The Law and HIPs

Background

When the Housing Act 2004 received Royal Assent on the 18th November 2004 it became arguably one of the most significant pieces of legislation to affect the home buying and selling process since 1925.

There can be no doubt that the way property is currently bought and sold is slow, outdated, stressful and fraught with difficulties.

Our research reveals that more than 2.5 million people have seen house sales fall through in the past five years with time-wasting buyers or sellers among the biggest reasons for the failure of the deal.

The result of these failures is a cause of tremendous stress on the parties involved in the process, not forgetting the amount of money that is wasted.

There can be no argument that the process by which houses are bought and sold needs to be improved.

There is considerable debate between professionals within the property industry whether the changes introduced by Part 5 of the Housing Act 2004 will have the desired result of improving the process.

Indeed there is significant opposition in some quarters to the changes proposed.

On the 31st October 2005 the government department responsible for introducing the changes, The Office of the Deputy Prime Minister (ODPM), published the Home Information Pack Regulations 2006 - draft.

The publication of these regulations (which had been produced after consultation with key stake holders including the Law Society, RICS, National Association of Estate Agents, Council of Mortgage Lenders and the consumer organisation Which?) was seen as an ongoing consultation process with those involved in the property process.

The ODPM is currently working its way through the responses it has received with a view to finalising the regulations which will then govern the future development of the process by which properties are bought and sold.

The ODPM have announced that the changes will be implemented from June 2007. 'Although there are a number of Organisations, Spring Move being but one, who have seen the benefit of the proposed changes and are already putting them into practice, to the benefit of all parties involved in the house process'.

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Purpose of HIP

It is the ODPM's intention that the introduction of Home information packs will ensure that important information required for buying and selling residential properties are provided up front before a property is marketed and that electronic conveyancing will speed up the process thereafter.

Responsibility for preparing the Home Information Pack

The responsibility rests with the person responsible for marketing the property, usually, the estate agent, developer or auctioneer.

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What properties require a Home Information Pack?

Most residential properties

But not

Non-residential properties, such as shops
Mixed commercial and residential properties, such as shops with flats above them
Sales of tenanted properties, where a tenant is to remain in residence
Properties with leases of less than 21 years

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At what stage has the Home Information Pack to be prepared

Before the property is marketed.

Are there penalties if HIP is not prepared?

Yes, the person marketing the property may

Receive a £200 penalty notice
A fine not exceeding £5000
Cost to pay to a potential buyer of £600 - £1000 being the reasonable cost of the preperation of the HIP

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What is the content of the HIP

The draft regulations published by the ODPM dictate the mandatory content of the Home Information Pack. Given that these regulations are in a draft form it is possible that the content may change.

Given the wide consultation with Stakeholder groups it is extremely unlikely that there will be substantial change. Whilst the format of some of the documents may change and other documents may be added the basic content is likely to remain the same.

The basic content of the HIP requires the inclusion of the following documents: -

The Home Information Pack Index in the format prescribed
A Sale Statement in the format prescribed
An uncompleted Home Contents Form in the format prescribed
An uncompleted Home Use Form in the format prescribed
Title Documents
Home Condition Report
Energy Performance Certificate
Local Authority Search Report
Drainage & Water Search Report

The regulations allow (but does not require) the addition of other reports that are considered to be useful in connection with the Property.

The Title documents (if registered) the Home Condition report and the search reports cannot be more than 3 months old at the first point of marketing.

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What is the shelf Life of a HIP?

A Hip does not have to be renewed or updated:

Whilst the Property is being marketed
In the event that the property is put back on the market following the withdrawal or repudiation of an offer which was the cause of the property being withdrawn from marketing
If the Property is withdrawn from marketing process but returned to the market within 28 days e.g. a seller changes estate agents

A Hip must be renewed/updated.

If the Property is withdrawn from the marketing for more than 28 days and then remarketed.

If any additions are made to the pack then the Index must be updated.

Once included in the pack a Home Condition Report cannot (with 2 exceptions) be removed from the Pack.

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Does the Home Information Pack have to be lodged with anybody?

Yes

With the seller of the property upon request
With a prospective buyer within 14 days of request

It is anticipated that the Home Condition Report will have to be lodged with the Secretary for State before it can be included in the Home Information Pack, but further developments are awaited on this point.

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In what format has the Home Information Pack to be supplied?

Whilst the HIPS are being compiled electronically the Housing Act 2004 requires them to be delivered in hard copy format unless the buyer consents to receiving it electronically.

A charge equivalent to the reasonable cost of making and, if requested, sending a paper copy of the pack or document may be made.

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Can we be critical about HIP?

It is always easy to be critical about systems devised by others.

No one likes change even when this has the potential for improving our lot.

Change has to be accepted but only if it is likely to improve what we currently have.

The management team at Spring have worked within the property industry for a considerable number of years.

We have been involved in all aspects of the buying and selling process, as solicitor, estate agent and relocation agent, Independent Financial adviser and surveyor.

We know that things can work extremely well within the existing process, but we are well aware of the examples when things can and do go horribly wrong.

The Home Information Pack is not without its faults, but it should be seen as a catalyst for change and everyone involved in the industry should adapt and take this opportunity to improve the systems for the benefit of consumers.

It is true that if the basic HIP (is provided to satisfy the requirements of the regulations and the Housing Act 2004 is provided) that the sales process of buying and selling house will not improve and there will be the potential for wasted cost at the expense of the consumer.

However those that embrace HIP as the catalyst for change and provide the added services will ensure that consumers enjoy the home buying and selling experience.

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What will HIP Cost

It is widely recognised that a basic HIP will cost in the region of £600 - £1200.00

The cost is dependent upon the content of the HIP, the regions in which Hip are provided and indeed who will be providing it.

The cost of the HIP is made up of:

The cost of the Home Condition Report i.e. what is paid to the Home Condition Inspector (together with any charges the HIP provider may add for arranging this).
The Searches - what is paid to the search provider, any intermediaries (together with any charges the HIP provider may add for arranging this).
The cost of any legal input in compiling the HIP (together with any charges the HIP provider may add for arranging this).
The cost of collating and providing the HIP (together with any charges the HIP provider may add for arranging this).
The cost of any finance packages arranged for paying for this.

It is clear that different HIP providers will be charging different sums and paying different amounts to secure the provision of the HIP and the services provided will be of different qualities.

HIP providers have invested heavily in the systems required to deliver the HIP and it is right that they recoup that investment by the charges that they make.

However those charges must be transparent and the level of service provided must be clear.

If 'add ons' are to be charged then this must be demonstrated together with any referral fees that are being paid (which ultimately the consumer has to pay for).

At Spring our charges comprise:

The sum paid for searches
The sum paid for the HCR
The sum paid for the legal title report
The sum paid for legal title insurance
A single payment for our work

All those involved in delivering the Spring system will be able to provide a written quotation of those charges before a party agrees to use the system.

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