, no notification is required.

Owner's Exercise of Rights

In the case of the existence of defects, the owner must exercise his rights in respect of the same within one year of notification of the defects (in the case of latent defects) or of acceptance of the works with reservation or refusal to accept the works (in the case of defects known on the date of acceptance).

These rights are:

• the right to demand repair of the defects;
  
  
• the right to the performance of new works;
  
  
• the right to a reduction in price;
  
  
• the right to termination of the contract; and
  
  
• the right to claim an indemnity.

Legal doctrine holds that the limitation period within which to exercise these rights is suspended not only in the event of extrajudicial exercise of these rights, but also upon the commencement of a corresponding legal action.

For further information on this topic please contact Tiago Meireles de Amorim at Gonçalves Pereira, Castelo Branco e Associados by telephone (+351 21 355 3800) or by fax (+351 21 353 2362) or by email (tmamorim@gpcb.pt).

Endnotes

(1) See Article 1208 of the Civil Code.

(2) As is the case with the condition set out in Article 1218(5), whereby the law presumes acceptance in the case of absence of inspection or information.

(4) Provided for in Article 1224(2) of the Civil Code.

(5) See Article 1220(1) of the Civil Code.

(6) See Article 1225(2) of the Civil Code.