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New Home Buyers

Volume 471: debated on Wednesday 6 February 2008

I intend to raise a number of issues concerning the difficulties experienced by many people buying newly built houses or flats. Those problems are legion. They can range from houses not being built on time or not being made available to the purchaser, sometimes for years after the date on which they were meant to be; defects in the building work that are not repaired in spite of repeated requests and demands from the purchasers; problems with the estate as a whole; and problems with the property management companies associated with new build developments. Those problems often affect those buying new build homes at the time when they are most under pressure, owing to the personal and financial stress involved in buying a new home.

I am raising this matter today, because a large number of new build properties—mainly, but not exclusively flats—are being built, or have been built recently, in my constituency. Over a number of years, I have been approached by constituents who have had problems with new build housing such as those that I have described. Indeed, I first raised this issue in Parliament in April 2002, less than a year after I was first elected. I am glad to have the opportunity to raise the matter again, but the fact that I am obliged to do so illustrates that much action is still required to deal with a problem that has been raised with me on many occasions in my constituency. However, consumer organisations are also concerned and see it as a problem affecting the entire UK.

As I said, particular issues have been raised in my constituency, and I shall describe in more detail a particular case raised with me recently. However, I emphasise that the problem exists throughout the UK. Extensive research on the matter has recently been conducted by the consumer group Which?, the National Consumer Council and the Scottish Consumer Council. It shows that as many as 90 per cent. of those who buy new build homes are left with snagging problems, such as faulty wiring, badly fitting doors, leaking windows or more serious problems. More than a quarter of new build property developments are described by their purchasers as being of poor quality.

As I have said, this issue has been raised with me on a number of occasions, over a number of years. However, the particular case that led to me raising the matter today was brought to my attention by a constituent of mine who lives in a development called Corinthian Quay, undertaken by Elphinstone builders, on Lower Granton road in my constituency. I shall quote briefly from her e-mail in which she first raised the matter with me shortly before Christmas:

“I would like to draw your attention to another matter that has been a source of constant worry and stress to me for the past 2 and half years. I bought a new apartment off plan in Feb 2005 and have had nothing but problems with the builders - they have been very uncommunicative and unhelpful… We have been lied to on numerous occasions and been told that the build would be ready again and again when it was obvious it would not. We sold our properties on the strength of what they told us and ended up at in rented accommodation for 8 months (at great expense)”.

The e-mail also states that

“when one thing is fixed we find another. Many of the other residents have experienced horrendous problems eg sewage coming up through baths and sinks onto carpets, ceilings collapsing and many other problems. The resident above us is currently experiencing his 4th water leak and water is seeping into our apartment”.

I shall not read her e-mail in full, because it would take too long. However, the crux of the matter comes in her final comments:

“We feel that we have more rights buying a packet of crisps than a £285K luxury apartment. We have paid the builder and we are not getting what we paid for. We moved to a new build so we would not have any problems - we now have more problems with this build than we have had with all the older properties we bought put together!”

That highlights one constituent’s problems, but, as my research shows, the same problems—although perhaps not as bad as in that development—affect many people in many parts of the country.

My constituent’s comments about having more rights when buying a packet of crisps than when buying an new house touch on one the central problems in dealing with the issue. For many people, a new home—possibly a new build home—will be the biggest purchase of their lives. However, practical remedies are not available to them as consumers to enable them to deal with problems that can arise when buying such a property. That contrasts with the simplest and cheapest items that one might buy in a corner shop, when consumers benefit from legislation, such as the Sale of Goods Act 1979, which, of course, does not apply to new build homes. As a result, consumers have fewer legal rights than if they bought a packet of crisps in a local shop.

One problem is that the purchase of houses or flats, whether new build or older properties, is covered by property law. There are differences between Scotland and England, but the general point is still a reasonable one. Property law is governed essentially by the rule of buyer beware, which gives consumers much less protection than they would have if they enjoyed legal rights similar to those that apply under the 1979 Act.

