Inspections and Reports on Dwellings

Reporting for Sellers

Ian Melville, Ian Gordon

• Publisher: Estates Gazette
• Year: 2016
• Print ISBN: 9781138150447
• eBook ISBN: 9781135326135
• Edition: 1
• Topic: Diritto
• Subtopic: Diritto sulla proprietà

Inspections and Reports on Dwellings is a series of four books, the first three of which have already been published to considerable success. This concluding book covers reports prepared before dwellings are put on the market for sale, whether as a legal requirement or on a voluntary basis. All take into account guidelines laid down by the Courts for this type of work.

Sellers' surveys are not new, but only now have standard formats been developed. In England and Wales this is the Home Condition Report, with its Energy Performance Certificate, which can only be prepared by Licensed Home Inspectors.

The Home Inspectors hold a Diploma in Home Inspection, sometimes with an add-on Certificate in Valuation of Residential Property for Secured Lending and they are members of a Government approved certification scheme.

In Scotland each dwelling must have a Single Survey Report carried out before it goes on the market from 1 December 2008. The Single Survey Report describes the condition, sets out accessibility information, contains a valuation and energy reports. Initially only Chartered Surveyors will be authorised to do this work. Both Inspectors and Surveyors have to follow Codes of Conduct and Practice, carry professional indemnity insurance and allow their reports to be monitored to maintain standards – an entirely new concept.

The book examines the relevant legislation and looks closely at the entire qualification and certification process for Home Inspector Valuers. Additionally the likely reaction of sellers, buyers and lenders are discussed. A substantial section is devoted to lending on dwellings and the practicalities of their valuation by the Comparative, Investment and Residual methods following the requirements of the 'Red Book'. Four detailed sample reports are included to demonstrate how reports must be presented.

The book is intended for all those engaged in the preparation of reports on dwellings whether experienced, newly qualified or studying. As well as being an essential book for surveyors it will also be of considerable interest to solicitors and estate agents, particularly those based in Scotland.

The authors, experienced Chartered Surveyors, have written extensively on the diagnosis of defects in dwellings and are joint authors of the successful EG Books publication The Repair and Maintenance of Houses, 2nd edn.

Section 1
Background

Background

As the level of home ownership in Great Britain has grown from 10% at the beginning of the 1914–1918 War to the 80% of today, so have the grumbles about the systems (both north and south of the border between England and Scotland) of buying and selling dwellings. Between the two World Wars from 1919–1939, the growth had come about because of the decline in the building of new dwellings for rent, due mainly to control on the amount that could be charged, together with the availability of new houses for sale in the suburbs along with the mortgages that made their purchase possible. Although there might have been a few complaints about poor construction which resulted in some of the larger builders forming the National House Building Council and offering a guarantee, most were only too delighted with their move and had little to grumble about. After all, repayments were often less than the rents charged for inferior accommodation available nearer the city centres, jobs were available on the new industrial estates and the public transport of the time worked. The idea of having a survey never arose.

Where existing older houses exchanged hands, it was generally among the more wealthy, perhaps necessitating and involving a bank loan because building society mortgages were usually only available on new dwellings, but it was probably not their last penny that was being used for the purpose. A less than satisfactory outcome in regard to repair often did not matter to quite the same extent as it would have done to those of comparatively limited means. A structural survey might or might not have been carried out, but even if it had and something not too damaging had been missed, in a more tolerant age it might have been passed over as an honest mistake among friends, an attitude that would seem beyond belief to many nowadays.

Following the end of World War II, however, shortages and government policy initially restricted new development until the mid 1950s to local authorities and New Town Corporations, who often employed innovative constructional methods. When older rented houses became empty in the private sector, landlords endeavoured to sell rather than re-let. This proved difficult at first, but it became easier with active government encouragement and the availability of local authority mortgages coupled with statutory and discretionary improvement grants. Eventually building societies found with government help that they too were able to lend on older dwellings and flats, as well as new houses. It was a requirement for building societies to have a formal written valuation before lending money on residential property and most charged the buyer for this but kept the contents of reports to themselves. Applicants increasingly grumbled about not being able to see what they were paying for and following growing discontent and articles in the Press in the 1970s, one society broke rank and started to disclose the report to the applicant, to the consternation of valuers. Other societies rapidly followed suit.

