Gardner Leader

New consumer code for home builders

Last year, Robert Parsonson, Conveyancing Associate at Gardner Leader LLP in Newbury, wrote an article about unexpected fees that often crop up during the sale of flats; fees which arise because of clauses written into the original lease by the builder when it was first sold. On 1^st April 2010 a new consumer code came into force which should prevent home builders from using their stronger bargaining position to force consumers to accept such unfavourable terms. Robert examines what the new Code means for future buyers.

The purposes of the code is to ensure that buyers of new homes are treated fairly, are given more information about what service levels to expect, and are given a means to quickly access a low cost dispute resolution procedure should they have a complaint.

So what is in the new Code?

Written Reservation Agreement - On negotiating a sale the builder must supply the buyer with a written reservation agreement, which provides an explanation of the home warranty cover and estimates of the costs of any management/estate services that will be charged at the property including accounts, company details and a list of included contents.  This should be available at the sales office to allow potential buyers a clear idea of what they will be buying. The Code sets out detailed requirements as to the information the reservation agreement must contain. 

Right to Cancel - In what is a big change, during the reservation period the buyer has the right to cancel the agreement and have any reservation fee returned.  This means common practice of builders keeping a non refundable deposit seems to have mostly come to an end.

Timely Completion Notices - In the contract to purchase, the Code states that, unlike most recent contracts, the builder should state the anticipated date that the notice of completion will be served.  The Code suggests that this should be six months for houses and twelve months for flats or apartments.  The buyer is also given the right to terminate the contract (and have their deposit returned) if there has been an unreasonable delay in finishing the construction of the property and in serving the notice to complete.  This should spell the end of buyers being locked into contracts where the completion date keeps moving backwards.

Choice of Legal Representation - The builder cannot restrict the buyers’ choice of legal representative, so if they agree an incentive to pay the buyers’ legal fees, under the code they should not insist that the buyer uses a particular firm.

After Sales Service - Following the completion and purchase of the property the builder must provide the buyer with an after sales service, confirming the contact details for the warranties and guarantees and their process for dealing with emergencies.

Complaints Procedure - The code requires the builder to have a formal system in place for dealing with complaints.  The builder must address a complaint within a reasonable time and advise the buyer of the likely timescale.   If it is not resolved within this time or the buyer is unhappy with the result, the complaint is referred to an adjudicator who will follow a prescribed dispute resolution procedure set out by the Code. The process and adjudication is run by the home warranty provider and the buyer must pay a fee of £100+VAT to register their application.  The builder can then agree to settle or proceed with the adjudicator.  If they proceed, the builder must pay £300.  The adjudicator will hear submissions and make their decision, which cannot be appealed. 

The OFT has acknowledged that they have no power to enforce such a code and it would have to be voluntary.  However, it is likely that most builders will adopt the Code, because most new homes are sold with the benefit of the new build warranties provided by NHBC, Premier Guarantee or LABC.  These organisations now require any builder wishing to provide their guarantee (which are required to sell the property) to also fully adopt the Code. This has enabled a quick way of ensuring the “voluntary” code is used by the majority of the industry.

The introduction of this code seems to have had little publicity, but if successful should bring greater equality to the buying of new properties and provide buyers with a cost effective scheme to enforce their rights and obtain remedies without being forced to the courts.

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