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Reward for failure as ex Bovis CEO David Ritchie stands to receive nearly £2m pay off

Ex Bovis CEO David RitchieRegardless of what fictional character Gordon Gecko once said, “Greed for want of a better word is” most definitely not good!  As details emerged earlier this week of David Ritchie’s pay-off. The former chief executive of Bovis Homes resigned” on 9th January 2017 after a profit warning and ahead of the scandal of buyers being paid up to £3,000 to legally compete on homes that were not finished, and the announcement by Bovis that they had set aside £7 million in February to redress complaints.

A Section 430(2b) statement by Bovis homes, confirmed Ritchie is to be handed a total of £635,430 in salary and bonus and a further £909,250 in shares under the long-term-incentive-plan. He also stands to receive a further tranche of 40,556 shares currently worth £357,805 up to 24 February 2018. A total possible payout of £1,902,485!

He will be paid a lump sum of £242,180 and will receive a total of £338,250 from July until December salary in lieu of notice. His contractual notice period runs until 8 January 2018.

Laughably, Ritchie who formally left Bovis on 28 February, will even receive a £55,000 bonus next month as part of last year’s scheme which “may be subject to clawback for a period of two years”. Ritchie will also have continued use of his company car as well as medical insurance and life cover until 8 January 2018. Unbelievably, if this wasn’t already extremely generous for an individual that presided over a performance that has brought his company to the brink of being taken over by a rival, Bovis are even paying “a contribution in respect of legal costs and a further contribution towards outplacement counselling.”
(which apparently helps displaced employees manage the transition from one job to another!) Not that Ritchie needs to find paid employment anytime soon!

Bovis FlagRitchie, who became Bovis Group chief executive in July 2008, is also in line to reap around £462,850 (52,463 shares) based on Bovis’ current share price (882p) from a long-term incentive plan that vested on 25 February 2016.

Ritchie will also benefit from 50,598 shares worth another £446,400 that became exercisable last month, subject to performance conditions being met. He is also be in line for a further 27,256 shares (£240,466) on 19 August 2017 and a maximum of 13,300 shares worth £117,339 from 24 February 2018, again if certain performance conditions are met.

The details of Ritchie’s payoff being disclosed on Bovis’ corporate website.

It is to be hoped that investors who will be given a vote on Bovis’ remuneration report at its annual meeting in May will voice their displeasure at the payoff although the LTIP was approved by shareholders in 2014.

Critics have accused Bovis of paying a ‘reward for failure’.

Oliver Parry, head of corporate governance policy at bosses’ business group the Institute of Directors, told the Daily Mail:
“This doesn’t look good and it doesn’t do the reputation of British business any good.” He said: “Investors deserve to understand what senior executives are being paid at the point of stepping down.”   A spokesman for Bovis told the Daily Mail that the company had made a “prompt and full disclosure.”

Stefan Stern, director of the High Pay Centre, told the Daily Mail:
“This is a reward for failure. This sort of pay-off reflects the way in which executive pay is trapped in a world of its own. No one else would expect to receive this sort of payment after having underperformed in a job.”

The row over Ritchie’s pay adds to the mounting backlash over excess in the boardroom. Given the circumstances and the amount involved it is to be hoped that Ritchie (47) will do the decent thing and make sizable donations to homeless charities such as Shelter and perhaps donate his time providing accountancy services ‘pro-bono’ for charities.

Meanwhile yesterday, 58% of shareholders of house builder Crest Nicholson voted against the company’s remuneration report at the annual general meeting, revolting over executive pay as the company slashed profit targets that determine performance-based bonuses for its directors.

Shareholders were vented their anger at a pay policy that will enable chief executive Stephen Stone to more easily receive a £811,737 bonus on top of a basic salary of £541,158. A total of £1.35m which  would take a site manager 27 years to earn.  Crest’s chief operating officer Patrick Bergin could be on track to trouser an extra £562,500, adding to his £375,000 salary.