I congratulate my hon. Friend on securing this debate. Has he had difficulties with factoring companies as a result of such sales? We have had major difficulties with companies such as Greenbelt Group Ltd and Ross and Liddle taking constituents of mine to court. They were charging up to £400 a year for a service that they did not provide.

My hon. Friend makes a good point. Problems can arise with factoring companies or property management companies—or however they want to describe themselves. Certainly constituents of mine have raised such concerns, although the case that I just referred to did not involve that problem. However, it is certainly an indication of the kind of problems that arise for many people living in new build flats in particular. Action needs to be taken, perhaps at a devolved level in my hon. Friend’s case, or at a UK level. That problem needs to be attended to.

On the extension of consumer protection to the buyer of a new build property, the problem was recognised by the Housing Improvement Task Force set up by the Scottish Executive some years ago. In 2003—five years ago, which illustrates part of the difficulty—it reported:

“We believe that caveat emptor”—

the buyer beware principle—

“may need to be qualified in respect of new build developments, where the sale is not between two private individuals and where the builder is in a similar position to other commercial providers of goods and services who are expected to comply with consumer protection legislation”.

That highlights another problem faced by those buying new build properties. In effect, they must accept the developer’s terms, or they do not get the house. They have no alternative or room to negotiate for a better deal.

The developer will normally have a standard builders missive or contract. In theory, in some circumstances, the purchaser might be able to withdraw from a contract to buy the property and get their money back, but that is not normally a realistic option in practice. It is not much use if people have had to wait for years to get their property, and then they find that their only option is to try to cancel the deal, dump all their furniture in the street and start all over again. That is not a realistic option for most people who buy new build property, or indeed any property, even though it might apply in theory in some cases.

We need changes to the law to give people who buy newly built houses or flats much greater consumer protection, and as my hon. Friend the Minister knows, it is a UK-wide problem, because consumer protection is a reserved matter for the UK Parliament. Aspects of it relate to devolved legislation, but the consumer protection aspect requires action at UK level. Although I refer to cases in Scotland and in my constituency, the problem applies UK-wide, and the consumer organisations have requested a change in the law at UK level, which I certainly support.

There must be changes in the law, such as providing people who buy new build flats or houses rights similar to those under the 1979 Act. However, there must also be important changes in practice, too. Many organisations have agued that the standard new build missive must be much fairer to buyers. For example, there should be a specific entry date, rather than a vague entry date that is not worth the paper that it is written on.

My colleague, Helen Eadie MSP, recently submitted a Bill to the Scottish Parliament designed to bring about precisely that change to the law to ensure that there is a specific entry date for new property. However, she has been advised—whether correctly is open to discussion—that because of the consumer protection provisions, it is a reserved matter for the UK Parliament, so she can no longer pursue it as a private Member’s Bill in the Scottish Parliament. Again, the situation indicates that we need action not only at Scottish level, but at UK level. We need action to ensure that, when people in Scottish constituencies are affected, the two levels of government work together to find a solution. Furthermore, there must be better self-regulation by the housing industry, as the consumer organisations have said. I do not have time to go into that issue, but it is another part of the solution.

Having made some suggestions for change, I recognise that other proposals might be introduced to deal with the situation. I first raised the issue almost six years ago, and there has certainly been a great deal of talk, but not much action. Recently, however, the Office of Fair Trading has begun an investigation into the issue—an important step that I hope will result in an improvement in the situation for people who have such problems with new build property.

The first round of consultation by the OFT has concluded, but I have been told that it would welcome the submission of evidence of such problems. I shall certainly be submitting to the OFT examples from my constituency, and if any of my constituents watching the debate decide to send me information, I shall submit that, too. However, I should ask that people in other constituencies do not send me information, because when I raised the issue previously, I received correspondence from throughout the UK. That illustrates the problem, but the evidence should nevertheless go to the individual’s MP.

