According to David Warmback of Shepstone & Wylie Attorneys, while the Code is no doubt aimed to target the smaller home builder, against whom most protection is needed, it will also be applicable to larger residential developers developing and selling residential dwellings whether freehold or sectional title.

"The aim of the Code is the protection of the housing consumer which is clearly needed, and if the Code is strictly adhered to, there is no doubt that consumers will be far better off," he says.

"The Code is comprehensive and in seeking to address a vast number of issues, contains many quite onerous provisions for the home builder to comply with."

However, he cautions that in an industry which historically has a poor reputation for protecting consumers, particularly in the lower end of the market, it is anticipated that it will take some time before the industry is able to properly embrace the good intentions behind the Code.

Warmback highlights some of the significant provisions in the new Code, which came into effect on March 16 2007: Home building contracts may now only be concluded once the housing consumer has had 30 calendar days to view the contract;

There are restrictions on clauses in contracts that have the effect of taking away consumers common law or statutory rights;

It restricts deposits to no more than 10% of a contract price of a fixed cost building contract;

It requires minimum clauses that must be included in a building contract, and an obligation that a home builder must retain a copy of the contract and all records relating thereto, for a period of at least six years;

It says a home builder may not accept final payment under a building contract unless the bank, NHBRC or "competent person" has certified in writing that the work has been completed according to NHBRC's prescribed minimum standards and guidelines.

In summary, the Code is intended to provide minimum standards to be maintained by all NHBRC home builders when contracting with consumers, says Warmback.

A home builder is defined in the Housing Consumer Protection Measures Act as a person who carries on the business of a home builder. Home builders are obliged to register with the NHBRC, must enrol a particular home or development with the Council, submit information relating to a development, and pay a prescribed fee.

"Banks are reminded that they are not allowed under the Act to lend money to consumers against the security of a mortgage bond registered over a home for the purchase of a home from a home builder," explains Warmback. "That is, unless the bank is satisfied that the home builder is registered in terms of the Act, that the home is or will be enrolled with the NHBRC and that the prescribed fees have been paid."

The Code provides that all NHBRC home builders are obliged to observe the Code and must, as a condition of membership of NHBRC, acknowledge in writing that they have received a copy of the Code, which may be amended from time to time.

"The Code, which comprises 22 chapters is drafted very simply, and covers the main areas of building contracts where consumers are most vulnerable, says Warmback. Home builders now have a duty to disclose a number of factors relating to a building contract and are under a duty to explain material terms of such contracts to consumers.

Obligations on the home builder

"There are also restrictions as to when the builder may commence construction of a home, particularly in circumstances where the land is not yet registered in the name of the consumer," he says.

Other chapters include obligations on the home builder not to deceive, mislead or make false statements to the consumer, aspects relating to quality of material and workmanship, duties in respect of contracts, and marketing and advertising issues.

Unless there is a benefit to a housing consumer, and such benefit is disclosed in a contract, a home builder may not encourage, persuade or influence any housing consumer to use or not use the services of a particular attorney, conveyancer or firm, a financial institution, financial assistance offered by any person, or the services of another home builder.

Warmback adds that the Code also provides that a building contract must also contain a prescribed list of minimum clauses most of which are "sensible and practical".

Importantly, the contract must include the date when the home builder must begin building the home and the date when the home will be completed, and in the case of the sale of a sectional title unit off plan, the latest date by which the unit will be registered in the name of the purchaser.

Important provisions

All roleplayers in the residential property development industry, including builders, other property professionals, financial institutions, purchasers and conveyancers, will need to familiarize themselves with the new Code that contains important provisions relating to the development of residential homes.

"Failure by home builders to comply with the Code could have serious consequences in that the NHBRC are entitled in terms of section 11 of the Act, to withdraw the registration of a home builder where such home builder has been found guilty by the disciplinary committee on a charge that the home builder has contravened the Code," Warmback says.

(Source: www.property24.co.za)