The Consumer Code for Homebuilders (the "Code") applies to reservations made from 1 April 2010. The Code sets out mandatory rules along with non-mandatory guidance for developers to follow in relation to marketing, selling and after-sales services. Developers registered with a supporting warranty body, eg NHBC, are automatically required to adhere to the Code and they can apply a range of sanctions to a serious breach of the Code.
Its purpose is to protect consumers, ensuring that they are treated fairly and receive a high level of service and reliable information to assist them in their decision to purchase. The Code also provides dissatisfied consumers a fast, effective and low cost dispute resolution service.
The Code does not apply to:
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properties purchased for investment purposes
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properties that are initially purchased by investors and then assigned or sub-sold prior to first completion
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properties acquired by social landlords, corporate bodies or partnerships
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complaints arising 2 years after the start date of the warranty
Developers should therefore consider having separate contract terms for investor purchasers for greater commercial scope.
The Code requires developers to have suitable procedures and systems in place such as:
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any staff dealing with consumers should be suitably trained and any marketing and sales material provided must be accurate and true
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consumers must receive adequate information before their purchase including a copy of the Code and a full explanation of any Home Warranty Cover
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consumers must also be provided with a description of any management services and organisations and an estimate of their cost
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if the property is sold off the plan, the consumer must be provided with a brochure or plan reliably showing the layout, appearance and plot position, a list of the contents and the standards to which the property is being built
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developers must ensure they advise consumers to seek independent legal advice. Accordingly, the terms of both the reservation agreement and purchase contract must be clear, fair and include details of cancellation or termination respectively
The reservation agreement must at least have the following information:
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reservation amount
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clear description of what is being sold
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the purchase price and how long the price remains valid
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how and when the reservation agreement will end
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estimated costs and nature of any management services
Once a reservation agreement is made, the developer does not have the right to cancel although the agreement may be cancelled by a consumer. The consumer will be entitled to receive reimbursement of the reservation fee paid less any of the developer’s reasonable costs that have been genuinely incurred. Consumers must be informed of any such deductions from the outset.
The Code’s protection is not only for the initial purchaser but also covers second purchasers although only to the extent of after-sales matters within a two year period. Any after-sales service offered should include providing the purchaser with various contact details, details of guarantees forming part of the transaction e.g. boiler cover and information of what to do in an emergency.
A purchaser can also benefit from the Code where they make a complaint in writing to the developer within two years from the start of their Home Warranty Cover. In unusual cases where disputes cannot be resolved at an early stage, the dispute resolution service provided by the Code may prove useful to both the developer and the consumer by avoiding costly litigation. Developers should be aware that their compliance with the Code will be monitored and reviewed and they should therefore ensure that they are fully aware of their obligations.
For more information, please visit www.consumercodeforhomebuilders.com.
In the recent case of National Westminster Bank Plc v Frankham the High Court considered whether a bank owes its borrower a duty of care when enforcing security against the borrower. In this case the Bank sought to recover monies loaned to finance the building of four houses and the court allowed limited allegations in the defence that the Bank had assumed responsibilities in respect of the project such that it owed a duty of care.
Although a bank that lends money for a project or investment does not ordinarily undertake any obligations to the borrower in respect of the project or investment, it might come under additional obligations if it agreed to do so or, in other words, assumed responsibility. One way in which it might assume responsibility was by doing acts that took it outside its banking role; if it did, it might owe a duty to its customer to carry out those acts with appropriate skill and care. If the bank had agreed with the borrower that it would, in effect, act as project manager of the development, then it would come under a duty to do so with appropriate skill and care. It would come under a similar duty if it had in fact taken over the management of the development.
It was therefore open in this case for the Borrower to set off against the Bank's claim such losses as she could establish arising from the Bank’s breaches of duty in connection with the development. In certain circumstances, borrowers can also claim for loss of value arising from delays caused by a bank and a drop in value of the project in the market.
Author: Samantha Hook - Partner, Transaction Finance
and South-East Committee Member, Women in Property
OK - you've decided (for whatever reason) that you need some UK premises for your business. You could be entering the UK market for the first time, or just need some more space for your expanding empire. Unless there is an overwhelming reason for you to own the premises outright, the probability is that you will need to take on a new lease of premises.
Whilst the general principles remain the same, there are as many different leases out there as there are premises. There is no "one size fits all approach". In order to help you navigate some of the more obvious issues, we have put together some of the key points that you should consider when taking on new premises.