The OFT is carrying out a study, so I am sure that the Minister will tell us that he wants to wait for its report before the Government come to a conclusion on the matter, which I understand. However, I ask him to assure us that, when the OFT reports, the Government will act urgently to make changes to give proper consumer protection to people who buy newly built homes and flats and who find that they have such problems. In particular, as an MP representing a Scottish constituency, I ask him to ensure that the appropriate UK Departments get together with the appropriate Scottish Departments, the relevant consumer organisations and legal and trade interests to ensure that the action that I have called for is implemented throughout the UK.

As I have indicated, apparently, this involves some complex areas of law, which may have caused the delay in taking action in Scotland in particular, but we cannot wait too much longer for action—not much longer at all, I hope. The number of new build developments is increasing in most constituencies—certainly in mine and in that of my hon. Friend the Member for Livingston (Mr. Devine) more than in others. Therefore, we cannot wait for action indefinitely. We want it soon, and I should like a commitment from the Minister that the Government recognise the seriousness of the problem and that they will take early action, including on the issues that overlap the Scottish and UK levels of government. Co-operation between the various interests should resolve that overlap, and I am sure the Minister agrees that it should not be an excuse for inactivity.

I congratulate my hon. Friend the Member for Edinburgh, North and Leith (Mark Lazarowicz) on obtaining the debate and on his assiduity in pursuing the issue for the time that he has. It is clearly important to his constituency and to my hon. Friend the Member for Livingston (Mr. Devine), given his intervention.

I listened in particular when my hon. Friend the Member for Edinburgh, North and Leith read out that extract detailing the frustration of his constituent. No one who has ever bought a home could fail to be sympathetic to the frustration that his constituent has endured. My hon. Friend raised two broad areas of concern for new home buyers: snagging and the rectification of faults, and delays in completion. He made specific requests about the OFT study, and I can assure him that, once we have seen the study, we will ensure that its conclusions are discussed with officials in the Scottish Executive. I welcome my hon. Friend’s writing to the OFT directly, and I shall bring his remarks to the OFT’s attention.

Will my hon. Friend the Minister also include the role of factoring companies in his discussions with the OFT? Companies such as Greenbelt Group take over the common land and own it in perpetuity, so regardless of whether they provide a good service, people have to pay and the companies have a monopoly, which is totally unacceptable, as I am sure my hon. Friend will agree.

I hear my hon. Friend’s concerns, and I am happy to draw them to the OFT’s attention. I should also be happy if my hon. Friend would like to meet separately to discuss them.

There are already some initiatives regarding the two areas of concern that my hon. Friend the Member for Edinburgh, North and Leith discussed. The Council of Mortgage Lenders has introduced a revised finalling procedure, under which lenders will not release the mortgage funds on a property until a satisfactory final inspection has been completed and confirmation has been given that a full new home warranty will be in place on or before the entry date. It follows a similar initiative in England and Wales that was successful in reducing the number of failed pre-handover inspections. There have also been discussions between the Law Society of Scotland and Homes for Scotland—the umbrella organisation for the home building industry in Scotland—about standard terms for the builders missives, the conveyancing contract.

Those initiatives will be helpful in addressing the issues that my hon. Friend has raised, but he will recognise that such matters fall within the purview of the Scottish Executive. I have no doubt that the Executive will be interested in what the OFT has to say. I hope that he recognises that I am not in a position to comment at length on matters that fall within the responsibility of the Scottish Executive, but I repeat that I will ensure that the outcome of the OFT study is discussed with Executive officials.

I accept that my hon. Friend the Minister cannot act on matters within the purview of the Scottish Executive, but I reiterate that Helen Eadie MSP has been advised by the legal officers of the Scottish Parliament that she cannot introduce legislation on an entry date, because it falls within UK reserved competence. I hope that the Minister’s Department will consider that before it assumes that it is a Scottish Executive responsibility. I am concerned that we could end up with years of argument between the two levels of government about who is responsible, and we do not want that to happen. I hope that he will ensure that his Department notes that there is some argument about where responsibility lies.