The company’s remuneration report outlined plans to cut the target for pre-tax profit growth for the second year running, down from 16%-20% a year earlier to 5%-8% for the 2017-2019 period, citing challenging trading conditions. It was set at 18%-22% in 2015.

While the vote against the pay proposals was not binding, it indicates growing discontent at executive pay and dissatisfaction among investors.

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Housebuilders’ Recommend A Friend Schemes

We all know about the oft-quoted HBF survey question: “Would you recommend your builder to a friend?” In the 2016 survey results an somewhat unbelievable 85% said they would, but did they? Most of the large house builders have recommend a friend schemes also known as “send a friend.” Normally a leaflet outlining the scheme is dropped in the Welcome Pack buyers are given when they move in to their new home. They offer a cash payment to buyers who recommend a friend or someone who goes on to buy a home from the house builder. These payments vary considerably from a paltry £300 (Keepmoat) up to £4,000, although it appears £500 is the most common.

For most, the extra money will come in handy at a time of need, especially with all the costs associated with moving home. But beware there is a procedure and significant hoops to jump through before you can get your referral cash,  even then it can take several weeks. The referral payment is only made following the friend’s legal completion.

Firstly, you should also consider whether your house builder is worthy of recommendation. Would your friend thank you if their new home turned out to be an unmitigated disaster from hell as they often do?

Check recommend a friend expiry dates or time limits

A Ben Bailey (part of Avant group) new homebuyer told me that:
“despite having proof of her recommendation under the recommend a friend scheme and their friends also having made it clear from the outset that they had been recommended on their first visit when they reserved their property and on subsequent visits to pick flooring, tiles etc. – the sales advisor kept saying she would look into it but just before completion told them they don’t qualify for the referral fee without any explanation why!”
It transpired that the reservation was made three days beyond the expiry date of the recommend a friend offer.
 Another buyer says:
“Having done this, we tried but failed to jump through all the hoops. Amongst other things, we were told we submitted the form too late. Notwithstanding we had never been given one. My impression of the scheme is that it appears to be a con. When I questioned the issues I was almost made out to be lying about the facts and this from a company who pride themselves upon customer care.”

Buyers have to chase their house builder for their referral payments
“We received the cash (well, cheque) but did have to chase for it. Numerous phone calls to the head office over the course of 5 or 6 weeks for each promotion claim.” 

Most house builders stipulate the form has to be submitted on the first visit to the sales office at the time the friend buys the property.

Be especially wary of schemes that say “up to £2,000” for example.
Bovis Recommend a FriendAll house builder’s sales advisors are given what are known as negotiables. They are an amount of discount they can offer, which can be a reduction in price, and/or “free” optional extras such as turf rear gardens and carpets for example, without having to ask their manager. So when a buyer negotiates a £5,000 discount they won’t get the “free” turf or carpets that their neighbour got for “free” included in the full price they paid. It would be foolish to believe that the recommend a friend referral payment isn’t coming out of their negotiables budget and so the recommended friend will be actually paying the buyer’s referring them!

Read the small print!
Persimmon Homes Recommend a FriendWatch out for time restrictions and requirements such as presenting the recommend a friend voucher before any price negotiations take place.

Persimmons voucher states that: “For a limited period only”- “This voucher is to be given to the Sales Advisor before any purchase negotiations have begun.” Now you know why!

Redrow states the voucher: “must be completed and handed to the sales advisor at the time of reservation.”

A Bovis buyer posted online:
“My friend got £500 for recommending Bovis to us. The Sales team weren’t happy that we didn’t mention it straight away as they said that would have affected the deal that they were able to give us. It definitely goes against the buyer to say you were recommended by someone”

Bovis Homes optimistically included four recommend a friend referral postcards in their Welcome Packs, working out at four recommendations of £500 for each one.

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Bovis give buyers £3,000 cash incentives to move into unfinished new homes.