1. Security of Tenure
Property law provides that (subject to various conditions being satisfied) business tenants have a right to remain in their premises at the end of their lease. If the landlord takes the premises back, the tenant might be entitled to compensation. However, the landlord and tenant can agree to "contract out" the lease from these statutory provisions. This means that the tenant will have no right to remain in its premises at the end of the term. Whether or not a lease is "contracted out" will therefore give you certainty as to whether or not you will be entitled to remain in the premises at the end of the term.
2. Dealings with the Lease
You should be aware that even if you eventually dispose of your lease to a third party (often by way of assignment) this does not mean that you are necessarily off the hook. In the vast majority of leases, the landlord will be entitled to require you (sometimes only where "reasonable") to provide an authorised guarantee agreement (AGA) regarding the incoming assignee. Under this AGA, you will guarantee the obligations of the assignee under the lease, so that if they default the landlord can look to you to make good the assignee's default and in some cases require you to take the a further lease of the premises.
3. Rent Review
Rent review clauses are some of the most closely examined clauses in commercial leases. Reason being that there is obviously a vested interest for the tenant in ensuring that it produces as low a rent as possible and for the landlord in ensuring it produces as high a rent as possible! If you are taking on an existing lease of premises, you should check if there are any outstanding reviews due under the lease. This is because rent review can be instigated at any time by the landlord (in legal terms "time is not of the essence") and you do not want to find yourself in a situation where you have taken on existing premises only to have a rent review instigated the day after you move in!
4. Repair and Decoration
A lease will usually require the tenant to keep the premises in good and substantial repair and condition and decorated on a recurring basis (usually every 3 or 5 years). The tenant will either have to carry out this itself, or else the landlord may carry them out and then recover the cost of doing so from the tenant via a service charge.
If there are any outstanding repairs or decoration works at the end of the term, the landlord will be entitled to serve a schedule of dilapidations on you. This will requie you to put these right at your cost. A thorough inspection of the premises (preferably by a surveyor) is therefore strongly recommended. This is particularly the case if you are taking an assignment of an existing lease where the outgoing tenant may not be up-to-date with repair or decoration.
5. Stamp Duty Land Tax
When you take a new lease of premises, stamp duty land tax (SDLT) will be payable within strict deadlines. Likewise, if you are taking an assignment of an existing lease of premises and you pay key money (ie a premium) to the outgoing tenant for the lease, depending on the level of key money paid over, SDLT may also be payable. Your lawyer will carry out the calculation for you and ensure the SDLT is paid on time, and once you know the rent or premium being paid will be able to give you an estimate of what the SDLT liability will be.
6. Break Clauses
Whether you are taking a brand new lease or taking an assignment of an existing lease, if you are doing so on the assumption that you have a right to break the lease early, the exact wording of the break clause should be examined very carefully. This is because there may be conditions attached to it which if not fully complied with, can invalidate your break right. Unfortunately with anything other than a completely unconditional break right, there is always a chance that one of the conditions hasn't been complied with. If you wish to break early, speak to your lawyer in good time to work out exactly what you need to do.
The issue
A Court of Appeal case (Drake and another v Fripp [2011] EWCA Civ 1279) held that a title plan can retrospectively be altered to reflect the true boundary line of the property, even if you lose land which you thought was part of your property as shown on the title plan.
The highlights
An alteration to a general boundary on the title plan to correctly reflect what the true boundary line is between two properties does not prejudicially affect the landowner because they never actually owned that piece of land in the first place.
The alteration of the boundary line would not be considered rectification of the title plan and therefore the restrictions on the ability to order rectification would not apply.
The Land Registry are entitled to alter the boundary line without having to wait for an application from an interested party.
The courts rejected the idea that there is a limit on the amount of land that can be subject to a boundary dispute.
What should I do to minimise the risk?
You should always do a physical inspection and walk the boundaries of the property that you are buying comparing this against the title plan, and seek legal advice if you are unsure.
Since 6 April 2007, it has been mandatory for a landlord to join a Tenancy Deposit Scheme ("TDS") on creation of a new residential assured shorthold tenancy in England & Wales where a deposit is paid by the tenant to the landlord on commencement of a tenancy. TDSs were created under the Housing Act 2004 with the aim of preventing a landlord from failing to return a tenant's deposit and to safeguard against a landlord being left out of pocket when a tenancy expires and a tenant abandons a property. It was also intended to resolve disputes between landlord's and tenant's using alternative dispute resolution as opposed to leaving claims to be pursued through the courts.
The parties to the tenancy cannot opt out of the obligations of the Housing Act 2004. Under S213 of the Act, all deposits paid in connection with these tenancies must be paid into an authorised deposit scheme.
The landlord must comply with the 'initial requirements' laid down by the scheme within 30 days from the date of receipt of the deposit (s213(3) HA 2004) as amended by s184 Localism Act 2011 which extended the period for compliance from 14 days. The extended period only applies where the deposit has been received by the landlord on or after 6 April 2012 when s184 came into force.
