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DO I NEED SNAGGING - THE DEVELOPER'S CONUNDRUM?

This is a desperately simple question to answer (YES of course you need to snag) and an equally difficult one to write about. Why – well because it appears to make little difference how many times, we put pen to paper, developers continue to repeat their mistakes time and time again.


Scenario 1. Imagine for a moment. You look forward to the latest mobile phone release and you make your purchase accordingly. It’s a lot of money for what is at the end of the day, just a phone, nonetheless you convince yourself that it’s worth it. You get home, open the box to find a phone with a screen that’s not been fitted and the control buttons missing! What the ****! How is that right, do they know I’ve just parted with £800 for this!!!


Scenario 2 (to drive home the point).You arrive at the dealership to collect your new car (boy how you’ve been counting down the days to this moment). You see it sitting on the forecourt and as you walk over the salesman appears and welcomes you with a warm handshake and a broad smile. He opens the driver’s door and invites you to get in. Hell’s teeth … where’s the steering wheel? Ah, says the salesman, we’ve had a bit of a problem there, but don’t worry, we should be able to get you one fitted in a month or two!


Are we now well and truly on the same page? Of course we are. Is there a difference between a phone, a car, and a new house? Aside from size, function, and value, NO! As consumers we expect them all to be finished and fit for purpose at the stage we part with our hard-earned cash.


And yet this never happens with phones, cars, or pretty much anything else, apart from new homes. And there are reasons for this, none of which really are the least acceptable.

  1. Financially, the developer is driven to agree legal completion sooner than the condition of the property should allow.

  2. The developer is oblivious to the presence of snags because they lack sufficient process and rigour to ensure this never happens.

  3. The developer thought they had a process in place via the agreement between them and their contractor – however the contractor held a different view!

  4. The developer just doesn’t care enough.

We’re going to discount the last suggestion immediately, because we struggle to believe that this can be true, or at least it may be true of a such a tiny number of developers as to not require further debate.


We have never been sure why the new homes sector has presided over such a problem, although we suspect that the consumer does allow a degree of latitude i.e., if there are one or two unfinished minor (usually cosmetic) issues, and as long as they get addressed within 7-10 days, all will be OK.


But in the last 10 years the problem has become endemic and its not unusual for a property to have 50+ snags at the point of legal completion. In almost all instances, we have witnessed the developer declaring that the development will be constructed to a high standard and there will be few if any snags. We’ve also heard developers stating the absolute importance of their development achieving a high standard i.e., no snags.

So, what on earth is going on? The honest answer is we truly don’t know, but we can suggest some of the likely reasons. It is a problem that must be avoided at every possible turn because it creates deep and unpleasant issues further down the road which always come back and bite the developer in the rear. Always, there’s no avoiding it. There is a cost to this and in some instances that cost can have far reaching consequences on the governance and management of a business if it has the profile, size, and institutional investors of one of the numerous PLCs. We can recall more than once where a company’s share price took a beating because of the adverse exposure they received in national media.


As a minimum, an absolute and utter minimum, it will always cost more than would have been the case if strict process and focus had been applied at (or just prior to) practical completion.


How can this issue be avoided?

THE BUILD AGREEMENT

It starts with the build agreement. You must ensure that there is an adequate section devoted to after care, setting out the obligations your contractor has in this regard. Here are some fundamentals:


  1. Practical completion is not achieved if there are outstanding snags.

  2. The contractor must conduct their own build snag and address the findings.

  3. The developer must conduct their own ‘Quality’ survey following point 2.) above but prior to legal completion.

  4. The findings of this survey must be fully addressed prior to legal completion.

  5. The purchaser may be offered a short snagging period, but the conditions are:

    1. It must only take place following the rectification of all snags determined in point 3.) above.

    2. They can only use the survey form provided by the developer.

    3. Should the purchaser appoint a 3rd party snagging inspector/surveyor, again, you will only accept the form provided by you.

