Self-build housing: some legal issues to consider


10 June 2020

Self-build housing is on the increase. This is housing where an individual either takes on the challenge and responsibility for their house building project, and builds a house themselves, or where they personally appoint and pay a builder to build their house. 

A self–build owner first finds a plot, either with our without planning permission. There are plot finder websites where individual plots with and without planning are advertised for sale, and there an increasing number of self-build plots available from larger promoters and house builders, where as part of a larger planning permission they have set aside a number of plots within an outline planning permission for self-builders. 

Planning permission is clearly essential but is not the main thrust of this article. To build however the self-build owner first needs to obtain detailed planning permission. Once they have planning permission they need to secure funding, personal cash or a loan, to pay for the materials and sub-contractors including the electrician, plumber, plasterer, kitchen fitter and landscaper. If appointing a main contractor they will need funding available to make agreed payments to the builder at each stage of the build. A builder will want to know the self-build owner has the funding available at the outset. 

The owner either then manages the build, or development manages the builder, until the house is built. The build could either be a traditional brick and timber design or increasingly an offsite manufactured method of construction using, timber, concrete, glass or a combination, which is then delivered and assembled on site. The owner either then moves in or sells the property. If they are selling, the owner must ensure they have a product to sell, which is a house on which a buyer can secure a mortgage. Alternatively, if they intend to hold the property, they may need to put the funding on a longer term basis, offering the property to a bank as security. Both have key funder requirements which we consider below.

A self-build project therefore encompasses all the elements of a larger development and requires the same level of legal scrutiny as any other development. Leaving aside practical build issues, what are the legal issues an owner needs to address? These flow in the same way as they would on a larger site: acquisition, funding, construction, and sale. There are other issues such as tax to consider, which will in turn determine in whose name or what entity you buy the plot. Although this is a question for another article, it is advisable to take tax advice before starting the buying process. We briefly consider some of the legal issues below.

Boundaries

Make sure the boundaries are clearly defined on a plan, edged red and shown by reference on an HM Land Registry compliant scale plan. Inspect the site and make sure the physical boundaries on the ground match the plan and that there are no anomalies. A plot will often be formed from part of an existing dwelling, someone’s garden or one of several adjacent self-build plots. Make sure they are accurately pegged out on the ground to reflect the scaled plan.

Access and services

The site should either directly connect to a public adopted highway, or have rights over land which does. A new access onto a public highway will require highways approval and if any works are required to create or improve an access may require a S278 agreement. Are these in place and do they accurately reflect the access works required? Similarly the plot will need to be able to connect into all usual services including water, gas, electricity telecoms. Check the site is either connected or has sufficient rights to be connected and to lay, repair, replace and upgrade services over any land between the plot and the public adopted highway and service connections. The wording of the rights granted is important as incorrectly granted rights may cause problems for a buyer or a funder.

Title

As buyer it is for you to satisfy yourself that the seller of the plot you are buying has title to sell you the plot and that there is nothing on the title to prevent you building your house. This could be a right of way crossing the site, pipe-lines under the ground, a building line, or a restrictive covenant preventing residential building on the property. Any of these examples could cause problems for someone buying the completed house, or for you trying to mortgage the property once built. This is an important distinction concerning timing. These encumbrances may not prevent you actually building the house i.e. spending your money buying and building out the plot, however they may severely impact on your ability to sell or mortgage it.

Rights to light and party walls

Depending on the context (this is probably more significant in an urban setting) considering any ‘right to light’ issues is important. This is where a building may be considered to have deprived an adjoining property of a historic right to light over the plot. Clearly taller buildings close to boundaries are likely to bring this consideration to the fore. A breach of someone’s right to light might give rise to a claim for damages or in the worst case, lead to an injunction to demolish the offending building. Similarly in a more constrained building context, hard up against boundaries and other adjoining buildings, a Party Wall agreement may be required, providing an agreed procedure for undertaking works within a certain distance of the neighbour’s property. If the plans of a plot you are interested in show building walls or fences hard up against the boundary, you will need a Party Wall agreement.

Building funding

Unless putting in cash, an owner will need to borrow the money to buy the plot and pay for the building works. This will require a loan facility letter, a loan agreement, and a legal charge over the plot securing the loan. The funder will appoint solicitors to check the plot provides good security for its loan advance. Funds are then released to the owner at certain stages of the building progress, enabling the owner to either pay its subcontractors and material suppliers, or pay a main contractor. The final significant payment is made on practical completion of the project (against an architect/project manager’s sign off), with an element, maybe 5%, held back as a retention against any snagging items identified at Practical Completion as needing rectifying.

Building guarantee

A funder will require that the owner procure a building guarantee. This is typically a ten year guarantee of the building works, for the benefit of the owner, a funder, and any successors in title during that ten year period. You will need to line up a Building Guarantee provider at the start of the project, agree a premium (this will depend on the end property value but for example a £500,000 project could cost around £4,000), and check with your funder that they are happy to accept the warranty from that provider.

Appointments

If appointing a traditional design and build contractor, or having a firm install an offsite manufactured building, you will need to ensure they are appointed with a suitable form of building appointment, a form of JCT works contract or NEC contract, providing for a retention of payments against work requiring rectification for a period of say 12 months after completion. They will also need to provide a warranty for the design and building works. Both of these need to be issued and/or checked by your solicitor prior to appointment.

Sale

On a sale or mortgage of the built house, you as seller will be asked to provide all the details listed above as part of the legal due diligence. By making sure you have properly addressed each of the points during the acquisition and build stages, you should have no issues in satisfying a buyer or a lender that they are buying a sound property/taking good security.  

It seems likely that the number of people undertaking self builds will continue to increase but it takes a very careful planned approach. The temptation is to skimp on addressing some of the legal issues to reduce up-front cost, however money spent properly making sure the end product is very sellable, is money well spent. We would (of course!) endorse that approach but we are always willing to discuss fee payment structuring appropriate to a project. 

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 June 2020.