The landlord must give the tenant, or any relevant person, prescribed information within 30 days of receipt of the deposit. A relevant person is someone who pays the deposit on the behalf of the tenant in accordance with the tenancy arrangements. Sanctions apply if the landlord fails to give the prescribed information within this time period and can result in the tenant applying to a county court which can result, if it is determined that the landlord has not complied with the requirements, in the deposit being repaid to the tenant or into an authorised scheme.
There are various schemes available that a landlord can choose from. Custodial TDS requires the landlord to pay its tenant's deposit to a scheme administrator within 30 days of receipt from the tenant. Alternatively, an Insurance TDS allows a landlord to retain possession of the deposit but secures it by paying a fee and insurance premiums to the scheme administrator. The scheme administrator uses the premiums to pay the tenant should the landlord misappropriate the deposit. The tenant has no influence over which scheme the landlord choses to use and when a tenant pays a deposit to a landlord, it should as a matter of caution, ask the landlord how the deposit will be protected.
The consequences of the landlord failing to comply with the requirements of the scheme or even late compliance can result in the landlord being ordered to pay 1 to 3 times the value of the deposit by a court. A landlord who doesn't protect the deposit at all can also be fined for failure to protect the deposit. Therefore landlords must be aware of the scheme and its provisions when granting residential tenancies and likewise tenants should also raise specific enquiries of the landlord as to how the deposit will be protected.
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In January 2013 the Government announced that in Spring 2013 it would relax planning regulation rules to encourage development in the housing market.
The new Permitted Development Right is due to come in on 30 May 2013. The effect is that planning permission would no longer be required for a change of use from Use Class B1(a) (Offices) to Class C3 (Residential). (The need for planning permission for operational works remains unaffected.)
As a result of the current market there are many office blocks which are currently unused and yet there continues to be a high demand for residential property around the country.
This new Permitted Development right has huge appeal for prospective developers. Without the need for a planning application there is no requirement for the proposed change of use to accord with planning policies. Most significantly, the council has no opportunity to require a S.106 Planning Obligation; Contributions, Affordable Housing and other measures to address impacts of a development are thereby avoided. Whilst a developer’s preferred scheme may be mixed use or fall outside the new Permitted Development right for other reasons, the scope for an all-residential scheme without the need for planning permission may prove a useful lever in negotiations with the local planning authority.
The Government has allowed local planning authorities to put forward a case to exempt areas of their boroughs. These authorities have had to demonstrate that the introduction of this new permitted development right would lead to:
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the loss of a nationally significant area of economic activity
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substantial adverse economic consequences at the local authority level which are not offset by the positive benefits the new rights would bring
In London the majority of councils, (including the City of London, Kensington & Chelsea and Westminster) have sought an exemption from the change, whether in respect of the whole or part of the borough.
The number of local authorities applying to be exempt from the change seriously undermines the Government’s proposal and it remains questionable whether the new rules will have any effect in London where housing is so desperately needed.
The outcome of the Exemption applications is expected by the middle of May.
The new Permitted Development right is initially to operate for a period of 3 years. Whether this will be extended will no doubt turn on the state of the market and how the Right has impacted in practice.
Regulations are to be brought forward once the Exemption requests have been determined (which is expected to be by mid-May). There will be a prior approval process where a proposal potentially has significant transportation, flood risk or contamination implications.
If consideration is being given to exercising the right, liability to Community Infractructure Levy should be identified at the outset so that an accurate assessment of development costs can be made.
The proposals are therefore not as straightforward as originally envisaged and developers should approach the proposals with caution.
For advice on this issue please contact Christine Hereward, Head of Planning & Public Law.
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The latest Budget contained two plans from the Government to help people buy their own homes and, consequently, boost house building, under the label of "Help to Buy."
The first of these, the equity loan scheme, came into effect on 1 April 2013 and is intended to be available for the next three years. So long as a buyer has a 5% deposit, the Government will lend up to 20% of the value of a new home. Even if the buyer cannot afford to put down a deposit of more than 5%, they will only need to take out a residential mortgage of 75%. The buyer does not have to be a first time buyer and the maximum purchase price under the scheme is £600,000.
What the scheme entails
The scheme is intended to operate as follows:
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it is only available to individuals, not to companies
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it is only available on properties which are to be occupied by the people taking out the mortgage – therefore, not available for “buy-to-let”
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the home must be newly built
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the mortgage must be a repayment mortgage
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there are eligibility criteria and affordability checks
It is not clear whether the scheme can be used to purchase a second home. Critics fastened on this uncertainty, claiming the scheme was a "spare home subsidy". The Government has said that is not their intention, but has not made clear how the purchase of a second home through the scheme could be prevented.
