Protection for New Home Buyers

Jeff Smith Excerpts

Thursday 16th January 2020 Commons Chamber

[Kate Green]

I will say a little about mortgage lenders later in my speech.

The examples I have given the House are not isolated. Indeed, Mr Alexander is notorious for a number of poor-quality developments across Greater Manchester and beyond. But it appears that developers can continue to develop new properties that fail to meet buildings standards, sometimes to a dangerous degree, while avoiding taking any action to address defects in their previous developments. Local authorities lack resources for inspection and enforcement. They cannot take developers’ previous failures into account to refuse them planning permission for future applications. Unscrupulous developers are free to continue to build with impunity, while buyers are left without redress.

How can it be right that such poor-quality buildings can be constructed, sold and occupied? How on earth are they receiving building regulations certificates? Section 57(1) of the Building Act 1984 means that it is an offence “recklessly” to issue such certificates, but it seems that they are being issued for clearly substandard buildings. I wonder whether the Minister can tell the House how many successful convictions have been brought under this legislation, because I have not been able to identify a single example.

Faced with defects and developers’ refusals to rectify them, buyers may seek to rely on their buildings warranty cover, as my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders) mentioned. But as my constituents have found, all too often that does not offer the protection they expect. Warranty providers are able to carry out a dual role as both approved inspector and warranty provider. That surely creates a conflict of interest. Insurers have an incentive to suppress knowledge of defects, particularly when they may give rise to very large claims. Exclusions to the cover often leave significant risk with the homeowner, so the inspector may not even bother to inspect every property in a development—arguably, there is insufficient incentive to do so.

Perhaps, therefore, we should not be surprised to hear from my hon. Friend about his constituents’ experiences with Premier Guarantee or that the main warranty provider in the UK, NHBC, told the all-party group in 2015 that of all the homeowners it covers, fewer than 5% contact NHBC with issues that result in a valid claim under the warranty. That does not of course tell us how many buyers try to claim under their warranty but are unsuccessful. It conceals the fact that warranty providers are extremely reluctant to rectify defects, as the onus will fall on them to recover the cost of doing so from the developer. Although defects the builder has failed or refused to deal with can be referred to NHBC’s resolution service, by which it decides which claims to accept or reject, New Build Guru suggests that house builders and NHBC routinely liaise directly with each other without notice or reference to the policyholder, and privately decide between them which claims will be accepted, thus avoiding both cost for the developer and the need for NHBC to incur expense to recover its costs from the builder.

For all practical purposes, a homeowner cannot challenge the warranty provider if it refuses to accept their claim. The reason for this, as one of my constituents has recently discovered, is that the resolution service is not a regulated insurance activity. If NHBC rejects a claim and the homebuyer wishes to challenge the refusal, the Financial Ombudsman Service has no jurisdiction to deal with such complaints. Homeowners may be able to complain to the Construction Industry Council, which regulates approved inspectors, but failing that their only option—mostly costly and impractical—is to go to law.

[Jeff Smith (Manchester, Withington) (Lab)]

I am grateful to my hon. Friend for bringing this matter to the attention of the House. My constituent Sarah bought a property off-plan from Bellway Homes in West Didsbury and ran into a whole host of problems. She is very supportive of the idea, which my hon. Friend has mentioned in the past, that homeowners should be able to retain a snagging fund, governed by an independent team and possibly held in an escrow account so that it can be fairly administered. Would my hon. Friend support such a system?

[Kate Green]

I most certainly would support that suggestion.

There are a number of other actions that the Government could take to address the slippery state of affairs that exists around warranties. Will the Minister consider, for example, standardisation of warranty policies, with the use of clear and unambiguous language, and an end to unreasonable exclusions? Would the Government consider amending the Housing Grants, Construction and Regeneration Act 1996 so that warranty policies are brought within the meaning of “construction contracts” under section 104 of the Act? That would mean that disputes could at least be settled by the relatively quicker and less expensive route of arbitration, rather than people needing to pursue a court claim.

The Minister will know that the problems I have described are compounded for those who own leasehold property. Management companies should be under a positive duty to act in leaseholders’ best interests, but often they are powerless to claim on the leaseholder’s behalf under the defects cover that is taken out by and for the benefit of the developer and his design team, usually for a 10-year period, to cover total or partial collapse or some other latent structural defect. The position of leaseholders could be strengthened through new legislation to make it compulsory for management companies, and leaseholders, to benefit from decennial insurance, specifically requiring such insurance to be taken out, specifying minimum levels of cover and the term of the insurance, and giving leaseholders and management companies third-party rights to claim directly under these policies.

The Government could also strengthen the Defective Premises Act 1972. This legislation extends protection for a period of six years—a period that is obviously out of line not only with decennial insurance cover but with actions in tort, where claims are allowed for a three-year period from the date of knowledge, subject to an overall maximum of 15 years under the Latent Damage Act 1986. The limitations period in the Defective Premises Act could be extended to be consistent with tort actions to give owners more protection. This is particularly important following the case of Murphy v. Brentwood District Council, which means that the residential property owner cannot claim for economic loss in tort.

There is a further adjustment to the Defective Premises Act that I invite the Minister to consider. Section 1(1) sets a test that work should be done

“in a workmanlike or, as the case may be, professional manner, with proper materials…so that as regards that work the dwelling will be fit for habitation when completed.”

That is a high bar when measured against the relevant test in consumer legislation, which refers to goods needing to

“meet the standard that a reasonable person would consider satisfactory”

under the Consumer Rights Act 2015.