KEY ISSUES FOR STANDARD BUILDER’S MISSIVES
This fact sheet is about buying a new home from a builder.
In Scotland, the buyer’s solicitor normally prepares the offer to purchase a house and sends it to the seller’s solicitor. The offer will contain a number of important legal protections for the buyer. However, it is standard practice with new build homes for the builder to send the buyer their standard form of offer to sell the property. This is commonly known as a “builder’s missive.” Generally, builder’s missives are weighted heavily in favour of the builder and they contain a number of potential traps for the unwary.
Builders tend to resist making any changes to their standard missive. Many people feel that they have to accept this stance because they are in a weak bargaining position, particularly when the property market is buoyant. Builders often adopt the tactic of making you pay a “reservation fee” to book your plot. They will then insist that if you have not concluded the missives within a short time you will lose your reservation fee.
The purpose of this note is to highlight a number of risks inherent in accepting the builders’ terms. While many people do this in practice, it is important that you realise the potential risks involved.
Reservation Fee and Deposit
We have already mentioned the reservation fee. This can often be as much as £500. The builder will threaten to re market the house and keep this sum if you do not complete the contract within a given time.
Builders’ missives also usually require you to pay a deposit within a short time of concluding missives. The deposit is usually around 1% of the purchase price. It can often be several months between completion of contract and the date when the building is ready. If the builder fails or becomes bankrupt before you have purchased the house, you will lose the deposit and reservation fee. You will have a contractual right to recover the money, but there is no guarantee that you would get your money back in practice from an insolvent company.
Timescale
Builders never agree to complete your new home by a given target date. Most builders’ missives simply define the date of entry as being a certain number of days after the date that the property has been granted a Certificate of fitness for habitation by the Local Authority. Although you will have been given an estimated completion date by the builder, this target date of entry is not guaranteed; the actual completion of the property could be sooner or later than that date.
It is not uncommon for there to be substantial delays in the completion of building contracts. This can cause real problems for purchasers, particularly if you are selling your own house first.
Example. Mr A concludes missives to buy a new build house in April. He is told that the house should be completed by the end of September. He then sells his own house. The new house is not ready at the end of September and he is told at the last minute that completion will be delayed by another two months. He will have to rent a property at short notice and may have to incur storage costs for his belongings. He might also have lost money by selling his own house too early in a rising market.
In theory, the contract will be open ended. It could run for years. You will have no right of recourse against the builder for any delays in completing the house.
Variation of Specification
In the missives, builders will normally reserve the right to vary the specification of your house from that advertised, as well as the layout of the estate of which your house forms part. This means that you could find the layout of your house or garden to be quite different from what you originally envisaged. The builder might also use different materials when building your home than those originally indicated. You might also find that a planned area of open space or parking has been repositioned.
Some builders will accept a qualification in the contract to the effect that they will not change the specification or layout of the property from what was originally advertised to any material extent without your prior approval. You should also seek a warranty to the effect that if different materials are to be used, they should be of at least the same standard as those originally specified.
Titles
It is common for the missives to provide that your property will be subject to a number of title obligations and restrictions as set out in the standard title deeds for the particular development of which your property forms part. It is also common for the title deeds containing these conditions not to be available for inspection until after the conclusion of missives. If you accept such a standard clause, you will be bound by the conditions without knowing what they are in advance.
You will have no right to cancel the contract if you later decide that you are unhappy with the title conditions or the way in which they work. It is therefore important to try to qualify such a clause where appropriate.
The title deeds will often provide for a factor to be appointed to look after the management of any common areas of the housing development. E.g. play areas, grass verges, common parking areas etc. Normally, the factor will be appointed by the builder and the deeds will provide that the factor cannot be replaced for a certain period of time, often up to 2 years. This means that, at least for an initial period, you and the other property owners will have no control over who the factor is, the services that the factor provides, or the charges that he is to impose for providing those services.
It is important to try to have some control on what the title obligations will be. Often, the builder will have a standard style deed of title conditions that they regularly use. If this standard list is acceptable, many builders will agree not to vary the conditions from their standard terms to a material extent without your approval.
Planning
Any newly constructed house will need planning permission. Builders usually undertake to build the house in accordance with any planning permissions that have been issued. However, they will often state that you will have no right to be shown a copy of the planning application.
Planning permission is almost always granted subject to conditions. Even although the builder has applied for the permission, the conditions attached to it apply to whoever owns the land in question from time to time. This means that any conditions attached to the consent which have not been implemented by the builder before you buy the house will become your responsibility. The local authority could serve an enforcement notice on you to comply with the outstanding permission conditions. This could prove to be extremely expensive.
Some builders will agree to give a warranty that they have obtained all necessary permissions for the house and that all conditions attached to those permissions have been (or will be) implemented in full by the date of entry. If there is no such provision in the missives, you should insist upon the consents being shown to your solicitor.
Defects and “Snagging”
Sometimes there are no rights to have minor or “snagging” defects rectified by the builder in terms of the missives. Where such rights do exist, they tend to be limited so that you have a very short period of time within which to report them. Typically you will be given 3 months to report such defects.
If you do not report a defect in writing within the contractual time period, the builder could refuse to rectify the problem, and you would have no legal recourse against the builder in terms of the contract (or under NHBC see below). Even where you do report the defects in time, the contract will not normally provide that the builder has to fix the problem within a given period of time. It can often be weeks or indeed months before snagging works are finally completed to your satisfaction. This can prove to be extremely frustrating.
Many builders have introduced pre completion or pre purchase inspections where a snagging list is prepared at the time of inspection. In the case of new build homes, however, snagging may not become immediately apparent in one inspection but the builder may not treat the item as snagging unless it is identified at this stage.
Please note that the granting of a local authority habitation certificate or completion certificate is not an assurance that the property is perfect. Many people wrongly believe that the certificate of completion relates to quality. People suppose that a house built to meet building standards regulations would be automatically free of faults and that building control inspectors would ensure it was built correctly. However, building control departments have no control over many finishes and fittings that are often the cause of complaints, as these are not controlled in building standards regulations.
NHBC Scheme
NHBC covers minor things and plumbing defects in the first 2 years and major things after that for 10 years all of which must be notified in writing.
For Further information, please contact:
Ownership Options in Scotland
The Melting Pot
5 Rose Street
Edinburgh EH2 2PR
Tel: 0131 247 1400
Fax: 0870 123 1597
Web:
Scottish Charity No. SC027335
Company limited by guarantee and registered in Scotland No. SC180581