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New build defects: their approach

Housebuilders and warranty providers want you to follow their processes and procedures for dealing with snags and defects. We will call this "PLAN A".

PLAN A IS GOOD FOR THEM. IT IS NOT GOOD FOR YOU.

They rely on you reporting issues and problems to them informally in person and keeping you generally at a disadvantage. There are lots of ways in which they do this - misinformation, coercion, threats, fearmongering, false promises, verbal assurances that are profoundly at odds with their actions and intentions but that keep you from seeking outside help, etc. Cumulatively this approach is designed to allow them to decide what, if anything, they do about any issues you have with your new home. If you are not happy with their response, tough. Most people are not happy.

If you go along with PLAN A and try and deal with housebuilders (or warranty providers - who in most cases will serve the housebuilder's interests not yours) on your own, most people will lose out. Housebuilders and warranty providers will not tell you what you need to do to get a better outcome. They don't want you to get a better outcome, as that means a worse one for them. They already have your money. They don't want to now spend it fixing defective works.

We show you how to do better. We will call this our PLAN B.  PLAN B involves helping buyers of defective new build homes deal with defects and other problems efficiently, cost-effectively and fairly, based on established best-practice. They do not want you to know what we know, because PLAN B WORKS FOR YOU.

Read on for an explanation of the key legal and procedural principles that apply when seeking to resolve defects in new homes and why so many people trying to get things resolved using PLAN A fare so badly.


1. CONTEXT: You are not a consumer

It is important to understand that a new build home is not a ‘consumer purchase’. With very limited exceptions, you are not buying ‘as a consumer’, you are entering into – or have already entered into – a complex, high value, unregulated commercial transaction with the housebuilder and other parties all of whom will have opposing interests to you.

‘Consumer law’ and ‘consumer rights’, in lay terms, is usually understood to mean things like the right to return faulty goods without question, to cancel arrangements without reason or penalty, to have the rules of engagement tweaked in your favour in some important way or other to help level the playing field and protect you from exploitative or unfair commercial practices, and to have institutions that oversee particular industries with a view to maintaining minimum standards and ensuring fair play. None of this applies when you buy a new build home. You cannot send it back if you don’t like what you get. No one is policing the terms on which new homes are sold to ensure fairness. New home warranty providers are largely unaccountable to you if they refuse to accept legitimate claims made during the ‘builder warranty period’ (i.e. the vast majority). The misleadingly named “Consumer Code for Home Builders” is sold as ‘consumer protection’ but you are not a ‘consumer’ and it was designed by the industry itself to limit housebuilders’ liability for misrepresentations and compensation claims, in other words, to protect them, not you. And so it goes on.

Buyers may make many reasonable – but unsafe – assumptions when buying a new home. They may assume the sales staff will tell the truth and be accountable if they don’t; that conveyancers will flag up anything unusual or risky and that not being told of any such issues means there are none; that ‘Star Ratings’ are a reliable indicator of construction quality and customer satisfaction (not so); that Building Control Inspectors will ensure minimum construction standards are met (emphatically not so - no one is effectively policing construction standards on most new builds anymore).

You would expect all parties to a commercial real estate transaction to appoint professional teams across all key disciplines to ensure their interests are adequately protected, that the other parties do what they promised, that they each get what they bargained for. But buying a new build home IS a commercial real estate transaction. The peculiarity with new builds is that most buyers proceed (often without fully realising it - builder-recommended convayancers being a particular problem in this regard) with little or no adequate professional advice on risks, without a proper understanding of the terms imposed on them by the housebuilder that invariably include onerous ongoing financial obligations, and in many cases without even being able to see what it is they are buying until after they have paid over the full purchase price.

The stage is set for problems to arise that many buyers may not be expecting and that many are ill-prepared to deal with.