Bovis Homes

Just when I think there isn’t anything else this industry can shock me with – coverage in the national press has revealed that Bovis Homes offered “bribes” of up to £3,000 to their buyers if they legally completed or moved into unfinished new homes on or before 23rd December 2016. This was done in a vain attempt to meet the City forecasted target of 4,170 completions for their financial year-end.

The “incentives” were offered to buyers just days before Bovis issued a profit warning, stating that 180 homes were “being deferred into early 2017” resulting in profits lower than previously expected. Equity analyst Anthony Codling at investment bank Jefferies, told The Times: “This will be where they are trying to make their targets. They would have been trying their hardest to complete those homes to get people moved in before Christmas. There is pressure from an investor perspective to meet the volume target and they will do what they can to meet those targets.”

Other analysts said that the cash incentives from Bovis were part of a failed attempt by the FTSE 250 company to meet City targets saying Bovis’ share price had “substantially underperformed the sector over the last seven years.”

Have Bovis Group attempted to deceive investors and the City as to the true year-end results of the Company, by pushing through legal completions (sales) on new homes that were not 100% finished at year-end? I am no expert on financial reporting regulations but more is here.  Perhaps this is something that the Financial Conduct Authority [FCA] should be investigating.

Outraged buyers have taken to social media complaining about Bovis asking them to legally complete on unfinished homes with no driveways, windows, paths, gardens, unpainted walls and even the wrong kitchen units being installed. The Facebook Group “Bovis Homes Victims” now has over 1,000 members, as media reporters and others join to find out what buyers are saying about the company on the Closed group.

Rob Elmes, 32, told The Times he refused to accept an initial offer of £2,000 to complete on a three-bedroom £320,000 home in Worcestershire and was offered £3,000 four days later to legally complete on 23rd December. Mr Elmes refused, saying that his home was not yet finished with workmen still in the house and his drive unfinished. To compound matters, Bovis have even managed to fit the wrong kitchen!

Bovis have admitted that customers had been offered an incentive to complete before the year’s end, but claimed that no one was forced to move in before Christmas.

A spokesman from Bovis said: “Customers were clearly free to decide their preferred course of action. The Group often offers a range of incentives at sale and completion in line with industry practice.”

The firm said that all homes “were habitable”, with the required industry certification as per the Council of Mortgage Lenders’ Handbook Rules. A Bovis spokesman said: “A limited number of customers were offered an incentive to complete before the year end and all homes were habitable with the requisite CML industry certification, with a timetable for outstanding finishing works to be carried out in the New Year”

However the reality would appear to be different and members of the Bovis Victims Facebook Group were quick to add their experiences. One member who has asked not to be named, said she was initially told she was due to move to her new Bovis home in October.” She posted: “We were offered £2,000 by Bovis to complete early on 23 December and told we’d be able to move in to our home over a month later on January 27th. We decided not to take the offer due to the shaky legality and were assured this wouldn’t affect the build. We’ve just been informed our anticipated completion has now moved to 31 March”

How could these homes be regarded as “habitable”? It can hardly be substantially complete if it will take up to three further months to complete the “outstanding finishing works.”

On 23rd December, posts on the group included: “Bovis want us to complete today and move in and [sic] the end of January.” Another Bovis buyer claimed that even if they had accepted Bovis’ cash offer they were unable to legally complete because Bovis had “not completed the correct Help to Buy document.” In addition, forcing or coercing buyers to legally complete on unfinished houses is not new. One posted that they were put in a hotel for 10 days as Bovis would not wait till after Christmas back in 2013. They wanted to complete asap. Been a fight ever since”

Bovis told The Guardian: “We recognise that our customer service has to improve and the leadership of the organisation is absolutely committed to getting this right.” This came just two days after Bovis CEO David Ritchie “resigned” who admitted a “limited number” of customers were offered an incentive to complete before the end of the year, but no one was forced to move in.

