New Homes Quality Code sets standards for developers and new home buyers

New Homes Quality Code

Introduction

The New Homes Quality Board (the NHQB) was established in May 2019 to oversee the customer service to be provided by developers to buyers of new homes.

The New Homes Quality Code (the Code) is the key document setting out the standards to which developers will be held in providing that service.

After a period of consultation the Code was published in December 2021 together with a glossary of the terms used in it and separate developer’s guidance.

(The code refers to customers by which it means individuals buying a new home for their own occupation but it also refers to the fact that the NHQB are carrying out initial work to possibly extend the Code to cover purchases of new homes by shared owners and buy to let purchasers).

The Code covers all aspects of the service from early bird arrangements / reservation agreements through to legal completion and thereafter a two year after sales customer care period.

The Code also deals with developer registration requirements, complaints management and possible dispute resolution by the yet to be established New Homes Ombudsman.

The Code sets out certain core fundamental principles and thereafter is divided into four parts setting out the detailed requirements in relation to the sales / construction process.

We would summarise the code in more detail as follows:

Registration

From January 2022 all house builders / developers who build new homes will be expected to register with the NHQB.

A house builder / developer who has followed the registration process and completed the necessary staff training and has introduced the necessary code compliant procedures will become a registered developer.

Transition arrangements

Developers and house builders are expected to have registered with the NHQB by no later than 31 December 2022.

Following registration house builders / developers will have time to confirm their reariness to transition to the new arrangements and may activate regional business / subsidiaries at different times.

Statement of fundamental principles

The Code includes 10 fundamental principles which set out the overriding obligations on the part of all registered developers:

• Fairness – treat customers fairly throughout the buying / after sales process.
• Safety – carry and complete the works in accordance with all requisite Building Regulations and Requirements.
• Quality – complete all works to a good quality in accordance with all applicable building and other standards including the specification for the New Home and ensure that legal completion only takes place when a new home is complete ( see Complete New Home heading below).
• Service – have in place systems, processes and training of staff to meet the customer service requirements in the Code and not use high-pressure selling techniques to influence a customer’s decision to buy a new home.
• Responsiveness – to be clear, responsive and timely in responding to customers by having in place a robust after sales service and effective complaints process.
• Transparency – provide clear and accurate information about the purchase of the new home including tenure and future costs eg service charges etc.
• Independence – make sure that customers are aware they should appoint an independent legal advisor and have the right under the code to an independent pre-completion inspection before legal completion takes place.
• Inclusivity – take steps to identify and appropriately support vulnerable customers.
• Security – put in place reasonable financial arrangements (by way of insurance or otherwise) to meet all obligations under the Code.
• Compliance – comply with the requirements of the NHQB and the New Homes Ombudsman Service.

 Part One – selling a new home

This part of the Code covers the following:

• Sales information / description of the new home – the developer must ensure that the content of all sales and marketing material relating to the new home is clear, fair and not misleading, legally compliant and must use plain language. The developer must state in its sales / marketing literature that they are a registered developer with the NHQB. The Code sets out in detail the requirements for describing the new home including matters such as sizes of the rooms / plot, tenure, specification, price, New Home Warranty provisions, service / management charges and expected council tax band.
• No high pressure sales techniques – as mentioned above high pressure selling techniques must not be used to influence a customer’s decision to buy. The Code gives examples of what would be considered a high pressure technique – for example offering a financial incentive for an immediate decision on a reservation or sale.
• Part exchange and assisted schemes – where a developer offers a part exchange or assisted move scheme its terms must be clear, fair and not misleading and must not be used to pressurise a sale. The terms of the scheme must be explained in plain language and the Code sets out in detail the requirements of the scheme including matters such as the terms and conditions, how any fair market valuation has been arrived at, how a customer can qualify for the scheme and the date by which any offer needs to be accepted.
• Considering vulnerable customers – the developer must give due consideration to identifying vulnerable customers and take appropriate steps to help such customers make informed decisions.
• Legal and other advisers, commission and inducements for goods and services – the developer must ensure they have in place all the necessary procedures and systems to meet the requirements of the Code. The developer must provide training on the Code requirements to all staff. In addition any agents must be required to ensure that they are familiar with the requirements of the Code.

Part Two – legal documents, information, inspection and completion

This part of the Code covers the following:

