UK: Selling A House: When A Homeowner Becomes A "Property Developer"

Summary and implications

A homeowner who carries out redevelopment work to a property and then sells it on could be considered as being a "property developer" and liable to a purchaser under section 1(1) of the Defective Premises Act 1972 (the Act) for any defective works carried out to the property*.

The key trigger for establishing liability is whether a homeowner carries out the redevelopment works as a business venture with the intention to immediately sell the property for a profit.

The Defective Premises Act 1972

The Act confers a liability on contractors, consultants and developers whose work renders a property unfit for habitation due to it not being designed or built in a workmanlike manner.

Section 1 of the Act lays out the duty of care and who it applies to (see the box below). This duty is owed to the person ordering the house, and also every person who later takes an interest (legal or equitable) in the premises.

The buyer said the property was unsafe and tried to claim against the builder and architect

In the Zennstrom case the buyer claimed that the property was structurally unsafe and had to be demolished.

The buyer had tried to claim against the builder and architect but they had no assets or insurance. A claim was brought against the sellers on the basis they had developed the property "purely for profit" and were liable as property developers under section 1 of the Act.

"In the course of a business"

For a homeowner to be liable under the Act it must arrange for another party to carry out the redevelopment work "in the course of its business of arranging or providing dwellings". Essentially, the homeowner must be a "property developer".

It is not necessary for the homeowner to have previously developed a dwelling for it to be regarded as being a property developer. But the business must be in existence when the agreement is made with a party to take on the works.

The homeowner must intend to sell on the property for a profit

A buyer will need to show that the homeowner had the intention to immediately sell the property on for a profit at the time that they entered into an agreement for the works and was acting as a "property developer".

If the homeowner uses the property as its home after the redevelopment works have been carried out and before selling it on, and always intended to do so, it could negate its actions being within the "course of a business" of the type required by section 1(4) of the Act at the time when they arranged for the works to be carried out.

In the Zennstrom case the defendants argued that they bought the property to develop as their "dream home"

The defendants had completely redesigned and rebuilt the property. The court accepted the defendant's position that the property was intended to be their "dream home" and that they had intended to live there permanently. The decision to sell was only made following a change in financial circumstances.

The court relied on a wide-ranging spectrum of facts in arriving at its conclusion that the defendants should not be regarded a property developers. This included witness statements from friends and relatives including evidence that the defendants had previously gone on holidays together with neighbours.

It was also accepted that the defendants would not have chosen to stay in the area following the sale if they knew that the property was defective.

This case has highlighted that the court is willing to take into consideration a wide range of evidence.

An intention to live in the property (even for a short time) after completing the works may be enough to rebut the argument that the homeowner carried out the redevelopment works as a property developer.

The Defective Premises Act 1972

Section (1)(1) provides that:

A person taking on work for or in connection with the provision of a dwelling (whether the dwelling is provided by the erection or by the conversion or enlargement of a building) owes a duty:

  1. if the dwelling is provided to the order of any person, to that person; and
  2. without prejudice to paragraph (a) above, to every person who acquires an interest (whether legal or equitable) in the dwelling,

to see that the work which he takes on is done in a workmanlike or, as the case may be, professional manner, with proper materials and so that as regards that work the dwelling will be fit for habitation when completed.

Section 1(4)(a) provides that:

A person who;

  1. in the course of a business which consists of or includes providing or arranging for the provision of dwellings or installations in dwellings...

arranges for another to take on work for or in connection with the provision of a dwelling shall be treated for the purposes of this section as included among the persons who have taken on the work.

Footnote

* Niklas Zennstrom and another v Kevin Fagot and others [2013] EWHC 288 (TCC)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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