    4. You will limit the time available for this to take place to no more than 48 hrs following legal completion.

6.       The terms of after care imposed on the contractor post practical completion must be clear and precise i.e.:

a. How many months will they be required to respond post pc.

b. How quickly must they respond?

                                        i.      Emergency (suggest 4 hours)

                                        ii.      Urgent (suggest 3 days)

                                       iii.      Routine (suggest 30 days).


c.     They must understand that in the event they fail to respond, as developer, you will apply whatever retention monies you feel necessary to fund an alternative contractor.


All the above need not occupy more than 1-2 pages of your build agreement; but leave this out at your peril, because you run the risk of being left high and dry.


Two further things to contemplate:

  1. If the contractors’ after care commitment is based on a term following practical completion and you struggle to sell a property quickly, you are eroding that term to a point where it may have expired by the time a purchaser moves in e.g., the contractor agreed 6 months after care post pc, but it took 4 months to sell the property, then you’re only covered for the first 2 months; you will be left to finance the remaining 22 months of the Builder’s Rectification period.

  2. Remember also that the Builder’s Rectification period runs for 2 years, so you should set aside a pot of money to cover the cost of contractors from the point at which they are no longer contractually obligated to support you.

QUALITY ASSURANCE INSPECTION Whoever conducts this, you must do it. Relying on the contractors’ word that the property has been snagged is dangerous. They will always tell you it’s fine – it rarely ever is. Spend a little and get it professionally inspected by someone who does this for a living – it’s worth it.


Then, make sure that the contractor(s) get a copy of the inspection results and carries out the work necessary to rectify every snag by a deadline you agree with them.

Finally, when they tell you they’ve done it – check it, don’t take their word for it (it’s not their name on the product – it’s yours).


PRACTICAL COMPLETION 

PC has not been achieved until all the snags have been identified and rectified – if they haven’t, how can it be complete? And if you think that someone will come along later and sort these snags out, should you agree to accept PC sooner, then you are running an unnecessarily high risk that they won’t and that will cause you untold damage later with the purchaser.


AFTER CARE

Have a process in place that will respond to the purchaser from day 1 to day 730. If a home is snag free when they occupy it, the journey over the next 2 years will be relatively straight forward. But if a purchaser moves into a property with a whole host of snags, then you have let them down and they won’t ever forgive you. The next 2 years will be spent constantly on the back foot, and you’ll be running all the while trying desperately to catch up. It is the worst start to any after care relationship and, in truth most of such scenarios are because of problems with the contractor, so it starts badly and never really gets much better.


ONE FINAL POINT

If you ever find yourself as a developer in the sort of pickle described in this article, don’t make your customer wait while you sort out your differences with the contractor. You may believe that they haven’t a leg to stand on and feel loath to proceed until they ’come to their senses’ – but from the homeowners’ perspective, you’re just making a bad situation even worse. Our advice is get the problem resolved, don’t allow the homeowner to wait a second longer than necessary and then sort out the issue with the contractor concerned afterwards.


This is a hard-hitting article, but snagging is such a widespread issue right now there is little point in sugar coating it. Too many developers find themselves in a deep ugly hole because they allowed the issue of snags to dominate proceedings. It doesn’t have to be this way and after care is so easy if a home starts with a clean bill of health.


After Build has been providing after care for 21 years and, a Quality Assurance Inspection for at least half that time. It is an inexpensive service that will save face, time, money, and long-term inconvenience all round. At c. £250 an inspection we capture everything that a homeowner would find unacceptable, before they see it themselves (but we should stress that we only apply the same standards as would the warranty provider, nothing more, nothing less).


To think that you could save £250 by not taking the service is to massively overlook the cost of the time a senior manager within your business (probably you) will expend trying to handle an ugly complaint (a homeowner so dissatisfied with the condition of their new home that they have embarked on an all offensive social media campaign to shame you, warn others and sometimes, even extract compensation). £250 isn’t going to cover the cost of a single day spent on this yet in reality, once a situation like this unravels, you can expect to be involved for weeks, not days. What’s the cost of that likely to be?

 

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