London & Quadrant Housing Trust (L&Q) (202124242)

REPORT

COMPLAINT 202124242

London & Quadrant Housing Trust

30 August 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 leaseholder 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

This complaint is about the landlord’s:
1. Response to the leaseholder’s concerns about its ground rent and lease extension practices;
2. Complaint handling.

Background and summary of events

Background

The complainant is a leaseholder (the leaseholder), and the lease began in 2013. The original term was 125 years, but a renewal in 2017 extended the lease by 90 years. The renewal cost the leaseholder around £7,000 in surveying, legal and administration fees. The leaseholder is a legal professional who rents the property to private tenants.
The property is a second-floor flat in a development. Theoriginal lease contained provisions that allowed the landlord to double the property’s annual ground rent every 25 years. The initial ground rent charge was £250, and the maximum permitted sum was £2,000.
The landlord’s applicable policy, effective February 2021, shows it would offer the maximum possible extension term, which “under current legislation (was) 90 years”. However, from 1 September 2021, it would offer 990-year extensions with “peppercorn” ground rents.
The landlord operates a 2 stage complaints procedure. Its complaints policy shows it aims to respond to complaints within 10 working days at stage one. At stage two, it aims to respond within 20 working days.

Summary of events

The parties’ correspondence shows they were discussing the topics of ground rent and lease extensions informally from at least 2020 onwards. Their communication can be broadly summarised as the leaseholder signposting industry developments which may affect the landlord, and the landlord defending its existing practices. The leaseholder consistently said doubling ground rents were unfair. He ultimately referred the landlord to the Competition and Markets Authority (CMA).
In mid-October 2021 the landlord told the leaseholder its approach to leases had changed and it could now consider informal extension requests. It said it was awaiting more details and would update him in due course. The leaseholder said he was pleased with the news. He asked what prompted the change. He also said the landlord should extend his lease free of charge and issue a refund for his previous extension.
Around a month later, the leaseholder said the landlord previously agreed to these actions. No information was seen to confirm this version of events. The landlord subsequently disputed his comments. It said the matter did not form part of a recent settlement to his water ingress complaint. During the above interaction, the leaseholder explained he previously extended the lease because “it was the only way the reduce the ground rent to nil”.
On 26 November 2021, after further enquiries from the leaseholder, the landlord said its new approach treated all leaseholders the same. In other words, there was no concession for leaseholders who previously extended their term. The leaseholder subsequently reiterated it was unfair to charge him additional extension fees. He felt the landlord was treating its leaseholders as “cash cows”.
From the parties’ correspondence, the following events occurred between 13 and 16 December 2021:
1. The landlord reiterated it would not adopt a different policy for leaseholders who previously extended. It said, though the premium for extending leases was likely to be “relatively small”, it could not justify absorbing everyone’s legal fees.
2. The leaseholder said the landlord was applying its policy inflexibly and it should make an exception in his case. Further, he would complain if the landlord failed to change its stance.
3. The landlord replied “many others” would be in a similar position and “it wouldn’t be right” to deviate from its policy. On that basis, it would raise a formal complaint and a colleague would respond in due course.
4. A member of the landlord’s leadership team acknowledged the leaseholder’s complaint. The acknowledgement contained a brief complaint summary. It said the landlord would respond by 30 December 2021.
The leaseholder responded in detail to the landlord’s acknowledgement on the same day. He asked why the complaint was not already at stage 2. His other procedural concerns included the leader’s impartiality and their scope to agree a settlement. His email included multiple links to additional information. For example, they signposted recent CMA and parliamentary developments. The leaseholder’s main points were:
1. If it was available at the time, the leaseholder would have opted for a 990-year extension. It was unfair he should now have to pay additional fees. Despite his requests, the landlord had not provided its estimated extension costs.
2. The leaseholder’s previous experiences with the landlord were relevant. They included a leak which took 4 years to resolve and cladding remediation issues.
3. The landlord’s doubling ground rent policy was unfair. It also meant affected leases would convert to assured tenancies when the ground rent exceeded £1K. As a result, to protect their interests, leaseholders had no choice but to extend.
On 24 December 2021 the landlord issued a stage 1 response. The response was issued within the landlord’s policy timescales. The landlord declined the leaseholder’s request for a cost-free extension. The main points were:
1. The leader was a specialist in the lease extension process. They were also part of a policy group around ground rents.
2. Ground rents which doubled every 10 to 15 years, and with no maximum ceiling on charges were considered onerous. This did not apply to the property’s original lease. Since its ground rent provisions were previously removed, the point was also moot.
3. It was unclear why the leaseholder opted to extend his lease so soon after purchasing the property. Nevertheless, the transaction was completed in line with the landlord’s relevant policy. Ground rent provisions were removed accordingly.
4. The landlord revised its lease extension policy on 1 September 2021. It applied to all new applications from this date and was not retrospective. No exceptions had been made for other leaseholders.
5. Aside from the term and ground rent, no other lease provisions were altered. The leaseholder could extend again but he would have to obtain a valuation and pay any associated premium. The landlord was unable to provide an estimate without a valuation. His current term should satisfy any prospective buyers/lenders.
