Two Rivers Housing (202122904)

REPORT

COMPLAINT 202122904

Two Rivers Housing

11 May 2023

Our approach

The Housing Ombudsman’s approach to investigating and determining complaints is to decide what is fair in all the circumstances of the case. This is set out in the Housing Act 1996 and the Housing Ombudsman Scheme (the Scheme). The Ombudsman considers the evidence and looks to see if there has been any ‘maladministration’, for example whether the landlord has failed to keep to the law, followed proper procedure, followed good practice or behaved in a reasonable and competent manner.

Both the resident and the landlord have submitted information to the Ombudsman and this has been carefully considered. Their accounts of what has happened are summarised below. This report is not an exhaustive description of all the events that have occurred in relation to this case, but an outline of the key issues as a background to the investigation’s findings.

The complaint

1. The complaint is about the landlord’s handling of the staircasing process.

Background

2. The residents held a shared ownership lease with the landlord. The residents owned a 50% share of the property. The landlord is the freeholder.
3. Under the lease, the residents had the right to staircase up to 100% of the property and obtain the freehold at no extra cost, upon reaching 100% ownership.
4. The residents started the process of buying the remaining 50% share of their property in August 2020. The landlord accepted their request to staircase to a 100% share of the property on 15 October 2020. The residents understood this to mean they could purchase the freehold.
5. The residents arranged a valuation, and a price was agreed. Following this, the landlord asked the resident to sign a deed of variation to the lease, which restricted the right to staircase from obtaining the freehold to 100% of the leasehold interest.
6. On 17 August 2021, the residents submitted a complaint to the landlord. They said that:
   1. They were told by the landlord that when they staircased to 100%, they would own the freehold of the property.
   2. Three months into the process they were asked to sign a deed of variation. When they queried this, the landlord said that this meant that the landlord would have first refusal on buying the property. The deed of valuation referred to leasehold rather than freehold. The landlord said that this would not affect the valuation of the property. However, the residents’ surveyor said that the value would be affected by the fact it was a leasehold property.
   3. It took 10 months for the process to be completed and the residents had planned on it taking 10 weeks.
   4. They had not received confirmation from the landlord in relation to future payments for ground rent, nor had they been told when the buildings insurance would cease.
   5. They were concerned that the landlord’s buy back policy would result in them losing out on the market value for the property.
7. The landlord sent a stage one complaint response on 26 August 2021. It apologised that the property had been described as freehold when it was in fact leasehold.
   1. It said that its compulsory buy-back policy at full market value meant that any diminishing value of the lease would be negated.
   2. It acknowledged that the purchase process had taken longer due to its errors.
   3. It said that it could not legally sell the freehold to the resident.
   4. It offered the residents £400 in compensation for its errors and service failings.
8. The residents escalated the complaint to stage two of the procedure. The copy provided to this Service is undated and the landlord’s stage two response does not state what date this was received. The residents said that:
   1. A clause in their lease stated that: “At any time the Leaseholder shall have the right on giving notice to the Landlord to acquire the freehold of the Premises for no charge, provided that such notice shall not take place before the acquired percentage has become 100%”.
   2. If they had known they were not able to purchase the freehold prior to starting the process, they may have considered not purchasing the property. However, they now had no option but to proceed.
   3. They were seeking to acquire the freehold, as these were the terms and conditions which they agreed to when they initially purchased the property.
   4. They wanted compensation for the distress, time, and financial detriment.
   5. They had not received the correspondence the landlord said it had sent on 15 October 2020. The landlord said it had attached this to its stage one response but had not done so.
9. The landlord sent a stage two complaint response on 29 October 2021. Its decision can be summarised as follows:
   1. Its solicitors had discovered a Land Charge registered against the property, which meant it had to remain available as affordable housing.
   2. It said it should have set out clearly for the resident in writing, why the sale had been delayed. The landlord said it had put checks in place to ensure this issue did not arise in the future and that important information was always provided to residents in writing.
   3. It agreed that the need for a deed of variation to amend the lease, further delayed the sales process. The landlord said that the average completion time was 22 weeks for staircasing sales. In this case, the sale took 42 weeks. The landlord offered a rent rebate of 20 weeks in compensation.
   4. It said the letter regarding direct debit payments and the cancellation of buildings insurance had got stuck in their system and this had not been spotted. It said the relevant staff member had had training on the email system. The landlord apologised for this and said it had given the residents extra time to respond.
   5. The landlord offered compensation of £1271.40. This was made up of 20 weeks rent and the discretionary payment of £400 it had offered at stage one.
10. The residents complained to the Ombudsman as they were concerned that they would not receive the true market value, should they wish to sell the property in the future.

