London Borough of Newham (17 011 200)

Category : Housing > Council house sales and leaseholders

Decision : Upheld

Decision date : 29 Aug 2018

The Ombudsman's final decision:

Summary: The Council was at fault when it withdrew from the sale of a property under its Newshare scheme without a good reason to do so. This has caused Mr X quantifiable loss, distress and time and trouble. The Council has made an offer to re-sell Mr X the property and pay him £4220 which is a suitable remedy.

The complaint

  1. The complainant, Mr X, complains that the Council unreasonably withdrew from the sale of a flat under its Newshare scheme. He states that the Council did not have a good reason to withdraw from the sale.

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The Ombudsman’s role and powers

  1. We investigate complaints of injustice caused by ‘maladministration’ and ‘service failure’. I have used the word ‘fault’ to refer to these. We cannot question whether a council’s decision is right or wrong simply because the complainant disagrees with it. We must consider whether there was fault in the way the decision was reached. (Local Government Act 1974, section 34(3), as amended)
  2. We investigate complaints about councils and certain other bodies. Where an individual, organisation or private company is providing services on behalf of a council, we can investigate complaints about the actions of these providers. (Local Government Act 1974, section 25(7), as amended)
  3. If we are satisfied with a council’s actions or proposed actions, we can complete our investigation and issue a decision statement. (Local Government Act 1974, section 30(1B) and 34H(i), as amended)

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How I considered this complaint

  1. I have:
    • Read the papers submitted by Mr X and discussed the complaint with him.
    • Completed a file inspection at Newham Council and interviewed relevant officers.
    • Considered the Council’s comments about the complaint and the supporting documents it provided.
    • Provided both parties with the opportunity to comment on a draft decision and considered their comments.

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What I found

  1. The Council used its powers under the Localism Act 2010 to create an affordable housing scheme called Newshare in 2012. The scheme aims to assist Newham residents to access affordable home ownership through a range of properties including Council newbuilds and Council social housing void properties.
  2. In the scheme, the applicant owns 100% of the property but is helped to buy the property using an equity loan from the Council as well as their mortgage and deposit. The Council will take a second charge on the property.
  3. The Council states that an applicant has to fund between 50-70% of their home using a deposit and a mortgage and the Council’s equity loan will make up the difference. They will then pay a yearly fee of 1.75% on the loan. The equity loan must be paid back after 25 years and this can be done in chunks or in stages. How much an applicant pays depends on the value of the home at the time.
  4. The Council uses an sales agent to market the properties and handle the day to day management of the selling process.

Events leading to the complaint

The Council approved Mr X’s Newshare application

  1. The Council advertised the sale of a 1 bedroom property online via the Newshare scheme. It valued the property at £320,000. Prior to the property being advertised, the Council instructed a Royal Institute Chartered Surveyor (RICS) to value to property. He valued it at £310,000.
  2. In February 2017 Mr X applied to buy this property. When Mr X applied to buy the property, he was living with his parents and he paid a £895 reservation fee to the sales agent acting on the Council’s behalf. It said that £500 of this fee would go towards his deposit on the property and that Mr X would have to pay an additional £144 fee to the sales agent. The terms and conditions said that if either party pulled out of the sale the sales agent could recover the costs incurred from this fee.
  3. In March 2017, the Council approved Mr X’s application for an equity loan and Mr X instructed a solicitor, solicitor 1. Solicitor 1 started to review the conveyancing pack for the property and made several enquiries to the solicitors instructed by the sales agent, solicitor 2. This did not include the RICS valuation or any site plans. One of the main queries was about the property’s boundaries. Solicitor 2 responded and said there were some issues with the boundaries which they were going to chase and get new plans drawn up.

