Standing Committee D
Tuesday 23 January 2001
[Mr. Roger Gale in the Chair]
Mr. Don Foster (Bath): On a point of order, Mr. Gale. It may interest members of the Committee if I remind them of the information that I gave at the beginning of our sitting this morningthat the birth was in progress. I can report that it still is.
The Chairman: I am sure that the Committee will be grateful for that, but I am happy to say that it is not a matter for the Chair.
Home condition reports
Amendment moved [this day]: No. 11, in page 7, line 2, at end insert
`, being a minimum of £500,000 in the first instance.'.
The Chairman: I remind the Committee that with this we are taking the following amendments: No. 37, in page 7, line 3, after first `the', insert `effective'.
No. 12, in page 7, line 4, after `sellers', insert `, lenders'.
No. 13, in page 7, line 13, at end insert
`(8) Sellers, buyers and lenders shall be entitled to bring proceedings in respect of a home condition report upon which they have relied in any transaction.'.
Mr. Nigel Waterson (Eastbourne): I am even happier that the birth is nothing to do with me either, but we wish all participants well, of course.
The rest of my speech to amendment No. 11 will be brief, for reasons that I shall explain, and then my hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton) will deploy some of the heavy artillery that I originally intended to bring to bear. I apologise in advance to you, Mr. Gale, and to the Minister and the rest of the Committee, as I shall have to go to the Chamber, where there will shortly be some other business on which I am required.
I had more or less finished speaking to amendment No. 11, and had referred to points made by organisations such as the Council of Mortgage Lenders. I hope that the Minister is in a better frame of mind this afternoon because, to judge from some of the phone calls that my office has had since this morning, he managed to upset just about everybody involved in the property and conveyancing business. I suspect that his punishment, fittingly, will be many extra briefings for us to take him through in the rest of our debates.
Our point was simple. Those who draw up the home condition reports, whatever one's views about their qualifications, should have full indemnity cover if they get it wrong. Such provision should be in the Bill, but we are open to persuasion on whether a specific amount should be mentioned, although it should certainly be covered in regulations.
Amendments Nos. 12 and 13 focus on what lawyers call the privity point. The Minister referred to the Contract (Rights of Third Parties) Act 1999, which may indeed have the answer to my points. We want to ensure absolutely that sellers, buyers and lenders will all have rights to bring proceedings when they have relied on a home condition report that turns out to be in some way defective, and when some actionable negligence has caused that. People should be able to rely on the report, knowing that they will have redress if there is a problem.
According to the Law Society, as the law stands it is not clear who, other than the seller, could be certain of being able to secure compensation if the report were defective. A lender and a buyer could be reluctant to rely on a report if they had no redress in the event of it being defective. The Law Society says that it is essential to make it clear to whom the producer of a report on a property could be liable.
The issue is fairly straightforward. The Minister may feel that he has a complete answer to it, and I look forward not to hearing it, but to reading it.
Mr. Gareth Thomas (Clwyd, West): The hon. Member for Eastbourne (Mr. Waterson) has for once, with the greatest respect to him, done us a service by probing the important issue of privity of contract, in which I take an interest. I want to take a few minutes to explore the subject, in the expectation that my hon. Friend the Minister will elucidate matters a little.
As a lawyer, I have had experience of dealing with what we describe as surveyor's negligence cases, and this is an issue that often arises in practice. Who can sue? Following the case of Smith and Bush, the position prior to the coming into force of the Contracts (Rights of Third Parties) Act 1999 was that, while there was no privity of contract between a buyer and the party who had prepared a valuation report for the lender or the building society, very often the buyer was able to sue in negligencenot in contractwhere it could be established that he had relied upon the valuation report to his detriment. That has been an established principle, certainly when the transaction concerns what could be described as a low-value or modestly priced property.
However, it seems that we need to look at the Contracts (Rights of Third Parties) Act 1999, and I am sure that the Minister will refer to it in his reply. It has extended rights to third parties to be able to sue upon a contract in their own right. Section 1(1)(a) of the Act says that a third party may enforce a term of the contractI believe that we are talking about the home condition reportif it
expressly provides that he may.
Section 1(3) goes on to say that the
third party has to be expressly identified
if not in name, he has to be identified as belonging to a particular class. Is it the intention that buyers and lenders should rely upon the home condition report? If it is, there is a strong argument for putting that in the Billgiven that one of the primary objectives of the Bill must be to reduce the cost of house buying. Surely one of the objectives is to avoid the necessity for the buyer to obtain his own valuation report by enabling him to rely upon the home condition report procured by the seller. I should be grateful to hear what the Minister has to say on those issues.
