Every law student knows the basic rule – caveat emptor: let the buyer beware. Let me tell you about a couple of instances where it is now the housebuilder or developer who must be careful.
The first arises out of a Council of Mortgage Lenders' rule that a mortgage on a house or flat will not be released until that home is complete. The lenders have a handbook setting out what the buyer's solicitor must sign off on when submitting a request for funds. The rule change came into effect on 1 April.
If you are buying a property covered by one of the standard warranties, such as the one offered by the National House Building Council, the lender requires the warranty cover note before it will send the money. This will not happen until the property and any accesses and common areas are complete. A step closer to zero snagging on handover perhaps?
The fun starts if the developer is not using an NHBC warranty or equivalent. There could be entirely valid reasons for this – for example, in a mixed-use scheme where the residential element is minor. In these circumstances, the rules set out a form of certificate that must be signed off by somebody who has been involved in monitoring the works, typically the architect or project manager.
The certificate is onerous. It asks an architect, for example, to certify to the lender and the buyer (neither of whom are a client) that the property is constructed to a satisfactory standard. This extends liability beyond the common law position and may well go beyond the cover provided by the architect's professional indemnity insurance. If the party is not insured, it may well refuse to sign. This would leave our developer in an uncomfortable position.
There are solutions. The buyer's solicitor is allowed to qualify its own sign-off certificate to the lender and say that certain requirements have not been complied with. The lender might then go ahead and release the money, particularly if it feels that the developer and its team are reputable and likely to have done a good job. Alternatively, the lender might require its own surveyor to certify completion before releasing funds – this can be done at relatively modest cost.
The mystery is how a certificate that no construction professional can sign found its way into the handbook
The mystery to me is how such an onerous certificate found its way into the handbook in a form that no construction professional that wants insurance cover can sign without specific clearance from its insurers.
I was reminded of another little nasty for developers by that rare and exciting thing: a Court of Appeal case about the Defective Premises Act 1972. The act is often overlooked. It requires anyone working on a house to ensure that it will be fit for habitation when completed.
In Alderson vs Beetham Organisation Limited, there was a serious damp problem in two basement flats completed in May 1994. After the mould was spotted in April 1995 the developer came back and installed extra drainage. This did not end the damp problem.
The occupiers did nothing for a few years, but in January 2001 issued proceedings alleging a breach of the act because the damp rendered the flats unfit for habitation. The time limit for bringing such claims is six years from completion. The developer argued that the problem existed when the flats were completed in May 1994. It said six years was up and the occupier had no remedy.
The claimant relied on a specific provision in the act dealing with limitation periods. Section 1(5) says that the clock starts ticking when the dwelling is completed, but if the builder returns to rectify its previous work, the clock is put back to the day that the further work was finished.
Patrick Holmes is a partner in solicitor Macfarlanes.