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Publish date

26 May 2022

How will the New Homes Quality Code work in practice?

We recently posted a brief article about the New Homes Quality Code (the Code) and the need for Developers to adopt it as a new industry code of practice.  The Code is based on 10 fundamental principles and overriding obligations.

Transitional Period

From 1 January 2022, housing developers and house builders (Developers) are expected to register with the New Homes Quality Board (NHQB).  All Developers will be required to register with NHQB by no later than 31 December 2022.  Following registration, Developers will have a period of time within which to prepare themselves and confirm their readiness to NHQB to make the transition to the new arrangements.  During that transition period, Developers will be able to implement any necessary training to ensure their employees are aware of the Code (and comply with it during their sales and aftersales processes), update their branding to include the NHQB logo and review any sales forms, brochures and literature provided to customers.

From 1 January 2022, Developers must advise their customers whether they are yet implementing the provisions of the Code and whether it will apply to their purchase.  Once the Developer has registered with NHQB and adopted the Code all future sales will be subject to it.

Whilst the period for registration does not end until 31 December 2022 some Developers may see there being an advantage over their competitors to early registration and implementation of the Code as customers will likely be aware of it as a new industry standard and look for it when seeking their new home.

Sales process

Developers must ensure that during the sales process the customer is provided with a full set of accurate information about their purchase and high pressure sales tactics must not be employed.

  • Marketing and sales information must be clear, fair, accurate, use plain language and not be misleading. The NHQB Code logo must be displayed in literature and in sales offices. A copy of the Code must be provided, , to any customers interested in purchasing a new home free of charge and be made available in accessible formats.
  • Prohibition of high pressure sales techniques such as offering financial incentives for an immediate sale, advising customers there are other customers interested in a new home and insisting on the use of particular third party professionals such as solicitors and surveyors is prohibited.
  • Customers must be provided with full terms and conditions that apply to any part-exchange or assisted move schemes, how valuation of the customer’s current property has been calculated and the price offered for it, the period during which the offer is open for acceptance and details of any leasehold or tenure requirements of the new home.
  • Developers must consider the needs of their customers and identify anyone who may be vulnerable and take any necessary steps to ensure the customer makes an informed decision. If the Developer suspects that a customer may be vulnerable they should make their own enquiries or seek clarification from a third party to resolve those suspicions.
  • Customer service standards should be updated to ensure there are procedures in place to meet compliance requirements, identify vulnerable customers, prevent high-pressure selling and for obtaining consents to data sharing. Training on the Code should be provided to all customer facing employees as well as any third party agents appointed.
  • Whilst Developers may recommend legal advisors and other professionals, customers must be advised of their right to appoint their own legal and other professionals. Incentives and inducements must not be offered to customers if they use a professional recommended by the Developer. However, there is no restriction on the Developer receiving commission or incentives for any introductions made provided they are declared to the customer.

Legal documents

The Code imposes new rules in respect of the various stages involved in the purchase of a new home and include:-

  • Documenting a customer’s wish to reserve a new home in a clear, formal reservation agreement which must not be entered into until all material facts relevant to the purchase have been made available. The customer must be given a 14 day cooling off period during which the reservation may be cancelled and the reservation fee refunded in full.
  • Ensuring that legal advisers acting for customers are provided with relevant and suitable information to allow customers to make fully informed decisions about their purchase, including planning matters, the actual and anticipated costs associated with the new home, for example expected Council tax bands and service charges. The customer must also be provided with an anticipated completion date, a brochure or plans illustrating the size, specification, layout and plot position of the new home and how the grounds and any services and boundaries will be finished.
  • Providing a sale contract that is fair, clear, written in plain English and complies with all relevant legislation, includes a definition of the legal completion notice period and sets out the circumstances in which customers can terminate it. It must also clearly state what will happen if construction of the new home is delayed and how contract deposits are protected.
  • Provide a two year developers liability period to customers in the sale contract.  The two year liability period will also apply to special purpose vehicles and other short term trading arrangements, for example newly incorporated companies set up for the sole purpose of developing a site, which cannot be dissolved during the two year period following the sale of the new home.
  • Giving the customer an opportunity to inspect the new home or appoint a suitably qualified inspector to complete a pre-completion inspection. The Code provides a prescribed form of inspection checklist which must be used.
  • Explaining to customers the process for keeping them updated about the timetable for completion and providing timely updates as the build progresses.

After-sales complaints management and the New Homes Ombudsman

Developers will be required to provide a continuing after-sales service and implement a complaints resolution process in line with the Code.

For two years following legal completion the Developer must ensure that any complaints which are unresolved can be referred to the New Home Ombudsman (the Ombudsman) service for resolution.  Developers may elect to outsource their after-sales service to a third party but ultimately the responsibility for providing the after-sales service and complying with the Code requirements rest with the Developer.

  • Customers must be provided with information about the Ombudsman, the responsibility of the Developer for remedying issues with the new home during the first two years and explaining what an emergency issue is and how to report it.
  • Developers must have a system in place for receiving, handling and resolving issues or problems raised, including complying with the time periods for responding to such issues as prescribed by the Code.
  • Developers are expected to work collaboratively with their customers to identify any finishing or other issues to the new home and to resolve them following legal completion.  Once the snags are agreed it is expected that they are resolved within 30 days of notification.
  • If a customer is dissatisfied with the resolution of an issue or has problem with the sales process, legal documents and information provided or the after-sales service, the customer is entitled to make a complaint in accordance with the Developer’s complaints process based on the Code.

Solvency, legal and jurisdiction

The Developer must ensure that it is financially adequately established or insured so as to provide reasonable protection against insolvency and has capacity to meet its obligations under the Code. This includes provision for the timely repayment of financial deposits and financial awards made by the Ombudsman.  Developers setting up special purpose vehicles for the purpose of developing a site must ensure that the vehicle can satisfy these requirements.

Nothing within the Code affects any of the customer’s existing legal and statutory rights and does not replace any legislation applying to new homes.

Whilst the New Homes Ombudsman service is available to customers, there is no requirement for complaints to be made to the Ombudsman instead of using other remedies such as legal proceedings through the Courts or referral to any other applicable ombudsman or regulator.

Practical steps for developers

Implementing the Code will be no small task for Developers who will need to review their practices, processes and documentation to ensure compliance.  This will include:

  • Reviewing, at the least, sales brochures, literature, advertisements, reservation forms, and contracts for sale.
  • Implementing staff training to ensure compliance and avoidance of high pressure sales techniques.
  • Updating branding to include the NHQB logo and implementing a complaints procedure.
  • Ensuring that special purpose vehicles have adequate financial establishment and are not dissolved within two years of legal completion.

The Development team at Thomson Snell & Passmore LLP appreciate the burden the Code may place on its clients and will be happy to assist with the review of documentation and provide further advice if required.

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