Complaint reference 23676 - Complaint handling, Home ownership and leasehold

01 Mar 09 | Ombudsman Case Digests

Mrs A was originally a secure tenant of her local authority. In April 2004 she became an assured tenant of the landlord. The landlord was an organisation formed as a result of a partnership between the association and a second association (which had no involvement in the RTA application). Mrs A’s tenancy was with the landlord and it would be responsible for any management issues once the sale had been completed. The association (which was part of a larger Group) was the party responsible for overseeing the sale. Ms A complained about the landlord’s handling of her RTA application and about how her complaint was dealt with.

RTA application

In April 2005 Mrs A completed form RTA1, both she and the property met the eligibility criteria; if her application was successful Mrs A would be the freeholder of the property.

The preliminary stages progressed in accordance with the association’s guidance schedule for RTA applications. However there was then a seven month delay in providing Mrs A’s solicitor with the correct plans of her property. In the interim Mrs A received the TP1. This is a form setting out the details and terms of the transfer of the property. The solicitor highlighted a clause that placed restrictions on Mrs A’s sale of the property within 3 years. He also highlighted the provisions enabling the landlord to levy a service charge but offered no comment or advice on either condition. Mrs A had concerns about the inclusion in the TP1 for the landlord to set up and operate a ‘Sinking Fund’. She queried this because she was a prospective freeholder and a sinking fund is more usually a condition of a lease.

Mrs A raised the issue directly with the landlord in January 2006. It replied six weeks later explaining why it was a condition of a lease, however as it did not acknowledge that Mrs A would be a freeholder, and would not have a lease it did not explain why it believed the sinking fund was applicable to her.

There was no evidence of any further communication between Mrs A and the landlord and/or the association until January 2007 when Mrs A contacted the landlord to inform it that she was no longer represented by her solicitors and to further query the inclusion of a sinking fund on the TP1 and the inclusion of provision for a service charge. She confirmed that "my right to acquire the property stands, there are several issues that need clarification". In reply the landlord explained the TP1 was "in a standard format for all organisations within the Group…whilst this is made to allow any organisation within the Group to set up a sinking fund this will not actually be done by all organisations within the Group….as far as the landlord is concerned we have not charged services on the properties and I can’t see any reason why we would in the foreseeable future charge a sinking fund".

Issuing a 56 day Default Notice

In April 2007 the association issued Mrs A with a 56 day Default Notice. This warned her that she had 56 days to complete the purchase of the property. Whilst a landlord may do so it has discretion in this, in addition if it has been informed in writing that there are unresolved issues relating to the proposed sale then a Notice should not be served. As Mrs A had visited the association three days earlier to discuss her application, including that she had never personally seen a copy of the correct plans, she considered the 56 day notice to be inappropriate. The association explained it had served the notice because the original purchase offer had been made in May 2005 and it had not had any contact with her solicitors after February 2006. It noted that she had changed solicitors but had yet to inform the association of the name of any new solicitors. There is no evidence in the correspondence that the association either addressed why a sinking fund was relevant to Mrs A or any other freeholder, or an acknowledged that Mrs A still had outstanding concerns that might have negated the need for a 56 day Notice.

It was clear from subsequent communications between Mrs A and the association that her new solicitors did not receive the appropriate paperwork prior to the proposed completion date and that Mrs A continued to challenge the landlord’s and association’s explanation regarding the terms of the sale. At the beginning of June 2007 Mrs A made a formal complaint to the landlord and to the association about the handling of her application; in particular the issues of the sinking fund, service charge and 56 day Notice. In her complaint letter to the landlord Mrs A referred to what she regarded as ‘conflicting advice’ from staff about the sinking fund and what she believed to be incorrect information about the levying of a service charge. In support of her argument Mrs A referred to the relevant legislation - the Housing (Right to Acquire) Regulations 1997 and three separate pieces of guidance provided to her by the landlord, two from the Housing Corporation and one of its own. All of these cite the relationship between leases and service charges with no mention of freeholders; consequently Mrs A believed that she was not, as a freeholder, liable to pay a service charge.

Dealing with the complaint

Both the landlord and the association sent formal stage 1 replies which effectively reiterated previous explanations regarding the sinking fund and service charge issue. However the association accepted that the delay in providing the correct plans was ‘unacceptable’ and apologised. The landlord agreed to hold the original 2005 valuation on condition that Mrs A completed within two months. Another TP1 was issued with the same terms; however in line with changes to the legislation the disposal restriction period was amended to read 5 years.

Mrs A was not satisfied, in particular she raised her concerns about the communication between the landlord and the association and the amended disposal limit form 3 to 5 years. The matter eventually progressed to a panel hearing by the landlord in September 2007, in the interim the association had taken legal advice which was provided to the landlord.

The panel confirmed that the landlord was entitled to include provision for a service charge and that as this was a matter of policy it could not as a panel, change a policy. This was correct, policy decisions are a matter for the Board of a landlord and do not form part of the remit of a complaint panel. The panel also noted that as a freeholder Mrs A would not have recourse to the Leasehold Valuation Tribunal (LVT) if she wished to challenge the decision on service charges. This too was accurate, and acknowledged Mrs A’s continuing reluctance to accept that it was entitled to include provision for a service charge. Nonetheless, although it is unusual for freeholders to pay a service charge it is not illegal. However, should Mrs A wish to challenge this it would be necessary to apply to the County Court for a definitive ruling. It is not a matter that the Ombudsman can determine. The panel’s letter concluded by confirming that the provision for a sinking fund would be removed and offering Mrs A compensation of £1,000. The offer comprised £350 for service failures, a further £500 in recognition of the landlord’s contribution to the delays, £50 for the provision of incorrect information and £100 in acknowledgement of the delays in resolving her complaint.

Mrs A did not consider that the panel’s decision had resolved her complaint and she subsequently complained to this Service on 16 November 2007. However as the landlord was not a member of the Ombudsman’s Scheme it was necessary for the association to review Mrs A’s complaint. The association’s review was completed in October 2008 and it essentially confirmed the decision of the panel. However, it also added another £100 for the poor information regarding its complaint handling.

Determination

The Ombudsman found that paragraph 23c of the Ombudsman Scheme applied. The landlord acknowledged and apologised for its role in the delays and offered £850 for this and other service failures that impacted on the RTA application. The offer was discretionary and accorded with its compensation policy. It was at the higher end of payments for delays and when considered in the context of the application overall it represented an appropriate recognition of its responsibility. In addition it removed the sinking fund provision from the TP1 and the offer remained open to Mrs A at the price agreed in August 2005. The relationship between the participating organisations was not as clear as it might have been and this affected the handling of her complaint. There were errors of information, and she was offered £200 compensation for the poor handling of her complaint. This too was proportionate and, taken with the other £900 the total of £1100 compensation represented substantial redress.