General

1

Is placing a Home Buyer on a ‘waiting list’ or giving them an ‘early bird’ right of first refusal, classed as a ‘Reservation’?

For the purposes of the Consumer Code, a Reservation Agreement is as defined under Code Requirement 2.6.

Any arrangement prior to Reservation, which is entered into between a Home Builder and prospective buyer, and which does not involve a payment, is not considered as a ‘Reservation’ under the Code. 

If a payment is made, then it must be in the form of a Reservation Agreement. 

List of Contents

2 

In Clause 2.1, what is meant by a list of the home’s contents?

It means the features and contents such as the fixtures and fittings that are included in the sale price including, but not limited to, the model and extent of white goods, floor finishes, carpets, curtains, wall tiling, door finishes, door entry system, telephone and TV points, intruder alarms, shaver points, heated towel rails, mirrors, door furniture, taps, showers, and so on. It does not mean the structural elements of the home.

Cancelling & Fees

3 

The Code says that if a Home Buyer cancels the Reservation Agreement or does not exchange contracts, the Home Builder should reimburse the reservation fee but be allowed to deduct his expenses and costs.  What can these be and why can he deduct them?

The Reservation Agreement is a legal agreement.  The builder is committed to holding that property for the Home Buyer at a defined price and period of time and not to market it to any other potential buyers during the period of the Reservation Agreement.  The Home Buyer is therefore protected from ‘gazumping’ or being placed in a ‘contract race’ 

The Home Buyer has an exclusive period in which, with the advice of their solicitor they are able to satisfy themselves in all respects that it is the property they wish to buy, that it is suitable for them, and that they have the finance available to buy it, on the terms proposed in the Contract of Sale.

If the Home Buyer does not proceed to exchange of contracts, then the Home Builder may have incurred costs in instructing solicitors, providing the detailed contract documentation, dealing with the customer’s enquiries, and other administration costs in processing the sale.  They may have incurred costs in delaying the eventual sale and in remarketing of the property.

The Home Builder is allowed to deduct from the Reservation fee those costs actually incurred in holding and processing that sale.

4 

Can a reservation agreement simply state a percentage of the Reservation fee be withheld if the Home Buyer cancels the Reservation?

No.  The purpose of the Consumer Code is to address practices that are neither fair nor transparent.  

A Home Builder may deduct the reasonable costs they have incurred if the Home Buyer cancels a Reservation agreement, such as the cost of preparing legal documents for example (see 3 above).  A simple statement of a percentage deduction would not follow the spirit of this Code Requirement. A Home Builder should clarify to the Home Buyer at the time of reservation what costs they would be likely to deduct.  

5 

If Reservation fees have to be refunded, does this not encourage potential Home Buyers to reserve multiple properties on the same or different developments?

The purchaser will incur a cost as the builder will deduct reasonable costs for reservations that are subsequently cancelled. 

It is up to the Home Builder to determine the amount of reservation fee required and explain what deductions may be made at the point of taking the reservation.  In addition, a Home Builder does not have to enter into a Reservation Agreement with every Home Buyer who wants to reserve (but must not discriminate against buyers, for example on the grounds of race or religion) and may pre-qualify Home Buyers to determine whether they are in a position to proceed with the purchase.

The refund of some of the Reservation fee, after the deduction of reasonable costs, is widely practiced in the industry and there is little evidence of the placing of multiple reservations by Home Buyers.

6

Under clause 2.6 what is meant by the administrative and other costs that are deductible?   Can guidance be given on what these costs might be?

It is not possible for the Consumer Code to prescribe what costs could be deducted – every Home Builder will have their own systems and their own costs.

The clause allows the Home Builder to decide what he feels reasonable to deduct from the Reservation fee.  These costs may change or increase the longer the Reservation is in force – reflecting the work done by the Home Builder in getting the property and the paperwork to a state where contracts are to be exchanged.

The Home Builder will have to be able to demonstrate reasonable costs should a case be referred to the independent dispute resolution service available under the code.

 7

Can a Home Builder cancel the Reservation agreement whilst it is in force?

No; A Home Builder cannot cancel the Reservation agreement.  It is either cancelled by the Home Buyer or it expires on the due date – unless it has been extended by mutual agreement through the legal advisers.

 8

 If the Home Buyer has reserved a home and chosen a specification for it but then withdraws, could the costs of the original specification be deducted from the reservation fee.

If the Home Builder agrees to carry out additional work that is not included in the price agreed for the Home, before the Home Buyer makes a binding commitment to purchase the property the Home Builder is advised to require payment for those works in advance. These works should be the subject of a separate contract with the Home Buyer.

Alternatively, where the additional work may be agreed but not carried out before  exchange of contracts, they can be included in the contract of sale and in the price agreed for the Home In some circumstances the Home Builder may be able to evidence the works as a ‘lost cost’, and seek to recover from the reservation fee.  However, this may be difficult to evidence and may be at risk if referred to the Code dispute resolution scheme.

9 

Does clause 3.4 apply to Reservation fees – do they have to be protected?

No – the requirement for protection refers only to contract deposits.  The Home Builder is required to explain how other payments, such as Reservation fees and the like, are dealt with.