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Tuesday, 11 February 2014, Categories Latest News | Residential Property Updates

Warning for homeowners who can be viewed as property developers

Are you a home owner or property developer?

The case of Niklas Zennstrom & another –v- Kevin Faggot & others serves as a warning to homeowners who undertake redevelopment work to a property and then sell it on at a profit.

The Facts

Whilst the defendants in that particular case were not held to be “property developers”, the facts surrounding the case are concerning as it appears possible that a homeowner who carries out redevelopment work to a property before selling it on could be considered a “property developer” and therefore potentially liable to the purchaser of the property under Section 1(1) of the Defective Premises Act 1972 for any defective works that are carried out to the property.

The Law

The Defective Premises Act can make developers who make a property unfit for habitation liable to the buyer. The Act does this by stating that “a person taking on work for or in connection with the provision of a dwelling owes a duty to every person who acquires an interest in the dwelling to see that the work which he takes on is done in a workmanlike manner”. The Act goes on to say that “any person who in the course of a business which consists of or includes providing or arranging for the provision of dwellings or installations in dwellings… arranges for another to take on work for in connection with the provision of a dwelling shall be treated for the purposes of this section as included among the persons who have taken on work". 

Outcome

Under the case of Zennstrom the buyer of the property claimed to the Court that the property was structurally unsafe. They brought a claim against the sellers on the basis that the seller had developed the property “purely for profit”.

The key question for the Court to determine was really whether the homeowner did the redevelopment work “in the course of a business”. Importantly, the Courts take the view that it is not necessary for the homeowner to have previously developed properties in order to be held as acting “in the course of a business”.

The reason that the claimants failed in the Zennstrom case was that the claimant/buyer would need to show that the homeowner/seller had the intention to sell the property on for a profit when they first entered into a contract for the works to be done. The defendants in the Zennstrom case persuaded the Court that they had initially intended to redevelop the property and then live in it themselves. The Court accepted this version of events and on that basis determined that the defendants should not be regarded as property developers.

Professional View

Whilst the defendants in the Zennstrom case were not held liable, the case does certainly highlight that anyone developing and subsequently selling a property at a profit really does need to be aware that they could find themselves held liable if after the sale the property is held to be unfit for habitation as a result of it not being designed or built in a workmanlike manner. This differs from the “usual” position that sellers find themselves in whereby it is entirely up to the buyers to satisfy themselves in advance (by way of a survey) that the property they are buying is in a good condition and where any defects discovered after completion are for the buyer alone to sort out.

If you would like further infomation about purchasing property or property development, please contact us for a no obligation free 30 minute advice by phoning us on 01392 388400 or use the contact us page. 

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Author

Alastair Dunnett

Partner | Office: Exeter | Phone: 01392 278381 | This email address is being protected from spambots. You need JavaScript enabled to view it. | View Profile >

Alastair Dunnett

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