Housebuilders must face some home truths

6 July 2017 | By Assad Maqbool

Is the construction industry doing enough to ensure that housebuyers are getting a fair deal? Asks Assad Maqbool.

In 2016, an All-Party Parliamentary Group of the House of Commons issued a report entitled More Homes, Fewer Complaints. It found a gap between quality and consumer expectation, an imbalance in bargaining power and a lack of suitable consumer redress for failures.

Some of the recommendations were the initiation of a New Homes Ombudsman, the standardisation of housebuilding sales contracts, and a right to inspect new homes – purchase of which might be postponed as a result of such inspection.

As none of these recommendations has yet found its way into legislation, in June 2017, King’s College London’s Centre of Construction Law and Dispute Resolution launched a consultation on a draft consumer guide, Buying a New Home: Quality Issues, to help empower buyers to exercise their rights from the start of the process of buying a new home.

The consultation draft informs buyers that developers selling off-plan will need to exercise some caution in sales techniques: the Misrepresentation Act will give rise to a right to claim damages and, in some cases, terminate contracts where the consumer has been induced into contracting by a false statement.

The norm in relation to sale contracts suggests a dominant market position for sellers: buyers rarely negotiate terms of a new-build sale contract and, even with off-plan sales, it is a case of “take it or leave it”. Without specific legislative prescription as to the contents of a contract, the consumer will need to rely on general protection.

“The Consumer Rights Act applies to off-plan properties, as the essence of the sale contract is a contract to supply construction services.”

The Consumer Rights Act applies to contracts for the sale of off-plan properties, as the essence of the sale contract is a contract to supply construction services (as well as agreeing to a future property transfer). Among other things, the Consumer Rights Act strikes out all terms of the contract that are considered to be “unfair”.

It is interesting to see construction industry norms that the courts deem to be “unfair” for consumers. While the Construction Act does not apply to contracts made with residential occupiers, a householder might still agree to a consultant’s standard terms and conditions which include the ability to refer disputes to adjudication.

The courts have found that, while necessary for commercial parties, the process and costs of adjudications might unfairly “hinder the consumer’s right to take legal action”. 

The parliamentary report also highlighted the level of, and failure to quickly remedy, defects in a property. While the industry may have generally come to accept the concept of “practical completion” and a period during which defects will likely arise and be remedied by contractors, this is unlikely to be a concept with which residential buyers are familiar.

Limitations of warranties

The King’s College guide reminds consumers of the rights under the Defective Premises Act for work to have been completed in a “workmanlike and professional manner” to ensure that the home is “fit for habitation” and that the right to pursue legal action on the basis of these statutory requirements is not limited to first purchasers.

It also gives some detail to consumers about new-build warranties available from NHBC and Premier among others and, in particular, the limitations of such warranties, which are not obvious to inexperienced purchasers.

The picture painted by the draft guide appears to accurately reflect a real gap. In the absence of joint engagement by the large developers with this issue, one can only assume that either the legislative reforms suggested by the parliamentary report may creep in or that some of the more radical suggestions made by King’s College in launching the consultation (such as retention from the sale price until defects arising in the first year are rectified) may be implemented.

Perhaps developers should be engaging with this consultation and industrywide standardisation of approach to residential consumers in order to gain reputation for the industry and mould the outcomes of any reform.

Assad Maqbool is a partner at Trowers & Hamlins

Image: Brinkstock/Dreamstime.com


Happy to see the likely inclusion of retention as this likely the only measure that will be effective in getting builders to return and correct defects in a timely manner. Warranties have failed miserably in this respect.

Grant Murdie, 10 July 2017

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