6. Ultimately, the landlord was unable to offer a free extension. The leaseholder could start the extension process using the details provided. He could escalate the complaint if he was unhappy.
In a same-day reply, the leaseholder asked how he could escalate the complaint. Within days, the landlord advised it needed to understand his escalation rationale. The leaseholder subsequently detailed his reasons in an email on 2 January 2022. Broadly, he said the landlord overlooked various aspects including procedural concerns and applicable consumer protection legislation. His main points were:
1. The landlord failed to explain why it responded at stage 1 and did not address the leaseholder’s concerns around bias. The landlord’s determination should be objective and independent of its “lease extension/ground rent business”.
2. The landlord also overlooked a number of suggestions. For example, the leaseholder said a court referral would establish whether its original ground rent provisions were fair. In the event a court found they were unfair; the landlord should refund his initial extension costs.
3. Since his request required the landlord to change its policy or exercise discretion, the leaseholder did not see the benefit of involving the Housing Ombudsman. The landlord should explain the reasons for its previous referral.
4. The landlord’s new policy disadvantaged leaseholders who previously extended and its approach was incompatible with its “charitable objectives” (as a registered provider of social housing). It also failed to account for shifts in public policy or follow a precedent set by several large homebuilders.
5. The leaseholder had to extend the lease to prevent it from converting to an assured tenancy. This had various implications, including for the property’s saleability. It was “disgraceful” that leases were sold with clauses of this nature. The landlord’s previous response failed to consider the related legal implications.
6. The leaseholder’s previous extension costs exceeded £10,000. Had he not acted, his costs could have been greater. The landlord failed to acknowledge this situation or his “dire” previous experiences with the landlord.
7. The landlord could have made a 990-year term available when the leaseholder first applied for an extension. Its assertion that new legislation needed enacting beforehand was incorrect.
8. The landlord could use the leaseholder’s previous valuation as the basis for calculating a new extension premium. His calculations showed the premium should be around £22. It was therefore disproportionate to expect him to pay around £400 in surveying fees.
The landlord issued a stage 2 response on 17 January 2022. This was around 9 working days after the leaseholder gave his escalation reasons. The response was issued by a senior leader. The complaint was not upheld. The key points were:
1. The parties’ informal correspondence was not a complaint. When the leaseholder became dissatisfied, the landlord raised a stage 1 complaint in line with its policy. This policy did not include a judicial assessment process. The Ombudsman could review complaints and the landlord was obliged to provide referral rights.
2. Leasehold reform was “a huge topic recently”. The landlord recognised the leaseholder was across the ongoing developments, but the legislation had not changed. Nevertheless, the landlord had opted to act in the interests of its homeowners and within “tight budgetary restraints”.
3. The landlord’s policies were not usually backdated. Further, it could not use an extension as compensation for other issues, which should be handled under its complaints procedure.
4. The leaseholder felt the landlord failed to acknowledge his previous expenses. However, the landlord considered all aspects when reviewing its previous policy. Equality was a primary consideration, so it was unable to offer a free extension without extending the same opportunity to other leaseholders. As a registered charity, the landlord was unable to do this.
The parties exchanged further emails the same day. The leaseholder said the landlord failed to engage with his calculations, or his requests to dispense with the requirement for a new survey and waive legal fees. The landlord said it did not have surveyors that could confirm the premium. Further, it was obliged to sell assets at their correct value in line with auditing standards. It reiterated the need to offer all leaseholders the same opportunity. It also said it had responded to the complaint and its stance would not change.
The following day, the leaseholder completed the Ombudsman’s complaint form. He said the landlord should accept a £20 premium to extend the lease for 990 years. Further, it should pay for a joint lawyer to make the necessary alterations. In addition, it should revise its new policy to account for leaseholders who previously extended. It should also consider whether doubling ground rent leases were mis-sold. If so, it should offer him a full refund for his previous extension.
The landlord updated the development’s leaseholders on 11 March 2022. It said that following a CMA investigation into the leasehold market, an agreement was reached that allowed the landlord to remove doubling ground rent clauses free of charge. Further, once varied, ground rents would be held at an initial level for the remainder of the lease. The update said the landlord was reviewing its wider approach to ground rents to ensure parity with best practice. The update did not reference lease extension terms.
The leaseholder emailed the landlord’s stage 2 handler the same day. He said the landlord had agreed “to remove doubling ground rents and extend to 990 years, even where there was a previous lease extension”. On that basis, it should apply the same approach to the leaseholder’s case. No information was seen to show the landlord responded to his email.
The leaseholder updated the Ombudsman during a phone call on 25 August 2023. He confirmed the landlord’s position had not changed since its final response. He discussed the timeline and signposted a number of ongoing legal issues. They included uncertainty around protections afforded under the Building Safety Act (2022). His main points were:
1. The landlord could have offered 990-year leases earlier. The leaseholder asked about this in 2017.
2. The landlord should have ensured its new policy was fair to leaseholders in his position.
3. Minimal amendments were needed to the existing lease agreement. Significant extension fees were therefore unjustified.
The leaseholder provided supporting information by email over the next few days. It broadly restated his previous concerns and preferred outcome.

