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Newbuild guarantees explained

What is a Newbuild guarantee is and why it is important?

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When you purchase your stunning brand new property, your solicitor will need to check that a Newbuild guarantee is in place. Not only is this required by lenders, but it also offers important defects guarantees. This form of guarantee was historically provided by the National House Builder’s Council (NHBC), but other providers have sprung up and your solicitor will ensure that that they are approved by the Council of Mortgage Lenders.

The NHBC “Buildmark” scheme provides a two part guarantee. The developer agrees to be responsible for remedying all defects which occur within two years of purchase. In the case of default the NHBC will step in. Similarly, if the developer becomes insolvent before completion of the property, the NHBC will make good any loss to a buyer for example in respect of the deposit.

After the first two years, the NHBC provides an insurance-style guarantee that it will rectify specified structural defects arising in the property during the next eight years. Structural defects are defined to exclude for example defective plasterwork or decorations. There is thus a 10-year guarantee offered. When buying a property constructed within the past 10 years, ensure that the property is covered by such a guarantee. Statistically most defects occur between 5 and 10 years after construction emphasising the importance of obtaining a structural guarantee even when not buying directly from the developer.

In the case of properties registered with the NHBC after 1 April 1999, the cover will also include the cost of cleaning up any contamination on the land on which the property is built. There is no such cover for properties registered with NHBC before that date.

When you embark upon the legal process purchasing a new build, your solicitor will check the contract to ensure that there is a term confirming that the developer is registered with NHBC and that on exchange will enter into the 10-year guarantee. Once the property is completed, the NHBC will undertake a final inspection and if all is satisfactory will issue a “10-year notice”. This is the document which gives the guarantee previously explained and will be handed over at completion. In addition to the 10 year notice in respect of the individual flat being bought, there will be a separate notice in relation to the common parts of the block.

A couple of extra points which need to be considered by you and your solicitor are as follows:

  • Check when the NHBC guarantee actually commences as many newbuilds have been used for letting before eventual sale
  • Check that the person to whom the deposit is paid is NHBC registered as this may not be the same person as the developer. If this is the case, the deposit will have to be held by the developer’s solicitors as stakeholders which means that the deposit stays in the solicitor’s client account pending completion.

Please note the contents contained in this article are for general guidance only and reflection the position at time of posting. Legal advice should be sought before taking action in relation to specific matters.

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