More bad news for Homebase employees as further store closures are announced. If there is a silver lining to this retailing cloud it must be that its current owners are credited with improving the fortunes of the HMV brand. Therefore, its long term future for the Homebase brand must be brighter than it was under its former owners.
But what, you all ask, should potential buyers of a Homebase store be wary of when doing pre-purchase due diligence in terms of construction warranties?
Top Ten Tips (minus Radio 1 charts countdown music)
For those bargain property hunters and investors looking to pick up one or more of the 42 Homebase stores due for closure, I offer the following top ten tips when checking the construction warranties:
1. How old is the store?
If its more than 12 years old then the construction warranties from the main contractor, professional team and sub-contractors are unlikely to be of much value because any claims for defects etc are likely to be statute-barred. If it is less than 12 years then you want a full set of the warranties and/or an assignment of the underlying contracts.
2. When was the last set of refurbishment works done to improve the condition of the store (and possibly the parking area outside)?
As with top tip 1 the date when these works were complete will indicate the potential benefit of asking for a full set of warranties and/or an assignment of the underlying contracts.
3. Linked with top tip 2, are there any ongoing works at the store, including is there any defects correction work ongoing?
If there are ongoing works then subject to the sums involved you want to make sure the building contractor carries out its remaining obligations and that any retention monies are paid by the 'employer' under the building contract, i.e. wait until all these works are complete before taking any assignment of the building contract. Alternatives exist such as novating the building contract before the works are complete but this can get a bit messy and do you really want to take over a 'live' building contract?
4. Following on from top tip 3, get hold of the certificates of practical completion, the defects or 'snagging' list, the certificate of making good and the final certificate.
It is surprising how often these 'bits of paper' have been mislaid or are over looked. These documents don't prove the store was built correctly or incorrectly but the 'snagging' list can be quite revealing. I have forgotten how many times I have read lists of defects (sorry, 'snags') which refer to the building management system (BMS) and post purchase I get a call that the comfort cooling and/or fire detection system is faulty. Snagging lists are your chance to play at being Miss Marple or, if you prefer a more robust approach to pre-purchase due diligence, DCI Gene ('Fire up the Quattro') Hunt.
5. Leading on from top tip 4, have there been any disputes regarding the construction and/or any subsequent refurbishment works etc?
If there have been ask for details because if the dispute was settled on an 'all-inclusive' full and final basis it could affect (in a bad way) the benefit of any warranty you get from the party concerned. And as with top tip 4 a dispute over the BMS or the drainage system etc (these just spring to my mind from previous transactions) might be a green light to ask a few more questions as part of the pre-purchase due diligence.
6. Is the building contractor still trading?
The same applies to the professional team and sub-contractors. If not, the warranty is probably worthless. The same applies to any assignment of the underlying contract. This all seems pretty basic but it can be overlooked.
7. Moving from top tip 6 to 7 get proof of professional indemnity (PI) cover.
Get hold of an insurance broker's letter or other written evidence that the PI insurance is in place. It is fairly common to get given letters saying a consultant has the required PI cover only to read on page 2 that the cover has expired. PI cover can change over time so while the underlying appointment document might require, for example, the architect to 'keep and maintain' £5m PI cover on an each claim basis you could discover that the level and/or terms of cover have since changed. This might be unknown to the seller too.
8. Read the warranties and any contract that is to be assigned.
Unless you are just getting the benefit of a 'standard' JCT document, each document is likely to be unique in what it says. Key things to look for include the standard of care required (reasonable skill & care or, very rarely, fitness for purpose); the express exclusion of certain types of loss, or the express limitation of overall liability (typically at the level of PI cover); the extent (if at all) the warranty or contract can be assigned (the standard JCT documents are not freely assignable); and the limitation period because some 'standard' form warranties limit the period of liability to 6 years which is not generally acceptable. On this particular point, please remember that simply because the document you are reading might say no claim can be brought more than 12 years after practical completion this does not mean your claim has not already expired. It is a small point but one which is frequently missed.
9. Get hold of the sub-contracts.
Sub-contractor warranties can be a bit like confetti, i.e. there are lots of them, but one rarely sees the underlying sub-contracts. Therefore, along with copies of the main building contract and professional appointments, ask for the sub-contracts which may just be a purchase order or a set of drawings etc issued by the main contractor. If/when you need to rely on a sub-contractor warranty it is always good to know (some years later) what it actually did rather than have to rely on some vague description such as 'drainage works'.
10. Product guarantees?
Nice to have but please do read the small print and the very best of luck if you do need to rely on one of these.
The above top ten tips should serve as starting point for your pre-purchase construction due diligence whether it is a Homebase store you are looking to buy or one from Toys R Us, Poundworld etc. Of course, you also need to liaise with the rest of the team, especially the client's surveying team who actually visit site because their report may pick up potential problems the contract documents don't reveal.
Finally, it is easy to ask for all these documents but it is far more important to read and understand them in the commercial context of the transaction you are dealing with. This context should determine if your approach is to be more Miss Marple (shrewd and thorough) than DCI Gene Hunt. That said, I have always liked the Audi Quattro especially in red.
Homebase plans to close 42 of its 241 stores as part of a drastic turnaround plan that could leave as many as 1,500 workers out of a job. The ailing DIY retailer said it needed to close the shops to hack away at “unsustainable” rent costs after a slump in sales and profitability under its former owner, Australia’s Wesfarmers, and amid tough times on UK high streets.