Anchor Hanover Group (202215706)

REPORT

COMPLAINT 202215706

Anchor Hanover Group

31 October 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

The complaint is about:
1. the landlord’s approach to a lease variation.
2. the associated complaint.

Background

The resident is a leaseholder who lives in a private retirement scheme. The scheme is a block of 39 flats for residents aged 60 or over. The resident’s lease is dated 20 November 1987 for a term of 99 years. The landlord is the freeholder.
The lease to the resident’s property requires the landlord to provide a warden service. The landlord offered this on a residential basis with a warden living on site. It wished to move to a visiting warden system to enable it to deliver a more professional service. This required a variation of the lease the resident and other leaseholders had.
The landlord decided to make this change by balloting resident leaseholders to see if a majority would support the change. On 3 February 2021, the resident complained to the landlord that the voting rules it used were unfair. He also suggested the landlord should ask residents about the hours any visiting manager should work.
The landlord responded to the resident saying that the voting rules are not set by the landlord, and it cannot change them. The landlord elaborated that it would look to employ a visiting manager for 28 hours a week. The landlord told the resident the hours of employment issue would not need a ballot if it were looked at separately from the change in warden role issue.
On 19 October 2021, the landlord sent a second ballot to residents to decide if the warden should remain residential or move to visiting. It explained that 85% of residential owners must vote in favour and less than 10% must not vote against the proposal to enable the change.
The landlord clarified at a meeting with residents on 29 October 2021 that it sent ballot papers to all homeowners, but it could not compel them to vote. It clarified that it could not exclude some properties from the vote.
The resident claimed that the voting system, with as few as 10% required to vote against a proposal, was undemocratic and unfair. This was because he believed that the landlord counted unreturned ballots as a vote against the proposal. The resident was concerned that this created a distorted outcome as many flats were unoccupied or had tenants who were not qualified to vote.
The landlord explained to the resident in November 2021 that the 85% threshold applied as the residents’ leases state or implies that the warden service is to be residential. The landlord told the resident that it was looking to reduce the percentage of homeowners required to agree on changes. This was because it accepted 85% was a high threshold and difficult to ever achieve. It also clarified that it assumed that any non-returned ballots were a vote against the proposal.
The landlord reported to residents on 3 December 2021 that the proposal to change to a visiting warden had not passed.
The resident made a formal complaint to the landlord on 4 July 2022 that the voting rules were unfair. The resident pointed to the thresholds adopted (85 % for and 10 % against). The resident expressed particular concern over the inclusion of unreturned ballots in the count against a proposal. The resident told his landlord that there were fairer voting rules in a code of best practice produced by the Association of Retirement Housing Managers (ARHM code).
The landlord provided its stage 1 response on 20 July 2022, it stated:
1. The ARHM code voting rules cannot be used as the resident’s lease states that the landlord must provide a residential warden service.
2. The only way it can make a change to the lease is by a formal legal route or on a voluntary basis with residents.
3. The legal route is cost-prohibitive, so the voluntary basis is preferable.
4. As a voluntary basis carries with it significant risk the landlord decided to adopt a standard threshold. It acknowledged that this was a change in the threshold adopted on previous votes.
5. It preferred a visiting warden model, but the constraints of the lease had not made this possible so far.
6. It has complied with its internal policy and procedure and would not share these with the resident.
7. It would consider the resident’s request for more information to be given to leaseholders ahead of future ballots.
The resident responded to his landlord on 20 July 2022 to ask for a copy of the landlord’s rules on voting. He asked how these rules differ from voting on other issues like spending from the reserve fund.
The resident felt the landlord had not provided him with the full rules relating to variations or voting. The resident argued that rules allowing the inclusion of unoccupied properties and unreturned votes needed to be changed. He also complained to his landlord that there was a lack of transparency and audit to verify missing votes. The resident asked how the landlord would approach changes to the sinking fund.
The resident asked the landlord to escalate his complaint and the landlord responded at stage 2 on 11 August 2022 saying:
1. It adopted a voluntary approach to varying the lease as this was less costly.
2. As there is a risk with changing the lease, the landlord had to adopt a fair and consistent approach to managing this process.
3. The ballot paper and letter accompanying it were clear on the level of response needed from residents to agree on the variation.
4. It recently reduced the threshold required to agree on a change from 85% to 75%.
5. It does not count non-returned ballots as against a motion, but they can impact the percentage to carry a motion.
6. The landlord would comply with the lease if it needed to change the sinking fund provisions of the lease. As this would carry a higher risk it would adopt the legal route.

Assessment and findings

Policies and procedures

The landlord uses the Association of Retirement Housing Managers Code of Practice (ARHM code). This code is approved by the UK government and represents best practice in the retirement housing sector.
Chapter 7 of the ARHM code specifically states that the procedures for carrying a variation of custom or practice do not apply where the service is expressly set out in the lease.
The landlord’s procedure on variation of custom and practice sets out the process to be followed by the landlord if it wishes to vary a practice. According to its policy, the landlord must:
1. Hold a meeting with homeowners to provide information about the change proposed. The landlord must give a minimum of 2 weeks’ notice of the meeting and provide any documents at least seven days in advance.
2. Hold a secret ballot where individual properties cannot be identified from the number on the ballot paper.
3. Homeowners should be given at least one month to return the ballots.
4. The returned ballots should be counted by an independent person or organisation.
5. The motion is only passed if 66% vote in favour (representing at least 51% of all properties) and the number of votes against is no more than 25% of homeowners.
The landlord’s procedure on variation of custom and practice outlined above states that the ARHM code voting rules do not apply to services that are set out in the lease. It also states that the ARHM rules will not apply where services are allowed under the lease, but it is specified how they must be delivered.
Landlords or tenants can apply to a tribunal to vary a lease if most residents agree with the variation. This is under section 37 of the Landlord & Tenant Act 1987. The application can be made without the need to show there is a defect in the lease or that a change is needed. This provision requires 75% of leaseholders to agree and no more than 10 % to object to carry the motion (Section 37(5)(b) of the Act).
Clauses 4(i)(x) and 5(2) of the resident’s lease require the landlord to provide the resident with the rules and regulations relating to the property. Chapter 3 of the ARHM code recommends that landlords provide residents with information on rules, rights on lease variations, and a leaseholder pack.