• Early bird arrangements – the code acknowledges that a developer may offer to a customer an option to be notified and then to secure the choice of a plot or plots within a development. The Code specifies that the maximum fee which may be charged for such an arrangement is £150 and this must be refundable to the customer if they advise the developer that they do not wish to proceed with the purchase within 24 hours of the customer being notified of the plot release.
• Reservation agreements – the Code also acknowledges that a customer may wish to reserve a new home. Such an arrangement must be documented by way of a formal reservation agreement between the parties. The developer must ensure that the terms of  the reservation agreement are clear ,fair and written in plain language and comply with all relevant legislation. The Code sets out in detail the terms of the reservation agreement including terms that the agreement must be  ‘subject to contract’,  setting out the amount of any reservation fee (and the circumstances where it is refundable), that there is mandatory 14 day cooling off period (during the customer may cancel the reservation and is to be refunded any fee in full) and providing for  a minimum six week period for exchange of contracts after the reservation is made. The terms must also include the price, tenure and details of future management / service charges. In the latter case the developer must also provide an Affordability Schedule setting out the likely costs directly associated with the tenure and management of the new home over the first 10 years.
• Pre-contact information – the developer must give the customer’s legal adviser suitable and relevant information to help the customer make a fully informed decision in purchasing the new home. In all cases the information must include information relating to the property and planning matters and the actual and anticipated costs associated with the property. The Code sets in detail the information to be provided pre-contract including the following:
  • a summary of the New Home Warranty;
  • the tenure;
  • planning consent number and details of future phases;
  • list of contents being provided;
  • details of the relevant standards to which the new home is to be built (including details of the Home Warranty Provider’s standards);
  • details of any management company;
  • an Indicative Costs Schedule setting out the likely costs directly associated with the tenure and management of the new home over the first 10 years;
  • the anticipated completion date of any new home not yet completed; and
  • details by reference to plan / brochure setting out the size, specification, general layout and plot position of the new home.
• Contract of sale – The developer must ensure that the terms of the contract of sale are clear, fair and written in plain language and comply with all relevant legislation.
• In addition the contract of sale must include the following:
  • the period between service of notice to complete and legal completion. In order that the customer has an opportunity to carry out a pre-completion Inspection the code specifies that this period should usually not be less than 14 calendar days;
  • a clear statement of the circumstances where the customer may terminate the contract for sale. In particular the Code provides that the customer must have the right to be able to terminate (and for any deposit and other monies to be repaid) in the event of a Major Change being a change that alters the size, appearance or value of the new home (including the internal layout);
  • a clear statement of what will happen if construction of the new home is delayed;
  • a clear statement of how deposits are protected; and
  • suitable provisions to provide for a two year builders liability period for the customer.
• Pre-completion inspection – as mentioned above the developer must provide an opportunity for the customer to visit the new home and / or appoint a suitably qualified inspector to complete the template pre-completion inspection checklist on their behalf, to be carried out before completion and from five calendar days after the notice to complete has been served. Please note the prescribed template checklist referred to above is the only checklist that may be used.
• Complete new home – legal completion can only take place on a complete new home which complies with building regulations and all applicable building safety requirements for safe occupation. The Code defines what is meant by a complete new home. For there to be a complete new home the New Home Warranty cover note must have been issued in relation to  it. Beyond that requirement the Code specifies when a house or an apartment / flat will be a Complete New Home.
• In each case the basic requirement is that the property will be considered complete if all rooms, spaces and facilities are in a finished condition for the purpose for which they were designed and intended and the property provides safe entrance and emergency exit routes.
• Legal completion – the Code requires that the developer must at legal completion comply with the following:
  • have completed the new home to the agreed standards;
  • have carried out the developer’s final quality assurance inspection of the new home and have provided the customer with a list of any incomplete or defective items and the timescale for remediation;
  • have provided the customer with an opportunity to complete the pre-completion inspection;
  • have provided an appointment for a home demonstration of how any appliances work;
  • have provided full details of the New Home Warranty;
  • have provided a copy of its complaints procedure;
  • have provided a Heath and Safety File for the new home; and
  • have provided a statement of incomplete work under the relevant planning consent and indicative timescales for its completion. This would apply to, for example, roads, open spaces, recreational areas and landscaping.
• Repayment of financial deposit – the developer must have in place adequate arrangements to protect contract deposits. These may include:
  • repayment of the deposit through the New Home Warranty;
  • placing any deposit or reservation fees into a client account separate from the developer’s general cash flow; or
  • any other legal arrangement whereby the developer can reasonably be expected to be able to repay such amounts should they fall due.

Part Three – after sales, complaints management and New Homes Ombudsman

• After sales service – the developer must provide the customer with a comprehensive and accessible After Sales Service for a minimum period of two years following the date of Legal Completion. In particular that service must include an explanation of the developer’s responsibility for remedying any issues or problems (including Snags and / or Defects) which arise during the first two years.
• Complaints management – the developer must have a system and procedures for dealing with issues which arise as result of the After Sales Service as well as for dealing with complaints. The information to be supplied to the customer must include details of the complaints procedure and in particular how the customer may escalate matters to the New Homes Ombudsman Service.
• Snagging period and dealing with snags – developers are expected to work collaboratively with customers to identify and remedy snags. The after Sales Service must deal with these matters and once identified Snags are to be remedied promptly. It is expected that in most situations snags should be dealt with within 30 calendar days of being identified.

Part Four – solvency, legal and jurisdiction

The developer must ensure that the contractual party as developer and seller (if different to the developer) is financially adequately established or insured so as to provide reasonable protection against insolvency and has the capacity to meet its obligations under the Code including timely repayment of deposits and other monies which may need to be repaid and that it can meet any financial awards made by the Ombudsman.