Assessment

Scope of Investigation

11. The residents would have committed to a legally binding contract based on the deed of variation. This Service does not have the power to amend the terms of the deed of variation executed by the parties as a deed. Therefore, this Service can only assess the landlord’s explanation as to why the residents could not acquire the freehold to the property, and the delays to the purchasing process.

Assessment

12. It is accepted there was a section 106 agreement and a charge on the official copies of the land register under which the freehold was not to be disposed of by the landlord. Nevertheless, the Ombudsman is minded that the residents initially had a contractual right to the freehold before the deed of variation.
13. In deciding whether to sell the freehold, the landlord could have entered a deed of variation with the local authority for permission to sell the freehold with a first right of refusal buy-back provision. The landlord has informed this Service that it contacted the local authority to see whether it could sell the freehold, however, the local authority was not inclined to agree. This Service has not seen evidence of this request.
14. The landlord also referred to a restriction on selling the freehold under the Housing (Right to Enfranchise) (Designated Protected Areas) England Order 2009. However, this Order only allows the sale of 80% of a leasehold or, alternatively, the landlord must include a pre-emption right for 100% leasehold or freehold.
15. The landlord also stated it did not offer a freehold buy-back provision, as the residents wished to staircase quickly.
16. The landlord acted appropriately in acknowledging the errors in this case, and the delay these caused to the purchasing process. It apologised for this and said that it has made changes to the way errors in the staircasing process are handled. It said that in the future it will ensure that important information is always provided to residents in writing.
17. This Service acknowledges that the landlord has offered £400 compensation for the delays and communication failures in this case. However, there is no evidence that the landlord considered the mechanisms that may have been available to residents to purchase the freehold, including agreeing a deed of variation with the council. These options would undoubtably have increased the delays to the sale, however the residents would have had the choice as to whether it wanted the landlord to explore these options in full. Therefore, in this Service’s opinion additional compensation of £200 is due in view of this.
18. The landlord has offered a rent rebate of £871.40 for the additional time it took for the purchase to be completed. The landlord acted reasonably in doing so, as the staircasing process took 20 weeks more than was normally the case. Therefore, the landlord does not need to do anything further in this regard.
19. In its stage one complaint response, the landlord confirmed that it will offer full market value for properties which are subject to its compulsory buyback policy. The landlord’s website also confirms this to be the case. When they come to sell the property, the residents will have the right to seek an independent valuation, should they feel they have not been offered full market value by the landlord. The right to seek an independent valuation is the appropriate means to protect against any valuation not at full market value.
20. The Ombudsman has carefully considered that the residents ultimately ended up with one thing (a leasehold) when they were promised something else (a freehold once staircased to 100%) when they purchased an initial share. That does not appear to be fair in all the circumstances and is likely to have been disappointing to the residents. Whilst the landlord has offered compensation and a rent refund for delays, it has not offered compensation to recognise the disappointment.
21. Freeholds carry with them total ownership and a right to deal with the property as owners wish – limited by restriction covenants. A leasehold is a contractual relationship and means the residents are responsible for asking the landlord for certain permissions for alterations and to sublet – as well as the obligation to contribute to service charges. That is quite a difference. The Ombudsman considers a further £400 would be fair to recognise the disappointment and frustration caused by not being able to purchase the freehold as they were initially caused to believe.

Determination

22. In accordance with paragraph 52 of the Housing Ombudsman Scheme, there was maladministration by the landlord in the way it handled the staircasing process.

Orders and recommendations

Orders

23. The landlord is ordered to:
    1. Pay the residents a further £600 compensation in addition to the compensation already offered through its complaint process. This is made up as follows:
       1. An additional £200 for the delays and lack of communication.
       2. An additional £400 to recognise the disappointment and frustration of not being able to purchase the freehold as was originally promised to the residents when they purchased their initial share.
    2. Ensure that this Service is provided with evidence of compliance by the same date.

Recommendations

24. When considering consents for alterations or improvements, it is recommended that the landlord considers what restrictions would have been in place had the property been a freehold and considers these when deciding consent.