Assessment and findings

It is recognised the situation is frustrating for the leaseholder. The timeline suggests long-term developments, since his 2017 lease extension, could leave him substantially out of pocket. It also suggests some of his broad concerns around ground rent and lease extension practices were ultimately borne out. In other words, related fairness considerations eventually prompted significant changes within the building and housing industries.
Importantly, the Leasehold Reform (Ground Rent) Act 2022 (royal assent 8 February 2022) has since been introduced to prevent this situation in the future. That does not apply to the leaseholder’s case. The government explained that the provisions were not retrospective as it could have negative consequences for landlords by changing all rents to peppercorn rents. For example, there were investments which were dependent upon ground rent income. So even though the terms were deemed unfair – the government’s approach was that it had no basis to change all existing terms.
Moreover, the CMA’s action in the matter related to the mis-selling of leases with unconscionable ground rents. The action secured by the CMA was the removal of the terms and in this case, the leaseholder is not subject to such terms at this time. Ultimately, the leaseholder’s lease does not contain the ever-expanding unreasonable ground rent provisions.

The landlord’s response to the leaseholder’s concerns about its ground rent and lease extension practices

The leaseholder has consistently said the landlord should use its discretion to deviate from its relevant policy in his case. The landlord consistently said it was unable to make an exception out of fairness to its other leaseholders. In other words, it could not justify absorbing legal costs for every leaseholder that previously extended. This position was not unreasonable given the circumstances. Ultimately, no information was seen to show the landlord was obliged to adopt the leaseholder’s preferred resolutions.
Importantly, the landlord is under various economic standards as required by the Regulator of Social Housing. This includes managing resources effectively to ensure social housing assets are not put at risk and to achieve their aims of building homes. To take the approach requested by the leaseholder would mean ring-fencing public funds to effectively apply its policy retrospectively.
For example, no information to show the landlord’s approach was contrary to instructions from the CMA or other relevant bodies. In contrast, the wording of its March 2022 update suggests the landlord subsequently took limited remedial action ground rents at the CMA’s direction. As mentioned, this update did not refer to lease extensions. On that basis, no information was seen to suggest the leaseholder could have achieved his desired outcome (extension and ground rent removal) free of charge.
In any case, the timeline shows he opted to act in 2017 when the circumstances were different. Though his frustration was understandable, the information seen shows the landlord’s approach was consistent with its relevant policy.The landlord said it considered the policy’s broad implications before adopting it. This was appropriate given the associated risks to the landlord. Since the Ombudsman was unable to point to any related failures on the landlord’s part, there was no maladministration in respect of this complaint point.
Given the time that’s passed, it is unlikely we could consider the leaseholder’s initial purchase or his 2017 lease extension. The leaseholder could consider legal action if he wants to pursue these issues.
The landlord considered the leaseholder’s request both before and during its complaints procedure. Whilst the leaseholder does not agree with its decision, the Ombudsman unable to fault it. Taking the circumstances together, the landlord arrived at a conclusion that was open to it and any other reasonable social landlord to arrive at. The decision was not so unreasonable it completely defies fairness or common sense.

The landlord’s complaint handling

The evidence confirms the landlord’s complaint handling was appropriate overall. The landlord issued responses in line with its policy timescales. During the complaint journey, the landlord engaged appropriately with the substance of the leaseholder’s complaint. It responded to queries accordingly and no information was seen to show it unfairly overlooked any information with a bearing on the overall outcome. The landlord was not obliged to respond to every point in detail. Given its clear position, this would have been disproportionate.
That said, no information was seen to show the landlord responded to the leaseholder’s email on 11 March 2022. It was noted this enquiry was submitted after the landlord responded appropriately to the leaseholder’s complaint.

Determination (decision)

In accordance with paragraph 52 of the Housing Ombudsman Scheme there was no maladministration in respect of the landlord’s:
1. Response to the leaseholder’s concerns about its ground rent and lease extension practices.
2. Complaint handling.

Reasons

Given the circumstances, the landlord’s position was not unreasonable. No information was seen to show it was obliged to adopt the leaseholder’s preferred resolutions. Since the landlord’s approach was consistent with its relevant policy, we were unable to point to any related failures on the landlord’s part.
The landlord’s complaint handling was appropriate overall. The responses were issued within the landlord’s timescales and it engaged appropriately with the substance of the leaseholder’s complaint. The landlord was not obliged to respond to every point in detail. Given its clear position, this would have been disproportionate.