The introduction of the New Homes Quality Code has brought with it a number of new rules and requirements for developers, including restrictions on "high-pressure selling techniques".
The Code, which is administered by the New Homes Quality Board (NHQB), applies to homes built by a registered developer which were reserved on or after the developer's registration date. We have considered in a previous article the differences between the new Code and the Consumer Code for Home Builders.
One such difference is that, unlike the Consumer Code, the New Homes Quality Code (the "Code") expressly prohibits developers from using what it calls "high-pressure selling techniques" to influence customers to purchase a home.
What are high-pressure selling techniques? The Code contains a non-exhaustive list of five practices which developers are not allowed to employ:
1. Developers must not encourage a customer to reserve or buy a new home by suggesting there are other people interested in the property or that the price will soon increase if this is not true. Developers should note the important qualification at the end of this sentence – the Code only prohibits statements that other customers are interested or the price of a home is set to increase if this is not true. If there really are other people interested in a plot, or if there is a planned price increase, sales teams are permitted to tell this to potential customers (even if this has the effect of influencing the customer's decision).
2. Developers cannot offer a financial incentive in return for an immediate decision to reserve or buy a new home. For example, when potential customers visit a site for the first time, the developer cannot offer a discount on the price which is conditional on the customers reserving a plot the same day. Developers are still allowed to offer discounts to their customers; the key point is that these must not be conditional on the customers making an immediate decision. It is not entirely clear from the Code or guidance whether this restriction also applies to extras, such as a developer offering to include carpets in the price if a customer reserves immediately (if these would otherwise be an optional extra). Until that point is clarified, developers are advised to tread very carefully in offering any type of time-limited incentive.
3. Developers must not encourage a customer to reserve a new home by telling them that they will lose the opportunity to personalise it if they delay their decision, if the stage of construction would still allow this. This restriction also contains an important qualification relating to truth. Developers will find themselves in breach of the Code only if they tell customers that they will lose the opportunity to personalise the home and this is not true. If construction is sufficiently far advanced that decisions on, for example, kitchens and bathroom tiles do need to be made immediately, developers are perfectly entitled to let customers know this.
4. Developers must not encourage a customer to buy any unnecessary or inappropriate additional insurance products, warranties or guarantees. Whether any particular product is unnecessary or inappropriate will depend on the circumstances and may be open to debate. The key point is that developers should be careful to ensure that they are not pressuring customers to buy products that they don't need.
5. Developers must not suggest that a sale may not go ahead unless a customer uses a specific third-party professional adviser, such as a conveyancer or mortgage broker. Note that it remains perfectly permissible for developers to suggest solicitors or mortgage brokers to customers, and we anticipate that many developers will continue to do so. Developers simply need to make it clear that the customer is free to use other advisors of their choosing should they wish to do so.
These restrictions are intended to complement the other Code requirements in relation to sales, the general theme of which is that developers must provide clear and fair information to customers without misleading them or imposing unnecessary deadlines. For some developers, their existing selling techniques will be entirely in line with the Code and will require no modification. Other developers may require to make changes to avoid falling foul of this part of the Code.
It is vital for developers and their sales teams to be familiar with their obligations in respect of high-pressure selling techniques under the Code and adjust their practices accordingly if necessary. For advice and assistance with this, get in touch with our market-leading Real Estate Litigation team or your usual contact at Brodies.