Mr X queried the particulars of the sale

  1. Throughout May and June there was communication between solicitor 1, solicitor 2, and the sales agent about the boundaries at the property. It was unclear whether the basement was included. Mr X also queried his access rights because he said these were also unclear on the plans. The Council did not provide Mr X with a copy of the plans until 14 June.
  2. The sales agent agreed that it would get a new plan drawn up which would make the boundaries and access rights clearer. It also asked the Council to include the basement in Mr X’s boundary. The Council responded and said normally basements are not included in the sale of properties because they form part of the structure. The sales agent told solicitor 1 on 6 July that the basement was not included in the sale of the property.
  3. Mr X continued to query some access issues with the Council via solicitor 1 but said he accepted that the basement was not included in the sale. On the 13 July, the Council agreed a completion date of 21 July. It sent an email to solicitor 1 and said that it was too late in the day to exchange contracts. It said it would aim to exchange contracts on Monday (17th).

The Council withdrew from the sale

  1. The next day solicitor 2 emailed the sales agent and said solicitor 1 had said Mr X intended to make alterations to the basement which would automatically put him in breach of his lease. They also said they had a number of other concerns about Mr X and suggested that the Council may wish to reconsider whether it wanted him as a tenant.
  2. Solicitor 2 does not have any notes of this phone call, but they do have a record showing that they did speak on the phone to solicitor 1 for 106 minutes.
  3. The sales agent passed this information onto the Council. It said that it had no solid proof of Mr X’s intentions but had a duty of care to pass on the information. The Council considered this email and decided to withdraw from the sale of the property. It then notified Mr X of the decision to withdraw from the sale the same day but did not give him a reason why.
  4. On 17 July solicitor 1 contacted solicitor 2 to find out more information about why it withdrew from the sale. No notes exist of this phone call. Following the phone call, solicitor 1 wrote to solicitor 2 and said that Mr X said that he wanted to confirm that he accepted that the basement was not included in the sale of the property. He also wanted to confirm that he had no intention of making alterations to the basement. Solicitor 1 asked whether the Council would review the decision to withdraw from the sale.
  5. Concerned about the Council’s decision to withdraw from the sale, Mr X contacted the sales agent for more information. The sales agent said that it did not need to provide him with more information and that it was entitled to withdraw from the sale. Mr X then approached the Mayor’s office for support. In response to the Mayor’s enquiry about the case an internal email states that the Council also had concerns about Mr X’s behaviour in general. It said that it was told that he was demanding access to keys to neighbour’s gardens and therefore the Council was concerned that he would block common access areas. The Council also said that Mr X had asked the sales agent to place locks on internal doors and it was concerned that he was going to use the property for business use or a House of Multiple Occupancy (HMO). Therefore, because Mr X presented a high risk of breaching the covenants and litigation it decided to withdraw from the sale.

The Council responded to Mr X’s complaints

  1. The Council responded to Mr X’s complaint to the Mayor’s office in September 2017. It said that it withdrew from the sale after concerns from solicitor 1 that he intended to make alterations to the basement. It said that making alterations to the basement would breach the covenants at the property. The Council said that Mr X could buy any of the other properties that were available under the Newshare scheme.
  2. Mr X was concerned that solicitor 1 had told the Council that he was going to make alterations to the basement. Therefore, he asked them to complete a file review of their correspondence with the Council. Solicitor 1 wrote back to Mr X and said, “I cannot see anything on the file which suggests that either (solicitor 2) or (solicitor 1) discussed that you would be making alterations”.
  3. Mr X sent this to the Council and said that he would like to see proof that he said this. The Council responded and said that it received this information from a ‘number of sources’ so it decided to withdraw from the sale. The Council said that it has the right to withdraw from sales and that it would not review the decision.
  4. Mr X decided to approach the Ombudsman because he was unhappy with the Council’s handling of the sale of the property and response to his complaint. He said that he missed out the chance to buy a suitable property and accrued storage costs because he had to move out of his parent’s house and has been sofa surfing since. He said he still wanted to buy the property because it was empty.