Bovis Apologises

On another Bovis development, the company has finally bowed to pressure and has apologised to buyers for problems at two sites in Norfolk. A Bovis’ spokesman said:

“We are working with our customers at Costessey and Cringleford to resolve their issues and we take their complaints very seriously. We recognise that in some cases at these locations we have not provided the standard of home that we pride ourselves on, for which we apologise. We also recognise that our customer service has to improve and we are absolutely committed to getting this right and are taking actions to put in place robust procedures and practices to rectify issues such as these and prevent them from occurring again.”

My award for ‘best headline’ currently goes to The Sun with “Bovis and Butthead”

Council of Mortgage Lenders (CML) Rules

The CML website states:
“Under rules introduced in April 2003, to help eliminate the practice of builders allowing occupation before the home is completely finished, the Council for Mortgage Lenders’ (CML) initiative requires builders to obtain a completion certificate. This is issued by an independent Building Inspector, normally the NHBC, following a satisfactory final inspection of the property. The lender requires this completion certificate, along with confirmation that the new home warranty is in place, before they release the mortgage funds.  

It is common for the Final Inspection to be made 14 days before the completion date. This will give the solicitors and mortgage provider time to arrange for the funds and provide you with an opportunity to inspect your finished home.”

Could those Bovis buyers, in accepting the “incentive” payments and legally completing on an unfinished and uninhabitable new home, be innocently complicit with Bovis Homes, the solicitors and the warranty inspector in potential mortgage fraud? The homes would not have been in the condition on completion and therefore the full value, that the lenders believed. Even more, those bought using Help To Buy may have, proportionally, also defrauded the taxpayer!

The Council of Mortgage Lenders told me:
“We can’t comment specifically on these cases in relation to mortgage fraud, as I am sure you’ll understand. I think our members will be concerned about the emergence of this practice, [payments to buyers to legally complete on unfinished new homes] however – as you rightly point out, this practice shouldn’t be able to happen as the properties must be inspected and signed off as complete for habitation; the use of a cash incentive will also potentially distort the true value of the property if the valuer is unaware of it.

For clarity, the CML does not have its own ‘certification’ process in relation to new homes completion. We think this reference is probably to the CML Lenders’ Handbook, which is a set of instructions to conveyancers. In that, it stipulates that lenders require a form of new home warranty (such as an NHBC warranty) to be in place prior to completion, which the conveyancer checks as part of the conveyancing process. This requirement was introduced some years ago to prevent this very issue. It may be useful to contact warranty providers, to establish how they think this might be happening.”

Indeed it might; so I did. I asked the NHBC how it was possible for a CML final inspection certificate to be ‘signed off’ by the NHBC inspector? Especially when some of these houses were clearly far from finished requiring in one case, three months work! Another had not been decorated.

The NHBC said:
“All homes registered with NHBC are inspected at key stages of construction. This includes a pre-handover inspection, which is designed to ensure that the property is fit for occupation and that our 10-year warranty cover can be provided. Where people do experience issues with their new homes we offer protection under our warranty for 10 years, including a free Resolution service in the first two years. We would encourage homeowner (or constituents) with concerns about their new home to get in touch with us so that we can offer them our help.” 

Not exactly enlightening is it? Again, how is it that any of these homes are judged finished and “fit for occupation”? On 6th January, NHBC Chief Executive Mike Quinton quit after four years – three days ahead of David Ritchie’s “resignation” as Bovis’ CEO.

NHBC Guide to CML InitiativeUnder the CML rules introduced in April 2003, a lender will not release the mortgage funds for a new property until the buyer’s conveyancer has received confirmation, in the form of a cover note, that the property has received a satisfactory final inspection and that a full new home warranty will be in place on or before legal completion. In an excellent article (March 2010) Building.co.uk highlighted that the “A Guide to the CML Certificate” ended with a warning stating that: “If [the consultant] signs the certificate and defects are subsequently found to affect the property, it is highly likely that they will face a claim on their professional indemnity insurance some way down the line.”

You also have to question quite what, (if anything) the buyer’s solicitor entered into the CML “Disclosure of Incentives form” (Section 10) for those that chose to take the Bovis’ incentive!