Housebuilders are generally sophisticated, highly resourced businesses backed by professional teams across all disciplines, and are imbued with a relentless determination to control all aspects of the transaction with a singular purpose: to make profit by driving down quality and cost, driving up prices, and imposing onerous ongoing financial obligations on buyers. And they are all unregulated, so there is no (effective) body or authority ensuring they do a good job of building your new home or that they treat you fairly. The normal, civilised rules of engagement that buyers are invariably reassured by housebuilders to expect, and which they generally abide by themselves, do not apply.

If all you do is follow PLAN A, that is, observe the processes and procedures laid on for you by the housebuilder and warranty provider, chances are you will fare very badly on getting many defects and particularly major ones resolved adequately or at all.

New Build Guru's PLAN B is how to do better than they have in store for you. Much better.

2. LAW: Key rights & obligations in relation to the construction of your new home

See further below for the main legal rights and obligations that apply in relation to the design and construction of your new home. These also apply to any remedial works that may be required to put things right.

If the housebuilder is in breach of these obligations, the normal position in law is that you would be entitled to sue the housebuilder for damages. In simple terms, ‘damages’ means the amount of money required to put you in the position you would have been had the relevant obligation been performed. For construction defects, that usually means cost of repair plus incidental costs such as alternative accommodation, out of pocket expenses and costs.

Most housebuilders offer an alternative to claiming damages, namely reporting defects to them informally with a view to them doing remedial works at their own cost. This arrangement normally derives from the terms of your new home warranty and, if you are the first owner, possibly the express terms of your contract with the housebuilder. On the face of it, this offers a practical solution for buyers who do not typically want to get involved in procuring their own remedial works or having to sue for the money to pay for them. However, it is important to remember that it is an alternative to suing for damages. The underlying rules and principles that apply when suing for damages still apply when you are dealing with the housebuilder or warranty provider through their alternative procedures: the burden is on you as claimant to prove (e.g. with evidence such as a defects report - which they will seek to deter you from getting) that an obligation (e.g. contractual term relating to design or construction - which they draft often unlawfully to suit them) has been breached (which may involve a legal analysis of the relevant terms and the evidence - which they will again seek to deter you from obtaining), and then prove what should be done to put it right (e.g. expert evidence on scope of works and costings, legal argument over the correct measure of damages etc.).

Think of housebuilders’ after-sales procedures and new home warranty providers' arrangements are types of ‘alternative dispute resolution’ ("ADR") schemes, i.e. alternatives to going to court and suing for damages. However, unlike most 'recognised' ADR schemes, it is the 'defendants' who actually design and control the processes and procedures, and of course they do so for their own ends. Consequently, these 'ADR' schemes - what we refer to as PLAN A - are profoundly one-sided and designed to ensure you have little or no say over the outcome. Result: well, anything from frustration to catastrophe for many buyers.

Proving the existence of defects is vital to getting the best outcomes whether in direct negotiations with the housebuilder, or when claiming on a new home warranty, or when suing for damages. Without this, you are vulnerable to their ongoing exploitation.

2.1 Contractual rights and obligations

If you bought direct from the housebuilder, the housebuilder will owe you certain contractual obligations in relation to the design and construction of your home. To the extent these are not expressly set out in the contract, the following terms would normally be implied into it:

  • Terms implied to lend business efficacy and/or reflect the parties’ common intention at the time of contracting, such that the housebuilder would construct your home:
    • In a good and workmanlike and professional manner;
    • In accordance with building regulations and/or British Standards and/or the new home warranty provider’s standards and/or manufacturers’ requirements/guidance;
    • Using good and proper materials;
    • Such that when complete the home would be reasonably fit for human habitation.

The above obligations would apply to all aspects of the design and construction of the home, whether completed before, at or after the date of exchange of contracts. The same obligations would also apply to and inform the scope of remedial works to be carried out after completion of the purchase in relation to any defects identified.

  • Terms implied by the Supply of Goods and Services Act 1982:
    • Any goods supplied by the housebuilder would be of satisfactory quality;
    • The housebuilder’s services would be carried out within a reasonable time;
    • Any goods supplied by the housebuilder would be reasonably fit for their intended purpose; and
    • The housebuilder would exercise reasonable skill and care in and about the performance of the services to be provided under the Sale Contract.

