Criteria for Gross Negligence in Building Contracts

Section 30 of General Conditions for Building Contracts 1998 and the Criteria for Gross Negligence

Generally, the contractor’s liability for defects ends when the warranty period expires. However, an exception is made in cases where the client can demonstrate that the defect was caused by gross negligence (i.e. gross carelessness) on the part of the contractor, or by a substantial failure in quality assurance. While the concept of ‘gross negligence’ is not precisely defined in the General Conditions for building contracts (in Finnish ‘‘YSE’’) 1998 terms, the Finnish Supreme Court referred to it in its decision (KKO:2025:3), indicating that it largely corresponds to the general tort law concept of gross negligence.

In legal practice and literature, gross negligence has already largely been assessed in the same way as under the general principles of tort law. The Supreme Court’s decision did not bring a significant change in this regard. Nevertheless, it should be noted that the meaning of gross negligence varies across different compensation systems, so the context in which the contract was made must always be considered when making the assessment.

Background

In previous proceedings, both the District Court and the Court of Appeal found that the defect was caused by gross negligence, as defined in the YSE 1998 terms, and ordered the contractor to pay damages. The Supreme Court did not alter the outcome of the Court of Appeal’s judgment.

Errors in sealing the domestic water pipe penetrations, and the causal link between these errors and the water damage, had been proven in the lower courts. It was undisputed that the client could not reasonably have detected the sealing errors during the acceptance inspection or the warranty period.

The Supreme Court granted the contractor leave to appeal on the basis of whether the errors in sealing the domestic water pipe penetrations were caused by gross negligence in the contractor’s performance of the contract, and whether the contractor was therefore liable for the defect and resulting damage to the client as determined by the Court of Appeal.

Key factors for assessment

In decision KKO:2025:3, the key factors in assessing gross negligence were stated as follows:

• Conscious disregard for the necessary diligence requirements to prevent damage.
• Deviation from the required standard of care in relation to the contractor’s professional skill requirements.
• The risk of damage, meaning the severity and likelihood of the damage that the defect may cause.
• The number and recurrence of defects, which may cumulatively elevate the degree of negligence towards gross negligence.

In practice, the assessment is always made on a case-by-case basis. The Supreme Court found that the contractor had acted with significant negligence, given the widespread deficiencies in the sealing of pipe penetrations and the evident risk of damage caused by them. On this basis, the contractor’s liability did not expire at the end of the warranty period; they remained liable for damages incurred by the client.

Among other things, the Supreme Court noted in its decision that Section 30 of the YSE 1998 terms partly correspond to the general contractual principle that a party to a contract is not released from liability for damages caused intentionally or through gross negligence, even if the contract includes a limitation of liability clause.

However, it is noteworthy that, in this case, the contractor’s error was repeated in over 70% of apartments, which leaves open to interpretation the question of how much recurrence is required for an error to be considered gross negligence. Following the decision, negligence can accumulate into gross negligence as a result of the number and recurrence of defects.

Legal significance

The decision reinforces the principle that the definition of gross negligence in Section 30 of the YSE 1998 largely corresponds to the general tort law concept of gross negligence. It also provides clearer guidelines on situations in which a contractor’s liability may extend beyond the warranty period. While this issue has previously been addressed in various sectors by the Supreme Court, this decision is particularly significant for those in the construction industry, as it emphasizes the obligation to exercise special care and professionalism when fulfilling contractual obligations.

For construction contractors and clients, the decision highlights the importance of adhering strictly to contractual obligations and of ensuring quality. Contractors may be held liable for years after the warranty period expires if serious negligence is found in their work. This case serves as a cautionary example of the severe consequences that can arise from neglecting due diligence and failing to comply with building regulations.

While the case concerned the interpretation of YSE 1998 terms, specifically Section 30, the ruling sets a meaningful precedent beyond the scope of YSE 1998. In tort law, negligence is often considered gross when the behavior is similar to intentional behavior, showing reckless disregard for the consequences (KKO:1997:103). For instance, the Government Bill for the Insurance Contracts Act, which came into force on 1 July 1995 (HE 114/1993 vp., p. 43), states that gross negligence is akin to intentionality.

Conversely, the decision can be interpreted as lowering the threshold for gross negligence in the construction industry, since it establishes that gross negligence can be determined by the severity of a defect’s consequences. Therefore, in the construction sector, it is not necessarily required that the contractor acts with serious indifference or almost knowingly. According to the decision, the level of care required of the contractor increases with the risks associated with the procedure. Therefore, in light of the decision, clients have the right to expect a higher level of care from contractors, particularly for projects that require specific professional expertise.