Although the market for structural surveys at that time was growing, the disclosure of valuation reports certainly put the brake on. Few purchasers could see the sense of paying many times the amount of the valuation fee for their own survey in addition. The view of the vast majority of the public had always been that if a loan was forthcoming there could not be much wrong with the property, little realising that many valuations were based on the briefest of inspections. They held to this view, even more so, on being shown the report.

The Courts, however, following their consistent policy considered that valuers should have known that buyers would rely on disclosed reports and awarded substantial damages against valuers if major faults had been missed, even though the indications, although positive, may have been very slight. These damages seldom placated aggrieved buyers, since they were awarded damages on the long standing basis, as reaffirmed in the case of Philips v Ward 1956, of the difference in value between the house as reported on and its value if the defects had been known about at the time of the inspection. This rarely equalled the cost of the necessary repairs and purchasers were left to meet the additional costs themselves, over and above the damages awarded, a crippling amount to many. A wave of such decisions and, of course, many others settled out of Court resulted in a vast increase in professional indemnity insurance premiums and led some building societies to make available to their applicants a choice of mortgage valuation or a more detailed survey and report. The considerable variations in these from one society to another spurred the Royal Institution of Chartered Surveyors and the Incorporated Society of Valuers and Auctioneers to develop their respective House and separate Flat Buyers Survey and Valuation Report Forms, which were first offered to the public by their members in 1981. When launched they were said to be suitable for use ‘when time is short and economy important’ and involved ‘a less comprehensive inspection’. Agreement was reached that building societies would offer applicants a choice of Mortgage Valuation, Homebuyer Survey and Valuation (as it later became, merging the separate House and Flat Buyer forms) or a full Building Survey (as Structural Surveys came to be titled) with a suggestion that they should have something better than a mortgage valuation. Few purchasers took up the suggestion and at most it was reckoned that only about 20% of all purchasers had anything more than a mortgage valuation. They could still see no reason to pay more while building societies continued to send copies of mortgage valuation reports to applicants who still had redress, through the Courts if the valuer had missed signs, however small, of major defects.

The grumbles about the quality of surveys on dwellings other than those which were new, their cost and the inadequacy of compensation for aggrieved purchasers, were additional to all the other perceived difficulties arising particularly at times when property prices were increasing and there was a scramble for accommodation. Unlike in other parts of the world and, for that matter, even here for the sale of goods in the course of business, motor cars for example, there was no duty on the seller of residential property to disclose anything about the condition of the property in either England, Scotland or Wales. If the seller knew about subsidence and chose to paper over the filled in cracks and render over the affected parts outside, he needed to say nothing about it either to his agent or a purchaser and the latter would have no redress whatever against the seller if the subsidence continued. Indeed the practice of ‘doing a property up for sale’ is long established, a phrase which can involve far more than the mere cosmetic.

The principle of caveat emptor, let the buyer beware, has never been ameliorated or relaxed for the purchase of property as it has been for the purchase of many goods and even as it was in Roman times. The seller who papered over the cracks was described by Cicero in 44BC as ‘shifty, deep, artful, treacherous, malevolent, underhand and sly’. It is still the law, even though the seller may be required to provide a Home Condition or Single Survey Report which, in effect, means disclosure of visible defects. The seller, however, can still keep quiet about the covered over defects which he knows about. As long as the report is produced at the time of marketing the property, the seller has complied with the law. Hopefully both Inspector, or Surveyor and/or purchaser will be smart enough to see through such a seller’s tactics.

