Becoming a property developer

Tony Articles

Tony Moore, director of AMD Solicitors considers some of the legal implications.

In recent years opportunities have increased for individuals or companies to acquire sites perhaps with a view to demolishing existing buildings and then constructing a number of houses or flats on that site. 

When developing a “small building estate” the prudent developer should be alert to aspects of the law which may not have been considered as being relevant. The Property Mis-description Act, for example, Section 1(1) of which provides “where a false or misleading statement (about a prescribed matter) is made in the course of an estate agency business or a property development business the person by whom the business is carried on shall be guilty of an offence”. As well as oral or written statements, a false or misleading picture might qualify. The Act was primarily aimed at estate agents, but developers who market their new or even renovated properties directly to purchasers also run the risk of prosecution. The law will presume that showing to a prospective purchaser an ‘artists’ impression of a show house or flat is treated as a statement that the developer proposes to build it in that way. Optimistic descriptions or remarks made in sales offices or over the telephone may carry great weight. The rule should be – ‘be accurate or beware!’

Attempts at restricting contractual liability may also be thwarted. The Unfair Contract Terms Act 1977 provides that where one party is dealing as a consumer with the other who is in the course of his business (i.e. the developer) any clause which attempts to restrict liability for breach of contract or for misrepresentation is subject to a test of “reasonableness”

Liability may not end on completion of a sale! A developer should also consider carefully the on-going obligations for making good defects. It is standard practice for developers to contract to build a house or flat in accordance with the terms of the planning permission and building regulation approval. To make a new build property acceptable to a buyer’s mortgage lender, the developer will usually also have to offer some type of insurance, such as either NHBC Buildmark or Zurich Municipal Cover. NHBC provides cover for the buyer for a total of 10 years in all, for the first two years against any defect resulting from builder’s failure to meet certain standards and, for the next three to eight years, warranty and insurance cover for specified parts of the property. Zurich Municipal provides a similar form of insurance.

A prudent developer will also be aware of other legislation such as the Supply of Goods and Services Act 1982, Section 13 of which specifically imposes a duty on a developer to exercise reasonable care and skill in building a new home. Failure to comply gives the buyer the right to reject “ the goods”. The 1972 Defective Premises Act creates a duty on anyone providing a “dwelling” (or indeed converting a building into more dwellings or a non-residential building into a dwelling) to “see that the work which he takes on is done in a workmanlike or professional manner with proper materials and so that, as regards that work, the dwelling will be fit for habitation when completed”.

These are only a few of the issues which, if you are new to development, you will need to be aware of. AMD’s Commercial Property Department can advise and assist you in all legal aspects of buying, developing and selling your property.

Tony Moore and the other members of the Commercial Property Team at AMD Solicitors are available to offer further advice and information on buying, selling or leasing all types of commercial property. Telephone 0117 9621205. E-mail commercial@amdsolicitors.com

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