Following negotiations with the Irish Home Builders Association and officials of the Department of the Environment, Heritage and Local Government, it has been agreed that the practice will not apply to such houses where contracts are entered into after the 30th of June of this year. The Association is also advising its members that phasing out of the practice should begin immediately.
The Minister said: "Stage payments were a particular issue in the Cork area and everyone is aware of examples over the years where people were left high and dry when construction companies when bust. Thankfully this will now come to an end."
Stage payments require the purchaser in a new housing development to make payments to the builder at a number of set intervals or stages in line with progress of the building. The practice has been common in Cork and some other areas of the country. It will no longer apply after June of this year.
One of the problems with the stage payments system was that purchasers often found themselves making payments before they were in a position to live in their new houses. This was particularly problematic in cases where buyers had to pay rental costs at the same time. The system could also place an undue share of risk on buyers. "On balance, stage payments do not seem to be in buyers' interests generally and they are not essential or appropriate in estate developments since the market works perfectly well without them in most parts of the country," the Minister said.
The change will come into operation by way of a new code of practice, operated by the Irish Home Builders Association, under the auspices of the Construction Industry Federation. Although the code of practice will be a voluntary one it will apply to approximately 80% of home builders. There will be a complaints procedure regarding members who break the code.
Paying tribute to the positive approach of the Irish Home Builders Association, the Minister said that "While legislation being developed by the Tánaiste and Minister for Justice, Equality and Law Reform to regulate property sale is both welcome and necessary, I am glad that my Department could facilitate improvements where possible through our ongoing engagement with the industry."
The Minister emphasised that stage payments can continue to apply in the case of one-off housing by agreement between the buyer and the developer. "I am aware that for one-off or specially commissioned houses, stage payments can be appropriate or even necessary in many cases," the Minister said. The new code of practice will not affect such cases.