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Home information packs
Michael Garson provides an overview of the "home information pack" and what it will mean for buyers and sellers of residential property.
March 2006
Introduction
The new "Home Information Pack" is to be introduced as a result of Part 5 (ss148 to 178) of the Housing Act 2004. (See also the Explanatory notes to the Act).
1 July 2007 is the date when it will become compulsory to have a Home Information Pack (HIP) before a home can be put on the market for sale. This date has been confirmed by the Office of the Deputy Prime Minister on 16 March 2006.
What does this mean for sellers?
Firstly, it means a seller cannot make a spontaneous decision to sell a house or flat and act on that decision immediately. Secondly, it means that a seller must either pay or commit to pay for the preparation of a HIP. Even if an owner wants to prepare his own pack it would at today’s prices cost around £500, as it must contain elements that have to be paid for, such as the Home Condition Report, and relevant local searches.
What is the pack?
The pack is a collection of documents that must be in existence when the property first goes on the market – that date is identified as the First Point of Marketing (FPM). Whoever has control of the marketing of the property, whether it be the estate agent, if there is one involved, or otherwise the seller is known as the “Responsible Person”. That person must have a copy of the pack and the ability to provide a copy to a potential buyer within 14 days of request. It is expected that lenders too will come to rely upon the pack for their funding decisions.
Packs do not have to be produced unconditionally on demand. It will be possible to attach conditions, such as requiring evidence that a buyer who expresses an interest in buying the property in question can afford to do so and is a person with whom the seller is prepared to deal. This, it is emphasised, cannot excuse unlawful discrimination.
What will the HIP contain?
The HIP must contain the “required” documents relevant to the type of property and may contain additional “authorised” documents – full details of these will be contained in the regulations to be made under Part 5 of the Housing Act. (They are currently the subject of an http://www.odpm.gov.uk/index.asp?docid=1161272>ODPM consultation. The contents of the Pack, whether ‘required’ (compulsory) or ‘authorised’ (voluntary), must meet set standards as to accuracy, clarity and, in some circumstances, are subject to compulsory updating. Different elements must not exceed a specified ‘age’ at the FPM. The regulations are expected to be finalised by June 2006 and then offered for adoption by parliament.
Most of the ‘required’ documents in the HIP are those that would in the past have been provided by the seller’s solicitor to the buyer’s solicitor after the buyer’s offer on the sale price has been made and accepted and the sale is agreed, subject to contract. The time shift for disclosures of the specified information from post-offer to pre-marketing is intended to effect a public disclosure rather than a private exchange of information.
Other documents
Additional documents/information may be supplied alongside the pack or ‘in close proximity’ to it but, to ensure there is no confusion between the HIP and any ancillary documents, the HIP documents will have to bear the new HIP logo to be prescribed by the regulations.
Home condition report
The most radical innovation is the requirement in the pack for a “Home Condition Report” (HCR) on the property prepared by an accredited “Home Inspector”. This requirement could introduce delays and a change of outcome before any transaction that may follow. It will involve the seller in substantial outlay or liability for fees before any member of the public has viewed the property through advertising. It will also present, in a public disclosure, those factors that could inhibit the asking price wanted by the seller or suggested by the estate agent called to value the property.
The Home Inspector
The legislation requires the Home Condition Report to be prepared by a qualified “Home Inspector” following a physical inspection. The Inspector must be licensed by a recognised body and insured as well as bound to set standards and a complaints regime. The approved schemes for regulating home inspectors are now to be formed and submitted to the government by September 2006. It is expected that private commercial organisations may afford a choice of regulators for Home Inspectors.
Publication of the HCR
The report must be registered on an accessible databank to enable buyers, sellers, lenders and other Home Inspectors to view the report of the physical condition of the property. Once the system has been in place for some years, it will carry the history of any important work carried out to a property.
It is intended that advance disclosures will reduce delays and the breakdown in transactions that is caused by renegotiation on price after a buyer/lender-commissioned survey has revealed defects or the need for remedial work. It may also assist the government in assessing the energy efficiency of the national housing stock.
A seller might be well advised to obtain a pre-HCR inspection so that any defects that might appear in the HCR are remedied before the actual HCR goes onto the databank. Once registered it must be included in any pack for the property for a period of the next 12 months and could adversely affect the saleability of a property.
Energy performance certificates
The HCR will usually contain or must otherwise be accompanied by an “Energy Performance Certificate” which is also a required document for the HIP. Properties will be graded on a standard scale for energy and environmental efficiency. This will enable the government to comply with EU directives on energy efficiency and performance.
Valuation
The HCR will not include a valuation of the property although the Report will require an indication by the Home Inspector of the amount of insurance cover recommended for rebuilding costs. The Council for Mortgage Lenders, whose members are key to funding the transaction for buyers who need a loan, have yet to agree that its members will accept the HCR or adopt automated desktop valuations in the place of physical valuations. Until they embrace the new reports it remains possible that buyers will be required by their lender to pay for a survey as well as for a valuation.
Claims and complaints
Sellers, buyers and lenders will all be entitled to rely upon the accuracy of the HCR and it will be possible to make claims against the Home Inspector for negligent mistakes.
All approved bodies for accredited Home Inspectors will have to operate complaints and redress schemes. A by-product of the legislation is that all estate agents will also have to belong to a redress and complaints scheme.
The local Trading Standards Officers will be charged with enforcing this legislation and will be able to require a copy of the HIP for any property on the market to be produced to them within 7 days. They will also be able to enforce compliance with the Property Misdescriptions Act and there is potential for overlapping liability.
Penalties for failure to provide a HIP
A breach of the duties to have a HIP, provide a copy of a HIP and, in the case of estate agents, to belong to a redress scheme, can result in the issue of a penalty charge notice (PCN). The penalty will initially be fixed at £200. There will however be a heavier penalty for estate agents as the issue of a PCN will be reported to the OFT which has power to issue a ‘warning’ notice to an estate agent and to prohibit the estate agent from continuing to work as such.
It should not be overlooked that the definition of estate agent under this legislation is much wider than might be assumed from other legislation.
© Michael Garson.
Other articles:"Trading places" by Duncan Greenwood - An explanation and discussion of the likely implications of the pack. (Property Law Journal, 10 October 2005, p2).
"A restful process or a nightmare?" by Gary Murphy, head of residential auctions at Allsop - A reminder that HIPs will be compulsory from 1 June 2007 and outline of what it will all mean. The article concludes: "Opinions vary as to whether the envisaged benefits of the HIP will materialise. It will certainly create jobs. Around 7,500 inspectors will be required to service up to 2m agreed sales annually. And pack provision will become a separate industry overnight." (Estates Gazette, 4 February 2006, p266).
"A lot to be desired" by Katherine Fenn, Denton Wilde Sapte - Katherine states that if the draft regulations are anything to go by, they are a nightmare in the making. She then goes on to list eighteen potential problems. You probably dont want to read the article. (Estates Gazette, 21 January 2006, p115).
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