The Ombudsman’s investigation

  1. The Council first responded to the Ombudsman’s enquiries in February 2018 and said that it was legally entitled to withdraw from the sale.
  2. In April 2018, the Council said that the property that Mr X wanted to buy was still vacant but that it was no longer available for purchase under the Newshare scheme because of a ‘inappropriate property layout’. It said that it intended to return the property to council rented accommodation because it had been empty for over 800 days. I have asked the Council to clarify what it meant by inappropriate property layout and to date it has failed to respond to this question.
  3. The Ombudsman decided to arrange an inspection of files and interviews of council officers, sales agent staff members and solicitor 2 solictors at the Council offices in May 2018. The Council did not provide adequate files for the Ombudsman’s inspection and three officers did not attend the interviews.
  4. In May 2018, Mr X approached the Mayor about his concerns who in turn contacted the Council. In response to the Ombudsman’s investigation and the Mayor’s concerns the Council has met with Mr X on two occasions. It said that there was a miscommunication between Mr X and the Council and it should not have withdrawn from the sale. Therefore, it has provided him with another opportunity to buy the property.
  5. The Council instructed a new RICS valuation which again valued the property at £310,000. The Council has also refunded the reservation fee, minus the amount that goes towards the deposit. On this occasion, the Council decided to follow the RICS valuation and agreed to sell the property to him at that price. The Council has also agreed to pay Mr X £4225. This is to cover:
    • £2775 in storage costs;
    • £1225 for time and trouble; and
    • £220 for solicitor’s fees.

Analysis

  1. The Council is correct when it says that it had the right to withdraw from the sale if it had concerns, as does any party in the sale of a house. But when the Council is one of the parties in the sale, the Ombudsman expects the Council to demonstrate good administrative practice in the sale process.
  2. The Council is unable to evidence any notes of the phone calls with solicitor 1. These were key conversations that Council wanted to rely on and it has failed to ensure adequate record keeping. Solicitor 1 has also said that they have completed a file review of their records and state they have no record of telling the solicitor 2 that Mr X intended to convert the basement.
  3. I attempted to interview the officers involved in the key discussions to verify the information but they did not attend. As the Council has decided to remedy this complaint, I have decided that it was not proportionate to pursue this matter further or witness summons the relevant officers. Therefore, I can only rely on the notes available and there is not enough evidence to make the finding that Mr X said he intended to convert the basement.
  4. When the Council made the decision to withdraw from the sale it appears it only relied on the email from the sales agent and solicitor 2. In interview, the Council stated it had more information from the sales agent about Mr X’s intention to put locks on the doors and shared access paths. But the Council has not provided any evidence to show this. The Council also retrospectively used this as a reason when it reviewed its decision, but again, there is no evidence of Mr X’s intentions in any of the paperwork. The Council should ensure that it maintains good records when making key decisions and when important discussions are taking place.
  5. When the Council decided to withdraw from the sale it did not provide Mr X with enough information about its reasons why. In a private transaction this is not needed. But again, we expect good administrative practice from councils. It should have been more open and transparent with Mr X.
  6. The initial RICS valuation for the property was £310,000. The Council decided to sell the property for £320,000. It told the Ombudsman that when it decides what price to sell properties, it does not always follow the RICS valuation but takes it into account. The Council also failed to provide Mr X with a copy of the RICS valuation in the sales pack in line with its procedures. I have decided that it is not proportionate to pursue this matter further as the Council has now agreed to sell Mr X the property at the RICS valuation price.
  7. Mr X states that because the Council pulled out the sale two days before exchange, and one day before completion, he had to place his belongings in storage. He also complains that he could not buy another house because he is priced out of the market in Newham. The Council has now agreed to cover the storage costs and pay him £1225 for his time, trouble. It has also agreed to sell Mr X the property and refund any fees.
  8. The Council’s fault meant that Mr X missed out on the opportunity to buy the property he wanted. The Council’s actions to remedy the injustice he has experienced as a result of the Council’s fault and are within the Ombudsman’s remedies range. Therefore, the Ombudsman will not make any further recommendations.

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Final decision

  1. The Council was at fault when it withdrew from the sale of a property under its Newshare scheme without a good reason to do so. This has caused Mr X quantifiable loss, distress and time and trouble. The Council has made an offer to re-sell Mr X the property and pay him £4220 which is a suitable remedy. Therefore, I have completed my investigation.

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Investigator's decision on behalf of the Ombudsman

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