When this matter was raised on Second Reading, my hon. Friend the Minister said that it was the Government's intention that both the buyer and the seller would be able to reply upon the HCR. No specific reference was made to the lender being able to rely upon the report. The lenders have a case, because if they are to do desktop valuations, they have to have before them a fairly robust report upon which they can rely, in law as well as in practice, in order to obviate the necessity for them to go out and get their own valuation report and charge the buyer for it.
However, there is of course no privity of contract between the lender and the seller. Do the Government believe that the law of negligence would apply and that, provided that detrimental reliance could be established, there would be a cause of action for the lender as well as the buyer? I should be grateful if the Minister would address these issues because they concern a number of people, including the Law Society and those in the commercial lending community. Although hon. Members might think that I am making a trade unionist point, I have never conveyed a house during the whole of my professional life. If the Bill is to be enacted, we will need greater clarity. I would like to see something like amendment No. 13 included in the Bill or, if not, further assurances from my hon. Friend the Minister.
The Minister for Housing and Planning (Mr. Nick Raynsford): In accordance with clause 8(4), the Secretary of State is able to make provision for the approval of one or more suitable certification schemes. Clause 8(5) lists a number of points about which the Secretary of State should satisfy himself before approving a scheme, including whether inspectors have adequate indemnity insurance and whether a complaint resolution procedure is in place.
Amendment No. 11 would specify that members of the scheme should have a minimum of £500,000 indemnity insurance cover. However, it does not state whether that should apply on an aggregate or per claim basis, so it could be rather confusing to put it in the Bill. We do not support including a minimum level in the Bill as it would make it difficult to amend it in line with changes in house prices and inflation. It is far better that the certification scheme should determine a suitable level of cover, as it will vary over time.
It would be inappropriate to include in the Bill a minimum level of indemnity insurance required without also addressing other insurance-related mattersfor example, the maximum level of insured excess required and the maintenance of proper run-off cover by members after they cease trading. All those relevant issues will be dealt with in the arrangements that will be put in place as part of the certification scheme. The amendment is therefore unnecessary and unhelpful.
On amendments Nos. 12 and 37, we recognise that lenders as well as buyers and sellers should have access to a complaint resolution procedure. Again, we intend that this matter should be addressed through the certification scheme. In approving a scheme, the Secretary of State will be well placed to ensure that proposals for handling complaints will be effective. That deals with the concern expressed in amendment No. 37.
We are sympathetic to the intention behind the amendments. We are considering how the clause might be amended to make it absolutely clear that lenders' interests are covered, and we shall give further thought to the matter. Clause 8(5)(c) may not necessarily be the best place to do it, but I assure the Committee that we shall return to the subject at a later stage.
In developing arrangements for the resolution of complaints, certification schemes will need to consider whether lenders' interests can be served by the same complaints handling arrangements as those for buyers and sellers, or whether separate schemes would be more appropriate; as my hon. Friend and others will appreciate, lenders will have different concerns from buyers and sellers. The Council of Mortgage Lenders is playing a key role with other stakeholders, including the Consumers Association, in developing the home condition report and certification scheme; it is therefore well placed to ensure that its member's needs are met.
We intend that home condition report inspectors' liability to sellers, buyers and lenders will be secured by contract. I have said that on a number of occasions; it is our clear policy intention. As I said earlier, we are sympathetic to the amendment's purpose, which would make it clear in the Bill that lenders could rely on the document. We shall return to that question later.
As for third parties and privity of contract, the Contracts (Rights of Third Parties) Act 1999 will ensure that the buyer and the lender, as well as the seller who commissioned the home condition report, will be able to rely on it, and will be able to bring proceedings against the inspector should it prove necessary. I have repeatedly made clear our intention that buyers, sellers and lenders should be able to rely on the report and that they should have redress. I repeat that assurance. I fear that some parties simply do not wish to hear our assurances because, for whatever reason, they have taken against the idea of a home condition report. However, that does not change the facts, which are that we intend to ensure that all interested partiesbuyers, sellers and lenderswill all be able to rely on the report and bring proceedings against the inspector should it prove necessary.
I hope that I have demonstrated that the certification arrangements, which are subject to the Secretary of State's approval, will deliver what hon. Members are seeking, without the need for the amendments. A valid point has been made with regard to Members' interests, which we will review in the context of the clause as a whole, rather than just in the context of the complaints procedure. I hope that, on that basis, the hon. Member for East Worthing and Shoreham will agree to withdraw the amendment on behalf of the hon. Member for Eastbourne, who moved it.