HBF Buyers’ customer survey ratings

This letter breaches HBF rules 23,24 & 25.It would appear that Bovis are also manipulating the HBF Customer Satisfaction Survey. Bovis Homes, rated just three stars by its customers for the last two years, has allegedly offered John Lewis vouchers to buyers in return “for giving good feedback on the NHBC survey” Whilst not uncommon within the industry, this is clearly against the HBF Star Rating rules 21,22,24 and 25.

Barratt, Persimmon and Taylor Wimpey distance themselves from this latest scandal

Last Thursday Tom Knowles reported in The Times that the country’s biggest housebuilders were distancing themselves from the scandal, in particular Bovis’ claims that cash payments to buyers to legally complete on unfinished homes was “in line with industry practice.

The scandal has led to Oliver Colvile MP, chairman of the All Party Parliamentary Group For Excellence in the Built Environment, to call for a debate into the standard of new homes, he said: “We will try to have a debate in the House of Commons about the quality of new-build housing. We need to press the government to do more.” In July last year, Mr Colvile and a group of MPs published their Inquiry Report detailing ten recommendations, which included my suggestion that buyers or their surveyors, have a mandatory right to inspect their properties before they complete their purchase. Many Bovis new home buyers have complained they were not allowed to enter their homes until the day of completion and on doing so, discovered workmen attempting to complete the works in time.

In a statement Bovis suggested offering cash to customers to complete by a certain date was “in line with industry practice”, but the three biggest housebuilders, Barratt, Persimmon and Taylor Wimpey, said that they never make this offer. Ryan Mangold, chief financial officer of Taylor Wimpey, said: “We have never given cash incentives to get buyers to move in by a certain date.” Peter Truscott, chief executive of Galliford Try, said that while developers occasionally offered investors buying several homes, cash incentives to complete by a set date, this was not the case for individual customers. The Home Builders Federation said: “It is not common industry practice to offer cash to new home buyers to complete early.”

However, a Persimmon homebuyer posted on ‘Unhappy New Home Buyers’ Facebook Group:
I read that about this morning in The Mail. Persimmon tried this on lots of our purchasers including us in 2010, but for some reason we had put our money in a 6 month Bond and told them where to go…..needless to say we won….but our neighbours moved in with Windows missing!, Trouble is it did not do us any good because we had so many problems, and still have some, we pay out for some things ourselves, but some [sic] we live with!”

A spokesman for Bovis told The Times:
Each individual customer was approached on a case-by-case basis and, where appropriate, they were offered the opportunity to move into their homes in time for Christmas with an agreed timetable for outstanding finishing works to be carried out in the New Year. Customers were offered help in the form of payments for a range of reasons in light of the extra costs they would incur by doing so . . . Similarly, some customers were offered compensation payments as a gesture of goodwill in light of the added disruption over the festive period.”

The scandal is so serious that several MPs have said they could raise the issue in Parliament. Among them are Labour MP Melanie Onn, former Tory housing minister Mark Prisk and as mentioned earlier, APPG EBE Chairman Oliver Colville MP. However the fact of the matter is that issues such as these are not new. The APPG EBE ‘Inquiry Into the Quality of New Homes In England’ found that “as the number of homes being built increased, the quality of new homes has declined.” The Inquiry Report painted a damning picture of a broken industry, bereft of any moral compass. It said:

“The evidence points to an industry…which will at times ride rough-shod over dissatisfied buyers… House builders should be upping their game and putting consumers at the heart of the business model…For some, purchasing their dream home turns into a nightmare…Evidence suggested there is a continuing issue with poor standards of workmanship in new homes…At financial half-year and year-ends, the quality is reduced as they rush to meet targets…Housebuilder’s own quality control systems are not fit for purpose…The government must take a lead role to make sure house builders deliver a quality product and service and not just focus on numbers being built.”

Debate or no debate, it is to be hoped that the forthcoming Housing White Paper due later this month, does indeed take note of the ten recommendations of the APPG Inquiry Report and includes measures to address the ongoing quality and service shortfalls of the major housebuilders, especially by undertaking to set up an independent New Homes Ombudsman before the end of this year.

