Many will be familiar with the NHBC or National House Building Council, a well-established independent regulatory body for the new home building industry. It registers about 85% of new UK homes and around 1.6 million home owners benefit from the 10 year warranty and insurance cover.

The NHBC Buildmark documentation also offers to those who sign up to it a resolution service to deal with disputes between a buyer and the NHBC registered builder where the builder fails to remedy defined defects or damage within 2 years of completion. The buyer must have notified the builder of the problem. The buyer can call on the NHBC to investigate and produce a report on the outstanding work. Measures are in place to ensure that the work is completed, either by the builder or the NHBC. The Buildmark documentation recommends the Chartered Institute of Arbitrators as an option for dispute resolution if the Resolution Service does not resolve the matter.

But how does this affect a buyer’s remedies where the purchaser has both a sale contract with the seller of a newly-built home and the benefit of NHBC Buildmark documentation as against the separate NHBC registered builder?

In a recent case the TCC had to consider whether:

(i) house purchasers, in dispute with the seller relating to defects in the house, could go straight to arbitration under the sale contract, or whether they first had to try to settle the dispute with the seller through the Resolution Service, and

(ii) if so, the scheme of the Resolution Service for attempting to resolve disputes is sufficiently certain to be enforceable in law.

The court ruled:

In answer to question (i):

  • The purchaser did not have to use the NHBC Resolution Service before starting an arbitration against the seller under the sale contract.
  • Here the dispute was for damages for breach of contract of sale as against the seller, not for remedies against the builder available under the Buildmark documentation.
  • Clear words would be required in the contract of sale to limit or exclude a right to claim damages under that contract and there were no such words here.

Yes in answer to question (ii):

Where it applies, the Resolution Service process is sufficiently certain to be enforceable in law because:

  • There are clear paths to follow as regards what will happen and there is no need for further agreement before matters can proceed.
  • The NHBC is well suited to carry out such investigations.
  • The steps to be followed (the notice requirements, report procedure and so on) are sufficiently detailed.

The case emphasises that there are two separate procedures. The house buyer may well have contractual remedies against the seller (although these may also have been excluded in the sale contract) as well as rights against the builder under the NHBC Buildmark documentation. In the case of the former the buyer can pursue its contractual rights. If, however, the dispute relates to rights under the NHBC Buildmark documentation then the purchaser must first use the Resolution Service.

The court has examined a Buildmark agreement in the past, which contained a compulsory arbitration clause. The court struck down the clause for being unfair under the Unfair Terms in Consumer Contracts Regulations 1999 as the buyer did not know about the arbitration clause until after they entered into the contract of sale. The NHBC Scheme now offers arbitration as an option, i.e. rather than compelling purchasers to resolve disputes by arbitration, it gives them the option of either arbitration or going to court. This suggests that the NHBC Scheme is now unlikely to be regarded by a court as "unfair".

Housebuilders are formulating a compulsory code of conduct for new homes, due to be introduced by Easter next year, which seeks to offer further guidance for buyer/housebuilder disputes.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 14/12/2007.