I note my hon. Friend’s intervention, and I have heard his point about the discussions that have taken place in Scotland between Helen Eadie MSP and the Scottish Executive. I would be happy to receive direct representations on those discussions from either my hon. Friend or Ms Eadie herself.

My hon. Friend also mentioned a matter on which I do have specific and immediate responsibility for consumer protection: the Sale of Goods Act 1979, from which, as he rightly said, the purchase of homes is excluded. I hope that I can clarify why that is so, but I first wish to indicate again our welcome for the work that the OFT is engaging in. It is examining the home buyer’s purchasing experience and the fitness for purpose of new homes. It will consider the consumer protection and redress that are available, including the consumer legislation that applies, and whether changes are necessary. We expect that study to report in the autumn. My hon. Friend asked for early action, but he made an assumption that I do not wish to make. However, I assure him that we will give early consideration to the outcome of the report, particularly any recommendation that falls to my Department.

On the 1979 Act, there is not an exceptional omission or exclusion for housing. There is a much broader pattern and structure of how property law, covering land and buildings, is recognised. The law relating to property is distinct, forming a separate body of legislation and jurisprudence, reflecting the importance and value of transactions in land or property. As my hon. Friend will no doubt recognise, for transactions in land, it is particularly necessary that there should be clarity about exactly when ownership passes from one person to another and what is, and is not, included in any transfer. Property law has developed distinctively to meet those needs. Consumer law in general therefore does not apply to transactions in land or buildings, albeit with one significant exception.

Although consumer law and the statutory rights attached to consumer transactions do not generally apply to the purchase of a new home, it does not follow that the consumer is lacking in rights or redress when purchasing a new home. It is true that, on occasion, the buyer of a new home is in a weaker position than the builder. My hon. Friend may be aware of cases in which the developer has had standard terms prepared for the contract and not been willing to amend them. If there is unfairness in such standard terms, it can be addressed through the Unfair Terms in Consumer Contracts Regulations 1999. Under those regulations, a term that is found to be unfair is not binding on the consumer, and the Office of Fair Trading can take action to have standard terms altered if there is a view that they are unfairly weighted against the interests of the consumer. The purchaser of a new home therefore has rights and redress if a contract is not properly performed.

The most used remedies under the 1979 Act—the rejection of unsatisfactory goods by the purchaser or replacement by the vendor—are most unlikely to be appropriate for a dispute about the construction standards of a new house or flat. The contract can be annulled in extreme cases, but it is essentially tied to the property in question, and replacement with another house or flat is probably not realistic and may be undesirable for the buyer. I suggest to my hon. Friend that it is not surprising that the 1979 Act remedies are not appropriate, because they were framed for quite different situations. As I have indicated, we have an open mind about the possibility that new rights could be created for the benefit of consumers if the existing balance of rights and redress is found to be unsatisfactory.

My hon. Friend mentioned the suggestion by the Housing Improvement Task Force that it might be necessary to amend the rule of caveat emptor in relation to new build homes. Of course, any new legal provision that confers rights or imposes implied terms will, in some sense, qualify the simple rule of caveat emptor. I have no difficulty in principle with that idea but, as I hope my hon. Friend will recognise, we will want to hear what the OFT has to say on that in its report.

I say again that I am sympathetic to my hon. Friend’s concerns and particularly to the views of his constituents who have written to him about their experiences of buying new homes. I hope that he recognises that the situation that he described—that someone has more rights buying a packet of crisps than buying a new home—is not accurate, but we understand the frustration of people who have had bad experiences with rogue builders. That is one reason why the OFT is conducting its market study.

I recognise the need for us here in London, in the Department for Business, Enterprise and Regulatory Reform, with our responsibility for consumer affairs as a reserved issue, to discuss the Scottish experience of the matter with the Scottish Executive. I have also offered to meet my hon. Friend the Member for Livingston about the issue that he raised, and I am happy to receive representations from Helen Eadie or my hon. Friend the Member for Edinburgh, North and Leith, on what Ms Eadie has discussed with the Scottish Executive.

Sitting suspended for a Division in the House.