It is my opinion that the buyers’ quotations in this article, reproduced entirely as they were originally written on posts freely available on Facebook,  would be considered by a reasonable person, to be true and the opinions or experiences of these private individuals. This article is my honest opinion of the buyers’ own claims and statements that any reasonable person might also conclude. I believe this is a matter of public interest.

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Bovis fail to win a single NHBC Pride in the Job Quality Award.

Bovis homes’ website proudly (if somewhat unbelievably) claims:

“We build some of the best new homes in the UK.
We pride ourselves on being one of the country’s leading housebuilders and have established an enviable reputation for the quality of our build and design, high specification and excellent customer service.”

cropped-Bovis-Sales-Office.jpg
Well they would say that – but it can it be justified?
The truth was confirmed last Friday when the NHBC announced the 2015 winners of its Pride in the Job competition. “The NHBC Pride in the Job is the only UK-wide competition dedicated to recognising site managers who achieve the highest standards in house-building.”

Bovis site managers failed to win a single NHBC Quality Award!
For the first time in eight years, Bovis became the only large national plc housebuilder not employ a single site manager worthy of an NHBC Quality Award. Out of an average 97 “active sites” in 2014, not one of their site managers stood out above the crowd. NHBC PIJOBNot one was able to demonstrate he cared about the quality of the homes built on his site. Not one possessed the “wide range of site management skills from technical knowledge and consistency in the build process to leadership and organisational skills, and achieving the highest possible standards and best practice in house building” that the NHBC judges were looking for.

Bovis turf

No one cares at Bovis!  They cannot even be botherd to set up a sprinkler to water new turf!

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HBF Survey Housebuilder Star Rating 2015

Barratt HBF Star rating

Highest Quality Housebuilder? Not exactly!

Before 2011, the star rating of  housebuilder’s was also based on the question: “Taking everything into account, overall how satisfied or dissatisfied are you with the quality of your home?”  over the last three years the star rating awarded to housebuilders is derived from the responses to just one Yes or No survey question:“Would you recommend your builder to a friend?”

Of the bigger housebuilders only Barratt, Redrow, McCarthy and Stone and Miller maintained their 5 star rating from last year.  Taylor Wimpey, Bellway, Bloor, Crest, and Churchill Retirement Living, all lost their five star rating. Persimmon, Bovis and Avant also lost a star and are now the only housebuilders rated just 3 stars in the latest HBF National New Home Customer Satisfaction Survey.  Just how bad are their new homes?

So why are standards getting worse and who is to blame?
Guilty Housebuilder CEOsThese men are all guilty – guilty of building and handing over new homes late, not fully completed, with defects and failing to provide the required level of customer care to ensure that all their buyer’s problems are rectified quickly and effectively. Britain’s least wanted! – Lacking in star quality?  They may have stars in their eyes but now have fewer on their site flags!

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Persimmon and Bovis benefit from Help to Buy

Help to Buy GraphicblogPersimmon has confirmed it has sold over 3,000 new homes under the government’s Help to Buy Equity Loan scheme launched in April. This  equating to approximately a third of the group’s total completions in 2012.

The second, and more controversial, part of Help to Buy was brought forward and launched in October, offering indemnity guarantees to lenders for their 95% mortgages for new and existing homes. Many are saying the scheme risks causing a housing bubble. 

Persimmon confirmed that the impact of Help to Buy (2) mortgage indemnity, had “been muted due to the higher level of interest rates being charged with only a limited number of lenders involved in this second phase so far.” They anticipate that sales supported by these guaranteed mortgages will increase as interest rates begin to reduce as more lenders enter the market over the next few months.  

In a statement Persimmon said: “We believe mortgages associated with the Help to Buy equity loan scheme will remain the preferred choice for the majority of customers of the house building industry given that interest rates for this product are significantly more competitive than those available with the Government guarantee.” 

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