Buyers will have to be aware that the Government's loan of up to 20% is an equity loan, repayable as the equivalent percentage of the sale price when the property is sold. A Government website gives an illustration:
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a property is purchased for £200,000, made up of a deposit of £10,000 (5%), a mortgage of £150,000 (75%) and an equity loan of £40,000 (20%)
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if the property was sold for £210,000, £42,000 (20% of the sale price) would be paid back on the loan leaving the seller with £168,000 (less the amount required to pay off the mortgage)
The equity mortgage scheme will run for three years (from 1 April 2013) and appears designed to encourage repayment of the equity loan within five years. Although no interest is charged on the equity loan, after five years the borrower will be charged a fee of 5% of the loan's value in the sixth year. That fee will increase in line with the RPI every year thereafter. Whether the borrow will be able to replace the equity loan with an interest-bearing second mortgage, or whether house prices will have risen sufficiently to make it realistic for the borrower to remortgage both the equity loan and the first mortgage, cannot be known until the time comes.
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Changes to the law made in 2003 saw a shift in property rights in the UK. The changes apply to those occupying a property without the consent or knowledge of the owner. The law now dictates that anyone who resides in a building can be registered as the legal owner if they conform to a number of conditions, which were reviewed by the recent case of IAM Group Plc and Mr Chowdrey (2012).
Mr Chowdrey had been the lawful owner of a property for more than 10 years, during which time he had also occupied the first and second floors of an adjacent property which was only accessible through his own. When the case went to Court, Mr Chowdrey was awarded adverse possession of the second property because he had been the sole occupier for more than the legal 10 year requirement. During that time, Mr Chowdrey had reasonably believed that he was the owner of the property, and the Court decided that he was therefore entitled to it.
This decision was appealed by IAM Group Plc, the registered owner, who asserted that because Mr Chowdrey’s solicitors must have had knowledge as to the ownership of the property, his claim to it should have been dismissed on the basis that he could not have reasonably believed that the property belonged to him.
The Court rejected the appeal on the grounds that the knowledge of Mr Chowdrey’s solicitors was irrelevant. The issue was solely whether Mr Chowdrey’s belief was reasonable.
It appears, then, that if a person occupies a property for at least 10 years with the mistaken belief that they had the right to do so, a Court is likely to accept their claim to permanent ownership. Cases such as this often pivot on whether the party can prove the squatter’s belief of ownership was ‘reasonable’.
To read the in-depth case summary, please click here
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The issue
This recent case shows that the owner of a property can act too early in seeking to protect a right of light.
Property developer Derwent Valley Central Limited obtained an option to purchase the land above the Crossrail site at Tottenham Court Road in 2016, with a view to developing a mixed office and residential building. Aviva, the owners of 20 Soho Square, applied to court for an injunction preventing the development stating that it would interfere with light entering windows at the rear of their property.
The facts
The court rejected Aviva’s application, stating that there was no immediate threat to Aviva’s right of light. The court pointed to the following facts as evidence of the missing threat:
- Derwent did not own the site. They had an option to purchase in 2016, which was contingent upon various criteria being fulfilled.
- Planning permission had not been granted. It was only applied for in October 2011, after the claim form had been issued.
- The court accepted Derwent’s assurance that the development would have regard for existing rights of light.
The solution
The case demonstrates that seeking an injunction to protect a right at such an early stage is unlikely to succeed. It should not, however, deter parties from expressing their opposition to a development outside the courts early on, thereby avoiding acquiescence to a proposed project and allowing the expense of litigation to be put off until an immediate threat can be properly shown.
This blog is based on the case CIP Property (AIPT) Ltd v Transport for London [2012] EWHC 259 EWHC 259
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If you are a leasehold owner with a short amount of time left on your lease, you may want to consider extending your lease.
Typically this area of the law is quite difficult, time consuming and expensive to do, but worthwhile in the end. Buyers who wish to extend should follow 3 steps:
- Recognise that this is a minefield in terms of the legal and valuation process. Only use advisers who are very, very familiar with the processes and procedures involved.
- Ensure that you know what all the costs will be, including the price to be paid and both your own and the landlord’s professional fees, and make sure that you can afford to go through with it.
- If you are buying a short leasehold, ask the vendors to start the process of extending. This means that the two year rule does not apply and the buyer can takeover the application as part of the completion process.
Also see Amanda's article which appeared in the Financial Times.
Amanda McNeil is head of property litigation and has extensive experience of all types of property law, particularly on leaseholds in central London.
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