The National House Building Council (NHBC) is the standard setting body and leading warranty and insurance provider for new and newly converted homes in the UK. The primary objective of the NHBC is to provide consumer protection to new home buyers. There are approximately 20,500 house builders and developers on the NHBC register and these companies agree to comply with the NHBC’s rules and standards when building new homes.

More than 80% of new homes built in the UK each year are registered with the NHBC and therefore benefit from the 10 year warranty and insurance policy which is provided by them. The NHBC employs over 1,000 staff including 350 building inspectors across the UK who carry out inspections at key stages of house construction before approving a new home for warranty and insurance.

The standard warranty and insurance cover provided by the NHBC is called ‘Buildmark’. This provides insurance during three different periods. Firstly, cover is provided before completion of the building works. If, due to insolvency or fraud the builder fails to complete the building works, the policy will cover the extra cost above the original purchase price for work necessary to complete the building in accordance with NHBC requirements.

Secondly, for a period of two years after completion, the builder is liable to put right at its own expense any defect or damage to the property which is notified to the builder. If the builder fails to meet its obligations the Buildmark insurance will pay the amount of any arbitration award or court judgment obtained against the builder which the builder has failed to honour, or alternatively will pay the cost of any work which the builder does not complete and which is accepted as necessary by the NHBC.

Thirdly, in the period from three to ten years after completion, the NHBC will pay for the full cost of putting right any physical damage caused by a defect in the structure of the house.

In the event of a disagreement between the house owner and the builder the NHBC will usually try to resolve matters through their Resolution Service. Other forms of dispute resolution are however available to the builder and house owner including mediation, the small claims court and arbitration where the building contract contains an arbitration agreement.

These issues were examined in the Technology and Construction Court recently by Mr Justice Akenhead in a case between Crest Nicholson and Mr and Mrs Western. The Westerns had bought a property from Crest Nicholson on the Wickham Bishops estate in Essex. The house was sold with the benefit of the NHBC Buildmark scheme and following completion a number of defects were reported by the Westerns. In accordance with its normal procedure, the NHBC investigated and found that Crest Nicholson was responsible for some of the defects.

Crest Nicholson indicated that it was prepared to carry out the required work but a further dispute arose between the parties. This related to whether Crest Nicholson was responsible also for professional fees incurred by the Westerns. At the invitation of the Westerns, the Royal Institution of Chartered Surveyors had appointed an arbitrator to deal with this dispute. The Westerns argued that their purchase contract with Crest Nicholson incorporated the NHBC Buildmark scheme and that this necessarily included all the documents which were comprised within that scheme, including a document entitled ‘Rules for Builders and Developers’. Crest Nicholson objected on the basis that there was no arbitration clause in the agreement.

Mr Justice Akenhead was clear that the Rules for Builders and Developers was a document published by the NHBC which regulated the relationship between the builder or developer and the NHBC. So far as arbitration under those rules was concerned, that related to arbitration between the builder or developer and the NHBC. It was clear that these Rules did not form part of the Buildmark scheme which operated between the builder and the house owner. Whilst the NHBC Buildmark warranty and insurance document gave guidance on ways of resolving different types of dispute, including the prospect of arbitration, that did not amount to an arbitration agreement.

In conclusion there was no arbitration agreement contained within the contract between the builder and the house owner or within the relevant Buildmark warranty and insurance documents and accordingly the RICS arbitration appointment was invalid.

- Geoff Brewer