Personal guarantees – be aware!
National House Building Council (NHBC) v John Penman and Elizabeth Penman  CSOH 120 considered whether the owners of JAD Homes Ltd (JAD) were liable for payment to the NHBC for costs incurred carrying out remedial works to defective properties and for compensation payable to the proprietors for the delay.
In 2005, JAD developed a residential site at Lyoncross, Falkirk consisting of 27 properties. Each house was registered with the NHBC’s ‘Buildmark’ cover. As a builder on the NHBC register, JAD were obliged to ensure all houses met the required standard set by the NHBC.
JAD went into administration in 2008 as a result of the financial crisis. After paying for the remedial works and compensating the proprietors for costs incurred for the delay, the NHBC brought an action for payment against the Penmans (who provided personal guarantees in respect of JAD’s obligations) for £957,000.
The court was asked to investigate the validity of Mr and Mrs Penman’s defence. The defence stated that JAD were not responsible for, among others, defects that arose from the sewer and water systems. They went on to state that the NHBC should have detected the problems during their inspections of the houses; the remedial work was in any event excessive; and that they personally did not have sufficient assets to pay for an award of claims against them.
Lord Woolman rejected the Penmans’ arguments in the Court of Session. Delivering his opinion, he commented that the defence lacked substance and noted that liability rested with JAD under the NHBC standards – neither the NHBC nor any other corporate body could be held accountable for the defects. However, Lord Woolman reduced the sum for payment to £300,500.06 – after some of the costs associated with three of the properties were excluded.
If you have been asked to sign a Guarantee in a personal capacity, you should seek independent legal advice immediately in order to understand the full implications. To find out more – contact us.