Cracking the code

From 1 April 2010 any builder or developer of a new or newly converted home who is registered with a home warranty provider is obliged to comply with the new consumer code for home builders. As the code applies only to those sellers who are registered with a home warranty provider, in the majority of cases it will not apply to registered providers selling shared ownership plots unless (unusually) they, rather than the subcontractor, will supply the warranty. The code will however apply to any subsidiary of a registered provider selling plots under a home warranty scheme, which for the most part will be for outright sale.

It is important for builders and developers to comply with the code because if found to be in serious breach, home warranty bodies (for example the National House Building Council) can apply a range of sanctions which can include removal and exclusion from registers which they run, resulting in developers being unable to subscribe to a home warranty scheme. To ensure that the code is working, consumer surveys will take place along with random audits and mystery shopper surveys.

The code is designed to provide protection to the home buyer by setting mandatory requirements that all builders must meet in their marketing and selling of new homes and in their after sales customer service to ensure that home buyers:

• are treated fairly
• know what service levels to expect
• are given reliable information upon which to make a decision and
• know how to access speedy, low-cost dispute resolution arrangements if they are dissatisfied.

What impact does this have on the home builder?

A copy of the code should be displayed as a matter of course and given, without charge, to every home buyer who reserves a new home after 1 April 2010. Copies of the code can be downloaded from the Consumer Code for Home Builders website www.consumercodeforhomebuilders.com. The code recommends a copy is supplied in reservation packs and in the legal pack supplied by the home builder’s solicitor.

The key parts of the code that home builders should be aware of are detailed below.

Reservation agreements - Once a buyer has expressed their intention to purchase a new home, a written reservation agreement must be entered into between the builder and the buyer setting out the terms on which the offer has been made and the deadline date on which the reservation agreement will end if contracts are not exchanged (known as ‘the reservation period’). During this period the builder is not permitted to enter into negotiations with any other party, the buyer is given exclusivity in which to instruct a solicitor and review the relevant legal documents.

Reservation fees - If a contract for sale is not entered into, the developer can retain sums from the reservation fee to cover reasonable administrative costs, providing this has been made clear in the reservation agreement. Failure to do so may result in the developer having to refund the fee. It is not clear whether the developer is entitled to retain the entire reservation fee, even if this term is made clear to the buyer at the outset. This issue may well face challenge in the future if a buyer seeks to demonstrate that this is inconsistent with the aim of the code in terms of treating buyers fairly. This should be borne in mind when setting the reservation fee.

Enhanced information for buyers – At the point of reservation the buyer must be supplied with a complete contents list, build specification and plans which reliably show the layout, appearance and plot position of the home. This should also include a description of any management services and charges for which the buyer will be responsible together with the terms on which those charges may change. Providing this information to buyers at such an early stage could prove problematic to the developer, particularly for those developments that are being sold off-plan where the management structure has not yet been finalised and where a schedule of expenditure has not yet been agreed. This requirement has the potential to delay the marketing of developments.

Transparency and timing of construction - The buyer must be given reliable and realistic information about when construction of the home may be finished and the date of legal completion. The information that the developer should provide will depend upon what stage has been reached at the time that the information is provided however the buyer should be kept informed as key stages are reached. In the contract for sale the developer should give the anticipated date by which notice of legal completion should be served. The buyer has the right to withdraw from the contract if there has been unreasonable delay beyond the date given in the contract. Buyers should also be made aware of their rights to terminate the sale should there be an unreasonable delay in meeting the completion date. Prudent developers should ensure that the sale contracts deal with these issues thoroughly to avoid any dispute as to what constitutes an unreasonable delay.

Handling complaints – Builders must have in place a procedure for handling and resolving complaints. If the buyer is not satisfied with the way in which the complaint has been dealt with, or the outcome, the dispute may be referred to an independent dispute resolution scheme.

Ultimately, builders need to be able to demonstrate that they are treating their customers fairly.

For more information please contact Graham Walters on 0117 917 7577. TLT is a top 100 UK law firm with offices in Bristol and London. Visit www.TLTsolicitors.com.

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