Another factor contrasting the purchase of property as against goods, is that all contracts for the sale of the former have to be in writing. In practical terms this means that, perhaps, after months of searching, the property is viewed and, aware of the asking price, in England and Wales, an offer is made which the seller says is acceptable. Unfortunately this means nothing in legal terms and after the further expense of having a survey and engaging a solicitor for searches some weeks have passed and it may be found that the seller has been dazzled by an offer of a higher price and, not being a man of his word, has accepted it. As a result the first buyer is heavily out of pocket, much delayed and very disillusioned. Gazumping was very much a word of the last half of the 1900s and early 2000s. Out of spite, the prospective purchaser could hope that his successor would back out at the last minute, having found something better and leaving the seller with a bill for legal fees, gazundered in other words. However, the seller would be in no way as badly off as the disillusioned purchaser who is completely frustrated. He at least has a contract already prepared for the next purchaser who comes along, the one gazumped having to start all over again. Since market growth has outpaced periodic slumps, the seller has generally proved to be the winner on such occasions. In Scotland problems of gazumping or gazundering did not arise and still do not. However, because of the system whereby the seller invites bids over a certain figure and when a bid is accepted a contract is formed, a number of prospective purchasers may well go to the expense of hiring legal advisers and commissioning inspections and reports upon condition. All except those incurred by the successful bidder are wasted, however.

Possible solutions to the problems bringing about all the stressful conditions for buying and selling homes were considered quite often during the last 25 years of the 1900s. While the Law Commission considered that a general duty of disclosure would not necessarily compel sellers to commission surveys and reports, it thought that they would be well advised to do so. This would be so that they could fulfil the ‘should reasonably have known about’ aspect of disclosure. Yet the idea of sellers surveys was considered and rejected by the Law Commission for England and Wales in both 1975 and again in 1985. The year before in Scotland a committee of experts set up by the Secretary of State to consider the problem of multiple surveys by prospective bidders had also rejected the idea. The Law Commission Conveyancing Standing committee for England and Wales issued a further Consultation Paper in 1989 but, despite identifying 10 excepting cases in Great Britain where caveat emptor did not apply, considering the law in Australia, California and Denmark and enlisting the support of a major building society, the commission bowed to the responses. These, including those from the National Consumer Council and the Royal Institution of Chartered Surveyors, overwhelmingly rejected the idea of abolishing caveat emptor and rejected the idea of compulsory sellers’ packs. In its recommendations following responses to the consultation paper, entitled ‘Let the Buyer be Well Informed’, the Commission backed off and tamely suggested that perhaps sellers would voluntarily supply more information about their property. A pious hope indeed since there has never been anything to stop them from doing so but, in the main, they have generally chosen not to, unless they had urgent reasons for a quick sale.

What was strange about the last Law Commission consultation exercise was that the Consumers’ Association missed the boat and failed to respond even though in 1983 it had announced that 79% of a sample of 3,500 of its members favoured sellers’ packs. This failure to respond was surprising since as home ownership has grown so has the consumer lobby, providing evidence that, with a general rise in the standard of living, the average person is now much more wary about accepting sub-standard goods and inferior services. Over the last 30 years, the Association has looked at the problems of home buying and the services provided by surveyors on a number of occasions. In 1970 it found that one out of five, in a sample of 1,750 members, were not pleased with the service their surveyor provided. In 1983, of those who had had a survey, 20% found further faults and again in 1987 about 25% were dissatisfied. Not much difference therefore in satisfaction levels over the years and by no means a good bill of health for surveyors.

Not too dissimilar levels of dissatisfaction had been found by other research sponsored by Nationwide Building Society. This found, in 1988, that 16% of purchasers who had commissioned a survey were unhappy with the result and, in 1990, some 11% had considered making a claim. This research also found that 4% of all surveys failed to identify defects which would cost £2,500 to put right and that such defects were to be found in at least 5% of all properties.

In the 1990s and in an effort to speed up the house selling process, thereby reducing the risk of gazumping, a number of estate agents, surveyors, solicitors and at least one insurance company, took heed of the Law Commission Conveyancing Standing Committee’s advice about letting the buyer be better informed. Some of these initiatives which operated in East Anglia, Somerset and the London area amounted in effect to the preparation of a full seller’s pack including the legal aspects, consents, warranties and guarantees as well as the seller’s survey, while others were restricted to either the legal aspects or the survey. One firm offered an insurance backed scheme for surveys, another free title insurance, while a firm operating both north and south of the border provided the former for both buyer and seller in England as required, but also on line for the seller in Scotland which could be bought by the purchaser in whole or in part thus offsetting the cost to the seller. The Government monitored both the schemes and the results following its election in 1997. Its consultants thought that, because of their small number and that take up had been small, because of being entirely voluntary, a too positive conclusion could not be drawn. Nevertheless the consultants considered that a scheme for sellers’ packs could operate successfully, but would likely have to be compulsory, and that charges would need to be recovered at the point of sale rather than in advance.

