Consumer Code for Home Builders

As from 1 April 2010, all NHBC, Premier Guarantee and LABC New Home Warranty registered home builders will have to meet the requirements of the Consumer Code for Home Builders. Applying to home buyer registrations signed on or after that date, the Code aims to ensure that home buyers are treated fairly, know what service levels to expect, are given reliable information upon which to make their decisions and know how to access speedy, low-cost dispute resolution arrangements if they are dissatisfied.

The home building industry has taken positive strides towards improving customer satisfaction against the background of a downturn that has hit builders and potential homebuyers alike. The new Code is a critical part of these efforts and is strongly supported by Scottish industry body Homes for Scotland, as well as the Council of Mortgage Lenders, Home Builders Federation, Federation of Master Builders, House Builders Association, Construction Employers Federation (NI) and the HBF Retirement Housing Group.

Background

In 2005, Kate Barker conducted a review of the home building industry for the Government. One of the main recommendations included giving the industry three years to improve customer satisfaction and to introduce an Office of Fair Trading (OFT) compliant consumer code.

Since then, the industry has significantly improved its customer service and introduced a national customer satisfaction survey with the achieved aim of increasing satisfaction levels from 56 to 75%. To assist in this process, Homes for Scotland, the Home Builders Federation and NHBC introduced voluntary codes of conduct and a Customer Charter, satisfying major parts of the OFT scheme.

Two years later, however, the Barker Review was overtaken by the Government’s own Callcutt Review and, shortly after, the OFT’s “market study”, which investigated the state of competition and consumer protection in the home building industry.

Whilst giving the industry a relatively clean bill of health, the OFT report concluded that some areas still needed improvement, including the sales process and after-sales service, the adequacy and reliability of information provided to customers, and the lack of a redress system for matters outside the warranty. In its conclusion, the OFT gave the industry a choice: either produce a voluntary code of conduct or it would recommend the Government step in and produce legislation and an industry levy.

An industry-led Code was then developed in discussion with the OFT over an 18 month period. Last autumn, however, despite ongoing negotiations, the OFT instead recommended to Government that a statutory redress scheme be developed and implemented. The exact reasoning for this decision remains unclear, but the Communities and Local Government Department, to which the OFT recommendation was handed, has indicated satisfaction with the direction in which the industry is travelling, the progress made and a preference for the industry-led Code, which will come into effect on 1 April 2010.

What the Code means

Under the Code, home builders will need to develop or update a Customer Charter to provide enhanced customer information. Of particular relevance to the legal profession, requirements include specific information on the provision of delivery dates, rights to terminate contracts, and clarity on reliance upon verbal undertakings. There may also be a need to make revisions to reservation and contract of sale documents.

As well as helping to ensure that homeowners are happier with the home buying process, the Code also means the industry can lead its own improvement, rather than being directed by Government. The alternative could have been much more complex, harder to implement and more costly to administer, so this is a positive move for both the industry and consumers.

To help those involved in the selling of new homes to understand the expectations and requirements of the Code, industry body Homes for Scotland has organised a series of detailed briefing sessions (open to both members and non-members) which take place in early March. For further information, please visit www.homesforscotland.com or contact info@homesforscotland.com.

• For more information on the Consumer Code for Home Builders, visit www.newhomesconsumercode.com

• Rod MacEachrane is interim chairman of the Consumer Code Management Board, the body responsible for the Code’s development

What is the code?

The Code is a set of 19 requirements and principles to ensure the industry deals effectively with its customers throughout the home buying process.

These requirements apply to all new private home buyer reservations from 1 April 2010.

A dispute resolution service will exist for instances where the home buyer is out of pocket following disputes about whether a builder has complied with the Code.

The Code will help ensure a consistently high level of customer service from pre- to post-occupation, by monitoring customer satisfaction and industry compliance.

Gross non-compliance can result in removal from warranty bodies’ registers.

Customer satisfaction and industry compliance with the Code will be measured and data on performance reported back to the industry, Government and consumer interest bodies.

How does it work?

The Code scheme will be financed and operated via warranty bodies and led by a management board, supported by an advisory forum. The advisory forum is the industry-wide body that represents, consults and advises on Code content, its practical application and operation, through which changes and improvements will be channelled.

Society pleased to see Code

Paul Carnan of the Law Society of Scotland’s Conveyancing Committee comments: The Conveyancing Committee welcomes the introduction of the Consumer Code for House Builders, the implementation of which will go some way towards addressing the issues identified by the committee in its evidence to the Housing Improvement Task Force. Of particular interest to property lawyers will be clause 2 of the Code which recommends, inter alia, a refund of any reservation fee paid (under deduction only of pre-estimated expenses) in the event of a reservation being cancelled, and requires the housebuilder to provide, where appropriate, a reliable estimate of the costs and nature of any management services provided; and clause 3, which provides for clear and fair contract terms; realistic and reliable information as to when a new-build house is anticipated to be completed; and a right to terminate a contract (with a full refund of any deposit/reservation fee paid) in the event of unreasonable delay or significant changes in design.

The new Code will only come into effect in respect of reservations agreed on or after 1 April 2010. If members or their clients become aware, after this date, of any alleged breaches of the Code, then house buyers are entitled to refer disputes to the home warranty provider who, in turn, can refer matters to the independent dispute resolution scheme to be set up under the Code.