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New Consumer Code for Home Builders

A new Consumer Code for Home Builders came in to effect on 1 April 2010.

Although participation in the code is voluntary as the majority of new homes sold in the UK are sold with the benefit of a NHBC guarantee or LABC New Home Warranty or Premier Guarantee, participating builders will be required to comply.

The Code only applies to newly constructed properties.  Its aim is to ensure that buyers are treated fairly and given reliable information and access to a low cost dispute resolution service if problems occur.  The Code specifies the information to be included in the reservation agreement where this is signed on or after 1 April 2010.  All sales and marketing material must be truthful and clear.

The Code also provides that the builder is no longer entitled to restrict the buyer’s choice of solicitor to deal with the purchase.  Many builders had provided incentives to buyers along the lines that their legal fees would be paid if they used an approved solicitor.  This would now be a breach of the Code.

The Code also contains provisions which prevents builders from seeking to retain deposits paid when signing a reservation agreement, if the agreement is subsequently cancelled.  The buyer must be informed in advance if any deductions are to be made from the reservation fee.

The Code also contains provisions governing changes to the specification after exchange of contracts has taken place.  If the builder wants to alter the design construction or the materials to be used in the property which would significantly and substantially alter its size, appearance or value then the builder must formally consult the buyer and obtain their agreement.

If the builder fails to comply or if the buyer does not agree to the changes, then the buyer has the right to terminate the contract and to recover the deposit and reservation fee in full.

The Code also introduces provisions to the effect that the buyer must be given accurate information about the proposed completion date.  The buyer has a right to withdraw from the contract if there has been an unreasonable delay.

One of the most significant changes introduced by the Code is that the builder must have a in place a formal complaints procedure, and deal with complaints within a reasonable period of time.

The Code also introduces a formal independent procedure for the resolution of disputes which can be referred to an Adjudicator.  However the maximum level of award which can be made by the Adjudicator is £15,000.  The new scheme would be a cost effective way for buyers to resolve low value disputes.

It remains to be seen what impact the new Code will have as compliance is not compulsory, and it will only apply to members of the warranty schemes provided by NHBC, LABC or Premier Guarantee.  However, if a builder should fail to comply with the Code it faces the sanction of being removed from the relevant home warranty providers register and exclusion from other registers.  This will no doubt affect the saleability of its properties in what remains a difficult market.

For more information contact Sue Haylock on 01743 280280 or email her at sue.haylock@lblaw.co.uk.