Commitments had been made by the political parties ‘to do something’ about the traumas of buying and selling dwellings and to an extent the legislation of the Housing Act 2004 for England and Wales and the Housing (Scotland) Act 2006 follow the recommendations of the Law Commission Conveyancing Standing Committee and the Consumers’ Association, without altering the basic principles of the law. Caveat emptor remains the law in both countries, gazumping is still possible in England and Wales but, the opportunity reduced if transaction time is reduced and it is left to the Courts to decide the level of damages for breach of contract or negligence in the case of defective surveys.

What has been extraordinary since the Government’s election in 1997 is the shilly-shallying about the introduction of changes in England and Wales which formed part of its manifesto. The lack of progress on implementing the manifesto was explained away by ministers as being due to other priorities in the legislative programme but some thought more likely to be due to cold feet by the advocates of change. Whatever the reason this has resulted in 10 years elapsing before change is implemented and even then in a watered down version. The delay gave encouragement to the opponents of change, who were by no means lightweight and the impression that the Government was lukewarm about the proposals in the first place. Even the legislation was slow in arriving. A Homes Bill was presented to Parliament in 2000 to enact legislation to introduce compulsory seller’s packs including a seller’s survey but this was lost in the run up to the general election the following year and amazingly not brought forward again when the Government was reelected. Understandably many of those who would have been affected by the changes thought their opposition had succeeded and that the idea would go away and not reappear. Any ideas estate agents or the surveying profession might have had about how the proposals were to be implemented were put away.

However, to a mixed response varying from surprise to consternation, the proposals did reappear in a slightly different form and eventually became incorporated as Part 5 of the Housing Act 2004 to form the primary legislation outlining a requirement for a Home Information Pack (HIP) to include a Home Condition Report (HCR) which would incorporate an Energy Performance Certificate (EPC) to be prepared before a dwelling was marketed for sale and be made available to prospective buyers. In the way of much legislation the detail was to be filled in by regulations which would follow. A further two years went by before the Home Information Pack Regulations 2006 appeared comprising 56 close typed A4 pages accompanied by procedural guidance of a further 87 pages. Implementation was put down for June 2007, under a year away.

To be included in the pack were:

•terms of sale

•evidence of title

•replies to standard preliminary enquiries made on behalf of buyers

•copies of any planning, listed building and building regulation, consents and approvals

•for new properties, copies of warranties and guarantees

•any guarantees for work carried out on the property

•replies to local searches

•a Home Condition Report based on a professional survey of the property, including an energy efficiency assessment

and for leasehold property:

•a copy of the lease

•most recent service charge accounts and receipts

•building insurance policy details and payment receipts

•regulations made by the landlord or management company

•memorandum and articles of the landlord or management company

The short period before implementation was perceived as a possible problem but the fact that the information not normally available until after the buyers offer had been accepted by the seller was now to be provided upfront was thought likely to greatly assist the speed of transactions and reduce the relatively high level of failure, put by Government research at approximately 27%. The regulations were welcomed generally but particularly by lenders who thought the only novel feature, the Home Condition Report, for the carrying ...

Table of contents

• Cover
• Title Page
• Copyright Page
• Preface
• Table of Contents
• Section 1 Background
• Section 2 Legislation
• Section 3 Sellers, Buyers and the Reports
• Section 4 Home Inspectors — Qualification
• Section 5 Site Notes
• Section 6 The Home Condition Report and Energy Performance Certificate
• Section 7 Sample Home Condition Report and EPC: House
• Section 8 Sample Home Condition Report and EPC: Flat
• Section 9 Lending on Dwellings, Surveyors and Valuers
• Section 10 The Home Report: Single Survey, Energy Report and Property Questionnaire
• Section 11 Sample Home Report: House
• Section 12 Sample Home Report: Flat
• Glossary
• Index