UK House Builders Risk Reputation to Sue Defaulters, What???

I just read a really great article in Overseas Property Professional magazine (anyone who likes reading about property should definitely register), about the British builders that are suing en-masse buyers who have tried to renege on their contracts because the properties have lost value, and/or because they can no longer get a high enough mortgage to cover the purchase.

The affair exposes exactly how much the world has been turned on its head by the use of social media: the article focused on how the builders in question -- including Berkeley Homes, Telford Homes and Ballymore -- are risking their reputation, and that of off plan property sales, by deciding to pursue defaulters. But surely a contract is a contract, and we are all well within our rights to sue anyone who breaks contract on us, right? Apparently not.

The article quoted Fiona Brandhorst, property director for PR firm The Wriglesworth Consultancy as saying: "The public is very much more informed than it used to be thanks to the internet and disaffected groups can organise very quickly, so any company should be aware of that before taking action."

"It would depend on the details of each case but we would tell any client taking legal action to protect their immediate reputation by making sure the party line is kept to across all comments to the press and through social media."

Apparently Berkeley Homes has already had a social presence set up against the move: the Berkeley Homes Collective, and the press have covered the stories on numerous occasions. Meanwhile Berkeley has not set up a PR campaign in defence.

I agree with Berkeley Homes, that the public will realise that the company is in fact in the right; a contract is a contract. If we start picking and choosing what contracts we stick to then everyone will, and before we know it our employment contracts won't be worth the paper they are written on and that is not a world I want to live in.

"Some of the articles that appear online have comments that show a consensus that the buyers' took the risk when they signed the contract and I do think most people in the street will realise this is the situation," Paul Vallone, managing director of Berkeley Homes, told OPP.

"It does create negative PR alongside the Berkeley name but most people recognise that we didn't build our reputation by being sly or untrustworthy. If one group wants to publicise their plight that's their prerogative but, in the long-term, the market is such that it will recover."

At the same time: Berkeley has said that the move comes only after attempts at renegotiation have failed. I don't know the ins and outs, but if that is true then I hope that they are only going after the people who want to renege because of devaluation, and not those who can no longer get a sufficient mortgage to cover the cost.

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By Liam Bailey - 2010-03-03 08:46:21

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Filed under: UK Property, Opinion Articles

About the Author: Liam Bailey

Liam is the director of SEO copywriting services company Write About Property

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Comment By: Matt

Date: 2010-03-03 08:54:38

Comment:

Hi Liam,

Just read your article, I am a member of the Berkeley Homes Collective (http://www.berkeleyhomescollective.com). I understand your concern that individuals (and companies) should not necessarily have the ability to walk away from a contract, however in our situation there is not the case. Our group is made up of individual homebuyers (we have strictly refused all property investors) who do not want to renege on the contracts, however due to 40% devaluation of the Berkeley Homes properties (across the whole site, which screams of over valuation in the first place) we are physically unable to complete. Obviously lenders will only lend at the valuation level not at the level at which we bought - this leaves most of us £100,000 short. It is impossible to raise that kind of cash and clearly none of us are that rich otherwise we would not have needed mortgages in the first place. Berkeley Homes despite their smiley public face have consistently threatened us with bankruptcy and are now pursuing a number of our members in court. Of course we are in a very unfortunate position, however we are not trying to get out of our contracts, we just can not perform our obligations as the mortgage mechanism no longer works. We have all resigned ourselves to being made bankrupt which will do no good for Berkeley Homes as most of us have next to now assets so they will have little recover after court proceedings. By way of comparison Barratt Homes said that any of their customers in the same position would get their deposit back and released from their contract. Senior MDs of Berkeley Homes actually told us " you should have bought from Barratt" ! Incredible.
Anyway I hope that has been of interest to you. there is much more information on the Berkeley Homes Collective website.

Thanks, M

Comment By: Off Plan Misery

Date: 2010-06-03 20:21:06

Comment:
Hi,

I too am part of the group and can say that BH have not tried to negotiate! They have used bully tactics and threatedned to take people to court from the outset. They have sold my flat for £55K less than I was meant to pay, but they wouldn't even sell it to me at a discount of £20K! Because they knew they could take my deposit and try and threaten me for the remainder! Throughout this BH loss was £2K! Ridiculous seeing as I lost more £50K - I was a first time buyer and will not be able to get on the property ladder for a long time now!

The key issues were the lack of information given to me when I signed up- what was the point of my deposit? Also the solicitosrs that were recommended by BH - did not point out any of the pitfalls - convienent! When I paid them to do a job which was to highlight issues such as those I faced!

A massive corporate has been able to put many families such as myself through hell for 2 years and they have done nothing to help! What makes it worse is the fact they say in the press they are trying to negotiate! INCORRECT!

All in all a very dis-honest company who are extrememly unethical!

The off-plan industry needs regulation and consumers need to know what they are signing up for! The FSA need to bring off plan property buying into their remit! There should be a KFD that highlights the key points of the contract you are entering into - not a 40 page legal document!

Solicitors should not be recommended by the home seller as they were not doing an inpartial job.

Comment By: David

Date: 2010-07-16 14:50:28

Comment:
People say that people should be prepared to lose money if the market goes down because in the rising property market the developers have to sell to the offplan investor for less than what they could have sold.

This is a falsehood for the following reasons:-
1) The whole point of offplan is to buy early in order to get a discount. Anything other than a discount is being misled. Discounts should be available because you are agreeing to purchase a property without being able to validate the quality.
2) In a rising market the developer would still be making a profit and not losing their home/business.
3) The offplan investments enable leverage for the developer. No such advantage is conferred to the investor.
4) The contracts are heavily weighted in favour of the developer.

In light of what has happened with Berkeley I would suggest they have destroyed any chance of resurrecting their offplan market in the future. Thus they are shooting themselves in the foot long term. Barrett on the other hand have enhanced their reputation.

Comment By: Aine McClean

Date: 2010-07-25 19:57:21

Comment:
I have personal knowledge of this situation. In the case to which I refer all manner of payments were offered but absolutely spurned by the Developer. The purchaser would have liked nothing better than to proceed with the purchase but unfortunately has exhausted all avenues of borrowing further money. THERE IS NO MONEY AVAILABLE - you cannot get blood out of a stone. Despite the Developer's assertion to the contrary, they adopted a totaly intransigent attitude and insisted that family members, elderly or otherwise be "harassed" to obtain funds. That was the extent of their negotiations. Let me reiterate there is no wish whatsoever in this circumstance to renege on the contract - quite the opposite - but despite heroic efforts to negotiate by the Purchaser and a keen enthusiasm to complete the purchase the Developer showed no inclination to "negotiate" as stated by them. I really do not know of many people who would willingly put themselves into bankruptcy - if you know anything about bankruptcy you will know that it is not something any ordinary non investor type person would
choose as the repercussions are horrible. Most purchasers will have made strenuous efforts to obtain the additional money required - but to no avail. Perhaps you can suggest a method of borrowing money to complete a purchase of a property that has lost up to 40% of its value - it would be the answer to many prayers, tears and fears if you could..... Many other Developers have adopted "An Act of God" stance and released purchasers from their Contracts - I am sure you will agree that this Recession has had devastating consequences for so many and we are hardly talking about an ordineary situtation.