The landlord’s approach to varying the lease

The landlord’s position was that it was not bound by the ARHM code rules on voting to change the lease. This was because the resident’s lease referred to a warden service and specified how this would be delivered. The lease recitals of the resident’s lease refer to a “warden’s dwelling” as being part of the block of flats. The warden service referred to in the lease can only therefore be properly understood to be residential. This is because otherwise there would be no need for the warden to have an allocated flat.
This aspect of the landlord’s assessment was correct, and the landlord appropriately explained this to the resident. However, the landlord did not explain to the resident all the ways in which the lease could be varied in a clear or meaningful way. This was a service failure.
A lease can be varied if all residents agree through a document signed by each leaseholder and the freeholder (variation by deed). Where it is not possible to obtain the agreement of all leaseholders the lease can be varied by making an application to the First-Tier Tribunal (Property Chamber). If there are nine or more flats 75% of leaseholders must consent and the application must not be opposed by more than 10%.
The landlord’s policy of variation required 85% of leaseholders to agree and no more than 10% to disagree. This was reflected in the ballot the landlord sent to residents in October 2021.The landlord held a meeting with residents in the same month to explain who was eligible to vote. Whilst this was a reasonable step for the landlord to take it was inappropriate of the landlord not to explain its criteria.
By November 2021, the landlord had offered the resident an explanation of why it required an 85% approval rate for a change and no more than 10% objecting. The Ombudsman considers that the explanation provided to the resident was inadequate.
The landlord did not explain to the resident how or on what basis it had concluded that an 85% approval rate and no more than 10% disapproval rate was appropriate. Whilst it told the resident this was its policy it did not explain the basis for this or why this was more than the statutory threshold (75%). The landlord told the resident the adopted threshold was in line with its policy and that it would allow it to manage risks. However, it did not say what the risks were or how the adopted threshold would allow them to be managed.
The landlord’s communication with the resident also confusingly referred to a voluntary and legal route for varying a lease without saying what these were. The evidence shows that the landlord was seeking to ballot the resident and other leaseholds using a non-binding vote. However, it failed to explain to the residents the implications of the ballot other than it would be less expensive. The landlord also did not explain that the ballot would have no legal effect to vary the lease, without a successful application to the tribunal.
On 11 August 2022, the landlord explained to the resident that it had to manage the risk of varying the lease voluntarily. It told the resident that it had to adopt a consistent approach. The landlord explained to the resident that it believed that the amended threshold of 75% was a fair way to balance the approach. The reduction in the threshold matched the statutory provisions about the percentages required to support a legal application to change the lease. This may have been the reason for the change however the landlord did not elaborate or explain why it thought this was fairer.

The landlord’s complaint handling

The resident expressed dissatisfaction with the landlord’s complaint responses. He wanted to know what rules were in existence on voting and wanted the voting rules changed.
The Ombudsman’s spotlight report on Knowledge and Information Management (KIM) notes that landlords often withhold important information incorrectly. This may include data that is not personal data or caught by the General Data Protection Regulations (GDPR). This service notes that the resident had a right under his lease to receive information on the rules regarding the management of his property.
It is important for landlords to consider sharing information where there is a legitimate reason. It is unclear the reason the landlord refused to provide the resident with a copy of its variation of custom or practice policy. It shared extracts explaining the voting rules which the resident found vague. The Ombudsman finds that the landlord failed to provide the resident with a clear and meaningful explanation of its adopted position.
Whilst the landlord explained to the resident how it would deal with a variation to other parts of the lease for example relating to sinking fund expenditure the explanation was incomplete. The landlord explained it would use the legal route without explaining what this meant.
In the Ombudsman’s opinion whilst the landlord dealt with the resident’s concerns about non-returned votes appropriately overall there were significant weaknesses in the landlord’s communication. Specifically, the landlord did not communicate in a meaningful way why it adopted the thresholds it did or what the legal and voluntary route meant. The landlord’s responses caused the resident frustration and distress. This was because the resident felt the landlord ignored him and that his landlord was lacking in transparency.
There is also one notable area raised by the resident which is missing an explanation by the landlord in its complaint responses. The landlord did not address the resident’s concerns about validating returned ballots. This service notes that if the landlord were to apply to the First-Tier Tribunal (Property Chamber) to vary a lease it would need to provide evidence of those who consented and those who objected.

Determination

In accordance with paragraph 52 of the Scheme, there was service failure in the landlord’s approach to the lease variation.
In accordance with paragraph 52 of the Scheme, there was service failure in the landlord’s handling of the resident’s complaint.

Orders and recommendations

Orders

Within 28 days of the date of this determination the landlord must:
1. Provide the resident with a copy of the rules and regulations referred to in his lease together with a leaseholder pack recommended by ARHM.
2. Pay the resident the sum of £100 for the distress caused by its failures in communication.
3. Explain in writing to the resident how it validates ballot votes.

Recommendations

It is recommended that the landlord review its policy on variations of custom and practice to ensure:
1. The policy addresses how it validates votes from residents to ensure they are entitled to vote whilst keeping the ballot secret.
2. The policy adequately explains how the landlord will implement variations to resident’s leases.