The above is a reasonably reliable guide to the contractual standards owed by your housebuilder in relation to the design and construction of your new home. Do not be deterred if your housebuilder tries to persuade you otherwise.

These obligations would generally also apply to any remedial works undertaken by the housebuilder to put right defects notified to it after completion.

2.2  Rights and obligations under the Defective Premises Act 1972

Whether you are a first owner or a subsequent owner of your home, the housebuilder (and its subcontractors insofar as the defective works were done by them) would owe you a statutory duty pursuant to the Defective Premises Act 1972 to see that work taken on in connection with the provision of your home was done in a workmanlike and/or (as the case may be) professional manner with proper materials and so that as regards that work the home would be fit for habitation when completed.

Further, in respect of any work done by or on behalf of the housebuilder (or its subcontractors) to rectify the work already done in the provision of the home (i.e. attempted remedial works), they would owe you a further duty to do that further work in a workmanlike and/or professional (as the case may be) manner with proper materials and so that as regards that work the home would be fit for habitation on completion of that work.

2.3  New Home Warranties – NHBC/LABC/Premier Guarantee

Most new homes are sold with a new home warranty provided by one of the above. NHBC is by far the biggest provider with 80%+ of the market.

The policies run with ownership, so if you sell on before a relevant time limit under the policy has expired, the incoming buyer will have the benefit of any remaining warranty cover (on this point, beware settling any dispute on terms that prevent future claims as that would potentially render your warranty worthless, the home potentially unsaleable for a period, and place you in breach of your mortgage terms).

Most buyers will be generally aware of the policy terms (or should be!). Cover is generally split into the “builder warranty period” (covering usually the first two years after completion, but check your policy terms as notification periods may vary especially for leasehold), followed by a “structural insurance” which will run from the end of the builder warranty period for the duration of the policy (typically, years 3-10).

There may be additional limited cover available in relation to contaminated land, and further limited cover if the warranty provider was also the Building Control Approved Inspector for your build.

During the builder warranty period, the policyholder can report ‘defects’ (as defined in the policy) to the housebuilder and the housebuilder is meant to then put things right.  If the housebuilder fails or refuses to do so, the policyholder can refer those outstanding issues to the warranty provider.  The warranty provider will decide whether to accept those claims.  For NHBC, this involves using their “Resolution Service” (the other warranty providers have comparable schemes).  If a claim is accepted, the issues may then be referred back to the housebuilder to deal with in the first instance, failing which the warranty provider will either cash-settle the claim itself, or arrange for the relevant works to be done.

The structural insurance is typically confined to dealing with damage caused by major structural defects. The warranty provider will normally deal with these claims itself, but it may seek to involve the housebuilder to carry out works as a matter of convenience.

3. PROCEDURE: Enforcing your rights

The following general principles will apply in relation to getting problems with the design or construction of your new home resolved.

3.1  Claims against housebuilder

In most cases, buyers of new build homes will follow PLAN A by informally reporting defects to the housebuilder in the first instance, and will obviously expect the housebuilder to put those things right because that is what the housebuilder has said it will do. Referring snags and defects to the housebuilder’s ‘customer care department’ constitutes you notifying the housebuilder of a potential claim against it. The housebuilder is not doing ‘customer care’, it is doing claims management.

The housebuilder’s interests in relation to carrying out remedial works are entirely contrary to yours and will be served by doing as little as possible, preferably nothing at all, to put right defects. Housebuilders will not simply ‘volunteer’ to do a proper job: you have to make them. Pursuing court proceedings in relation to anything the housebuilder fails or refuses to put right is (in theory at least) how you make them. Unfortunately, such legal action can be time consuming, costly, potentially risky, and stressful. Indeed, most housebuilders defend claims in a way that makes it as stressful, expensive and unpleasant as possible for you if you do sue them. These are powerful deterrents to taking legal action and thus many owners are unable or unwilling to pursue it. Housebuilders know all this and exploit it to their advantage. They know that if you are unable or unwilling to sue the builder or otherwise take effective action against them (such as our PLAN B), they win, you lose.

