Member Article

This article focuses on the key aspects of the New Homes Quality Code (NHQC), which developers must consider and implement at the reservation and pre-contract stages.

The NHQC formalises the prohibition of practices that most developers already avoid, these include:

• no high pressure selling, and
• considering the needs of vulnerable customers

Developers must ensure that their customer facing staff, including agents acting on the developer’s behalf, have a good understanding of the NHQC’s requirements.

Reservation Agreements

The NHQC sets out what information is required to be included in a reservation agreement.

In addition to the information currently required under the consumer code, there is a requirement for additional information to be included. The key additions are:

• a fourteen day ‘cooling-off’ period, during which the buyer can cancel the agreement and receive a refund of the full reservation fee (the cooling off period);
• details of how the buyer can include in the contract any spoken statements that are to be relied upon; and
• the date by which missives are to be concluded.  The NHQC requires that the timescale should be ‘reasonable’ and in any case should not be less than six weeks after the reservation date unless the buyer asks for an earlier date

While the practical consequences remain to be seen, the cooling off period and requirement for the end of the reservation period to be no less than six weeks from the date of reservation is likely to cause the period between reservation and conclusion/exchange of contracts to lengthen.

Developers are also expected to provide the buyer with an affordability schedule for any expected costs. This is a list of any costs that are likely to be associated with the tenure and management of the new home, which the developers can reasonably be expected to be aware of, over the first 10 years following the sale.

The level of specificity in terms of timescales for completion of the build remains unchanged from the current guidance. Developers may follow their own process, but the advice is to follow the approach set out below.

If the reservation is made:

• before completing the foundations and ground floor - the developers should give the calendar quarter for when the new home is likely to be ready
• when the roof is completed and the building weatherproof - the developers should give the month when the new home is likely to be ready
• when the new home is decorated and the main services are connected - the developers should give the week that the new home is to be ready

Buyer information gathering

A key theme of the NHQC is ensuring that buyers are provided with enough information at the reservation stage to allow them to make a fully informed decision to purchase.

The NHQC aims to achieve this by requiring the developers - via their solicitor – to provide the buyer’s solicitor, at the reservation stage, with sufficient documentation to allow the buyer to make an informed decision on the purchase including:

• a copy of the reservation agreement
• a summary of the cover provided by the home warranty and contact details of the relevant warranty provider
• the reference number of the planning consent, which relates to the new home and details of any future building phases that the developer has planning consent for
• a list of contents included in the new home
• brochures and plans for new homes not yet completed
• any exceptional restrictions relating to using, living in or the appearance of the new home. The developers must recommend that the buyer asks its legal adviser about any exceptional restrictions that apply
• details of any services, facilities and responsibilities, which may not immediately transfer from the developers to the buyer on completion, for example, responsibility for the water and drainage systems and utilities. If these will transfer on a later date, the developer must explain this and give the buyer written details

The NHQC developer guidance suggests that a draft sale contract and legal title should be sent by the developers’ solicitor to the buyer’s solicitor following completion of the reservation agreement and within the cooling off period.

An informed decision

The intention is for the cooling off period to be used by the buyer and its solicitor to gather and review documentation - allowing the buyer to make an informed decision to purchase.

Although the cooling off period and six-week reservation period can be waived on agreement with the buyer, there is the potential that this could extend the period between reservation and formal contract.

Under the NHQC, the buyer will have the opportunity to become fully informed prior to committing to a legally binding purchase, with developers also requiring sufficient time for this information gathering process to take place.

 

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