What changes can a housebuilder make to the design, construction or materials of a new home without the customer's agreement?
For housebuilders who are registered with the New Homes Quality Board, the New Homes Quality Code sets out the rules which apply to changes to a new home during construction. This article covers the main points.
Major or minor – the key question
The most important question when a developer proposes to make a change to the design, construction or materials of a new home after reservation is whether the change is a 'major' change or not. This is because the Code contains particular rules which apply to major changes.
A major change is one which alters the size, appearance or value of the new home (including the layout inside the home) as compared to that shown to the customer in the reservation agreement and/or contract of sale.
The Code does not qualify this by reference to any standard of materiality. This is in contrast to its predecessor, the Consumer Code for Home Builders, which defines major changes as those which "significantly and substantially" alter the size, appearance or value of the home.
While the omission of those words from the New Homes Quality Code must be deliberate, in practice we anticipate that only material alterations will be considered major changes. For instance, the repositioning of a plug socket on a wall is highly unlikely to be a major change, even though it might be said to alter the appearance of the home.
Different rules apply to changes which are not major changes. This article will refer to these as minor changes – the Code itself does not use this term, though the accompanying FAQs document does. The FAQs document also says that developers may specify in their reservation agreement what they consider to be a minor change. Developers should consider whether giving examples of common types of minor change at the reservation stage may help to manage customer expectations and avoid disputes.
Major changes
Where a developer makes a major change to the design, construction or materials of a new home after it has been reserved, it must:
- tell the customer in writing;
- give the customer the right to cancel the reservation agreement or contract of sale within 14 days of receiving written details of the major change;
- tell the customer that they should ask their professional advisor for advice; and
- if the customer cancels within 14 days, give the customer a full refund of their contract deposit, reservation fee and any other payments they have made.
The customer's right to cancel the purchase in the event of a major change must be set out in both the reservation agreement and the contract of sale.
The Code also provides that the developer cannot serve a notice to complete during the 14-day cancellation period.
Minor changes
Where a developer makes a minor change to a new home after it has been reserved, it must inform the customer of the change.
Importantly, however, the developer does not need to seek or obtain the customer's agreement to the change and the customer does not have the right to cancel the reservation or contract of sale because of a minor change.
In Scotland, if the developer changes any of the materials that are to be used in the new home, they should ensure that the new materials still comply with the terms of the relevant building warrant.
Key takeaways
Developers should be aware of the distinction between major and minor changes and alive to the potential effect of the omission of the words "significantly and substantially" in the New Homes Quality Code. Developers should consider including examples of common, minor changes in the information provided to customers at the reservation stage.
In the event of a major change, developers should ensure that the steps set out above are followed, including telling the customer that they should seek professional advice about the change (a new requirement which is not contained in the Consumer Code for Home Builders).
For information on other parts of the New Homes Quality Code, you can read our articles on pre-completion inspections, prohibited sales tactics and dealing with complaints.
For advice on changes during construction or any other aspect of the Code, get in touch with our Real Estate Litigation team or your usual Housebuilding contact at Brodies.
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