On 1 March a consultation was released that seeks views on proposed changes to the Consumer Code for Home Builders (the Code).
The Code was last reviewed in 2012. This did not result in changes being made to the Code, but the guidance which affects the interpretation of the Code's requirements was amended. This provided greater clarity as to home builders’ obligations.
A further review was commissioned in 2015 which closed at the end of October. Now that the responses have been evaluated, this latest consultation seeks views on the proposed changes, with a view to implementing them in 2017.
In this article we highlight the key proposals in the consultation.
The consultation proposes including a new definition of "vulnerable customer". The Code wants to give this type of customer a clear definition so that home builders can identify customers especially susceptible to detriment and can therefore act with an appropriate level of care. However, the Code has not provided any guidance on how to satisfy this duty of care. The consultation proposes that home builders may need to provide evidence to show that they have considered this issue of vulnerability. Absent of any definitive guidelines, it is presumed that home builders will have to formulate their own views of defining vulnerable customers. This potentially needs further review as a universal agreement on the guidance is needed to prevent uncertainties.
The Code should be made freely available to all customers and there are some proposed changes to ensure the Code is advertised properly. Hard copies of the Code are to be given to all customers who reserve a home at the time of reservation with the acknowledgment of receipt to follow. The Code needs to be displayed in sales offices and also incorporated into the vendor's website. The consultation proposes that a copy of the Code should also be provided to the buyer's legal representatives.
All sales and advertising material must be clear and truthful when marketing for the sale of a house. The consultation proposes making it clear in the Code's guidance that a customer should never be subjected to high-pressure selling techniques.
The consultation proposes amending the Code and its guidance on management services and fees. Details of all costs that the buyer will incur, and how they are to be calculated, must be included in the pre-purchase information given to the home buyer. This is to help buyers make an informed purchasing decision.
Home builders must already advise home buyers to appoint a professional legal adviser and are under a duty not to restrict the buyer's choice. It is proposed that this obligation not to restrict choice should be extended to the buyer's financial advisor or mortgage intermediary.
Home builders are required to give home buyers a reservation agreement that sets out clearly the terms of the reservation of the house. An audit of reservation agreements showed that there is inconsistency in how the current guidance has been interpreted. The consultation, therefore, proposes amending the guidance to make it clear what should be included. The reservation agreement should clearly set out an itemised breakdown of costs that will be included in the management services, and fees that the buyer will be obliged to pay. The guidance will also state what proportion of the reservation fee may be retained by the home builder in the event that the reservation agreement is cancelled. If the homes buyer considers the amount to be excessive, the home buyer can challenge it through the Code's independent Dispute Resolution Scheme (the IDRS).
Currently a home buyer may bring their claim through the IDRS within three months of the date after the home builder's final response to the original complaint, or within three months after the date of the original complaint, whichever is the later. The proposed changes alter the time limit to bring the Code in line with the timeframes set out in the Alternative Dispute Resolution Directive. It is suggested that the home buyer should only be able to bring a complaint after 56 days have elapsed since first raising it with the home builder and no later than 12 months after the home builder's final response.
Under the IDRS, the adjudicator may make a discretionary award for any inconvenience the home buyer has suffered in the handling of the complaint by the home builder. In line with current best practice applied in other dispute resolution schemes, it is proposed that the limit for the discretionary award increases from £250 to £500.
There is evidence to suggest that home builders have failed to comply with an adjudicator's ruling and a home buyer is subjected to further inconvenience in trying to secure judgment. As a deterrent, an interest charge is proposed on any late payment awarded. This is in line with other dispute resolution schemes and the civil courts.
The consultation period for these proposed changes ends on 30 April 2016. In the meantime, home builders with an interest in the Code are advised to respond to the consultation. They should provide their opinions in light of the proposed changes put forward. Implementation of the changes is expected to be announced in June 2016.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.