Legal action threatened against builders seeking payment for unfinished homes

As the gazumping debate heats up, it has been learned that the Director of Consumer Affairs, Carmel Foley, is considering legal action over complaints that some builders are asking people to pay for houses while refusing to complete them.

Ms Foley said she was investigating several complaints that builders told clients to pay for houses, but stated that final works would not be done. Ms Foley said a "small group" of builders seemed to be involved and it was mostly happening on large developments which attract huge interest and often long queues of buyers.

She said some buyers were being put under pressure to buy houses in an "unprofessional way". "We have had cases where a buyer is being told, take the house as it is and if you don't want to, then there are other people who will," she said.

She said a clause in the standard contract between buyers and sellers, drawn up by the Construction Industry Federation and the Law Society, was being used to justify the practice.

She said the clause, number 28 in many of the contracts, refers to builders who are "unable or unwilling" to finish buildings. She has referred the clause to senior counsel to see if a High Court injunction can be taken to have it "struck out".

"We are looking to see if the clause is an unfair term within the contract - if it is, we will apply to the High Court," she said.

Ken Murphy, director general of the Law Society, said the standard building contract was the product of many "legal hands" and strikes a balance between the purchaser and seller. He said he was not aware of any clause in the standard building contract which was being exploited by builders.

He added that if a purchaser was prepared to accept a partially unfinished house and amend the standard contract accordingly, "then that is up to them".

Ms Foley's claims were rejected by the director of the Irish Home Builders Association (IHBA), Michael Goggins, who said he had never come across such a practice. He said it was up to purchasers to insist that their "snag list" was completed and said he would find it surprising if builders would engage in such a practice before even agreeing a contract.

Meanwhile, further debate has taken place over the new anti-gazumping code published by the IHBA last week.

Ms Foley said she was examining its provisions to see whether it could stop the practice. She said the Bacon Report stated that if an initiative from the industry, such as the code, did not prevent the practice, additional powers might be given to her office.

Mr Goggins said the new code would give significant re-assurance for purchasers. "We represent 80 per cent of the building industry and we are hopeful that all builders will want to adopt this code," he said.

Ms Foley said the voluntary element of the code was its biggest drawback. One important element of the IHBA code covers staged payments. The code sets down a strict schedule of payments. Mr Goggins said it "formalises" a system of payments which have operated in many parts of the country for years. However, individual builders would come to their own arrangements with purchasers, he said.

"In Dublin, it may or may not be taken up, but in cities like Cork and Limerick is has successfully kept the price of houses down because it fixes the price early on in the buying process," he said.

The Labour spokesman on Environment and Local Government, Eamon Gilmore, said the code would "encourage the non-completion of houses".

He argued that by the second-last payment, the house buyer pays over 90 per cent of the purchase price and this is without even the plastering done. He has tabled a Dail question to the Minister for the Environment, Mr Dempsey, on the issue.

"Take the example of where a person has paid 90 per cent, and then suddenly the fitted kitchen doesn't arrive and some of the fittings are missing and other major faults are found with the property, what does that person do then?," he said.

"The arrangement in Dublin generally has been for a initial deposit, then 10 per cent of the purchase price and only the rest when all work is completed, that is now being undercut," he added.

Not surprisingly his view is rejected by almost all builders. "The Home Bond scheme, which is recognised throughout the country, covers properties if they are not completed, so the issue does not really arise," said Francis Rhatigan of Ellier Developments, which is currently building a large housing scheme in Knocklyon, Co Dublin.

However, Mr Gilmore said there is a cap on the pay-outs allowed under Home Bond. If a number of houses are left incomplete in one development, "not everyone would be properly covered".