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Developing a property with intention to sell can make you liable under defective premises law

Individuals who develop a property intending to sell it from the outset, and live in it for only a minimal period, will be treated as property developers and therefore liable for defects under defective premises law following the sale.

 A husband and wife bought a property which had been completely rebuilt around a year before, from two women. However, they found it was structurally unsafe and it had to be demolished. They took the sellers to court, alleging breach of defective premises law and claiming compensation. For their claim to succeed, they had to show the sellers had been acting as property developers.

The claimants argued that the sellers had rebuilt the property always intending to sell it, and had therefore been acting as property developers. The sellers counterclaimed that they had rebuilt it to become their dream home, but decided to sell it because of changes in their financial situation.

The court said they were only property developers if the husband and wife could prove:

  • the two women intended to sell the new house as soon as they reasonably could after it was finished;
  • they had no intention at that time of living in it as their home for more than a minimal period.

There was evidence that the two women did plan to live in the property, and had not planned to sell it. For instance:

  • they had become civil partners after the house had been rebuilt and had moved into it;
  • they had asked friends to contribute towards a painting they had specially commissioned to fit a particular wall in the house (rather than give them presents);
  • they had not registered with the NHBC Buildmark scheme as either builders or developers, which would have meant there was a warranty on the house, increasing its value on sale.

The point had also been raised that neither of the two women had been involved in property development before. However, the court ruled it was not necessary to show a history of property development for someone to be a property developer under defective premises law. The claimants failed in their claim.

Recommendation

Those buying, renovating or rebuilding property intending to sell it from the time the work starts, and with no intention of living in it for more than a minimal period (if at all) should work on the basis they may be property developers under defective premises law. This means they will be liable to a buyer for defects – even if they have never developed and sold a property before.

Case ref: (1) Niklas Zennstrom (2) Catherine Zennstrom v (1) Kevin Fagot (2) Helen Moseley (3) Deborah Patricia Wilks (4) Andrew Ramus (5) Fast-Calc Ltd [2013] EWHC 288 (TCC)

Jonathan Waters is the founder of Helix Law. Before qualifying as a Solicitor he worked in industry and in investment banking for over a decade. He was also the Partner in charge of Commercial Litigation, Employment Law and Property Litigation at Stephen Rimmer LLP. Jonathan has wide experience of helping and advising businesses to avoid or to deal with commercial disputes and in particular construction disputes.

This article is written to raise awareness of the issues it discusses and it may not be updated after it is first written, even if the law changes. It is not intended to be legal advice and cannot be relied on as such. Helix Law is not responsible or liable for any action taken or not taken as a result of  this article. If you think the matters set out affect you and you wish to apply them to your particular circumstances then we are happy to give you free initial telephone advice. 

Contact Helix Law on 01273 761 990 or email: [email protected]