This predicament may not be so significant (annoying and frustrating perhaps) when dealing with snags (i.e. minor defects that do not affect use, habitability, value/saleability etc.), as the financial and other implications of unresolved snags are likely to be modest or trivial.  However, unresolved major defects (i.e. ones that could impact on use, habitability, mortgage-ability, value, saleability) may have hugely detrimental consequences for you. These are the ones buyers commonly struggle to get resolved adequately or at all.

3.2  Warranty claims – NHBC/LABC/Premier Guarantee

Warranty claims are relevant to construction defects only. For non-defect-related issues such as boundary disputes, misrepresentation claims etc., you would normally only be able to claim against the housebuilder.

The ‘idea’ of new home warranties, particularly during the ‘builder warranty period’ (normally the first two years but check policy terms as time limits may vary), is that the housebuilder puts right any defects reported to it, failing which the warranty provider will.

Warranty claims may well look simple and straightforward, but they are not. Among other things, there is a major problem with how the main new home warranties work particularly during the builder warranty period.

Each of the main new home warranties involve a three-way contractual arrangement: you have a policy with the warranty provider; they have a contract with the housebuilder. Normally, if the warranty provider accepts your claim, it will look to pass on the cost to the housebuilder under its contract with them.

The housebuilder has an enforceable right to challenge the warranty provider over the sums claimed from it in this manner. By contrast, in relation to claims made during the builder warranty period, you have no practical means of challenging the warranty provider if it refuses to accept a legitimate claim from you.

Most claims under the builder warranty period are of course made by homeowners after the housebuilder has already failed or refused to deal with a legitimate issue. For NHBC, this involves using their ‘Resolution Service’. The other providers have comparable schemes. The Resolution Service and its equivalents are NOT regulated insurance activities: if the warranty provider rejects a legitimate claim, you cannot complain to the Financial Ombudsman Service (“FOS”) to overturn it.  Or rather, the FOS has no jurisdiction to deal with such complaints, so you can make a complaint all you like but it will do you no good: you cannot get the FOS to overturn a warranty provider’s rejection of a legitimate claim.  In practical terms, this makes the warranty provider largely unaccountable to the homeowner if it rejects a legitimate claim.

In practice, the housebuilder and warranty provider often liaise directly with each other without notice or reference to the policyholder, and effectively decide between them what claims will be accepted and what will be rejected, and you will be none the wiser. There is little or nothing you can do make the warranty provider accept a legitimate claim if it (/the housebuilder) does not want to accept it.

If legitimate claims are wrongly rejected by the warranty provider (/housebuilder), normally the only option will be to pursue those claims against the housebuilder, through legal action if necessary. To add insult to injury, most housebuilders will then rely on the warranty provider’s (wrongful) rejection of your warranty claim in defence of your claim against them by arguing that this evidences that there is no breach.

Even if the warranty provider accepts your claim, other issues may arise. They normally refer any accepted issues back to the already-unwilling housebuilder in the first instance to decide what to do about them - hardly a promising scenario for getting those issues put right properly. They may look to cash-settle some issues, usually based on commercial labour rates which homeowners are unlikely to be able to procure themselves, leading to the owner being left substantially out-of-pocket still.

4. Summary

The legal and procedural principles relating to construction defects are complex. If all you do is follow the housebuilder's prescribed 'after-sales customer care' procedures and/or refer disputed items to your warranty provider during the builder warranty period, i.e. follow their PLAN A, the housebuilder will generally dictate what if anything gets done about any defects you identify in your new home. Most buyers will be deeply unhappy with the outcome on that basis. In money terms, you are likely to miss out on thousands, possibly tens of thousands of pounds' worth of works. You are also likely to suffer prolonged frustration, anger, disappointment, feelings of powerlessness and the indignity of knowing you are being exploited but being unable to do anything about it.

Our PLAN B is how you overcome this. Join New Build Guru as a member today and let us help you get defects resolved efficiently, cost-effectively and fairly.

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