Cornerstone - Ombudsman to level the playing field in homeowner disputes with house builders


05 March 2020

Last year the Government ran a consultation on how purchasers of new build homes could be better protected. This came amid numerous horror stories in the press about buyers being left with hundreds or thousands of defects, with little or no bargaining power to get them resolved properly or promptly.

A response to that consultation has now been published. The net outcome is that the Government will be going ahead with the creation of a New Homes Ombudsman (NHO).

The NHO will be a free service for home owners (it will paid for by its members, the developers), alleviating (in theory) the David versus Goliath problem that exists now for most consumers that have to try and take on a house builder. There will be a statutory requirement for all developers of new builds to belong to the NHO, and the NHO will have power to enforce a new Code of Practice, which will set guidance on what consumers can expect and what is expected of developers, as well as to deal with other complaints in a ‘fair and reasonable’ way.

The details of the Code of Practice and what precisely will be within the NHO’s remit will have to be ironed out over the coming months. However, the consultation does indicate that where a dispute cannot be resolved by agreement between the owner and builder, the NHO may have the power to:

  • make recommendations for resolving disputes and the timescales for rectifying them
  • direct developers to improve their service
  • award compensation to buyers of up to £50,000 without the involvement of the courts
  • request apologies and explanations from developers; and
  • presumably in the worst cases, expel developers from the NHO, and publish the details and reasons for expulsions. As it will be a statutory requirement for house builders to be a member of the NHO, expulsion will effectively prevent it undertaking that work in the future.

The consultation suggests that industry should not wait for government in moving forward with the creation of an ombudsman service. It is suggested that developers and other interested parties (warranty providers, consumer organisations, lenders etc.) should work to create a voluntary ombudsman service, which may then receive statutory underpinning to become the mandatory version of the NHO in due course, if it works well. This may incentivise developers to come up with a workable proposal now that balances their needs and those of purchasers perhaps more evenly than a government-mandated version may do. It will be interesting to see whether industry can meet that challenge before it is forced to do so by government.

Almost anyone that has bought, or has known someone that has bought, a new build property will be familiar with the type of issues that these new steps aim to address. With the country needing hundreds of thousands of new homes to be built every year to meet demand (without even addressing the related issue of soaring prices), these reforms should help ensure that quality and customer service is not sacrificed at the altar of speed. And house builders that already excel in those areas should welcome the news that rivals which aren’t as concerned will no longer be able to steal a competitive advantage by cutting corners and leaving consumers high and dry. Subject to ironing out the terms of the services, this news should therefore be welcomed by all those who have an interest in this topic.

This article is from the March 2020 issue of Cornerstone, our monthly newsletter for those working in the construction industry. To download the latest issue, please visit the newsletter section of our website. For further information please contact Oli Worth or another member of Birketts' Construction Team.

The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at March 2020.