Decision : Upheld
Decision date : 06 Dec 2019
The Ombudsman's final decision:
Summary: Miss X complained about how the Council dealt with her social enterprise business. We find that the Council took too long to agree a lease for her use of its venue. This caused uncertainty. The Council has agreed to waive rental for the two years of uncertainty caused by its delay. It has agreed to apologise to Miss X for uncertainty caused by this fault. The Council has adequately explained why it has decided to charge rental for her social enterprise business, having regard to its circumstances, its procurement strategy and guidance.
- Miss X complains about how the Council dealt with her social enterprise business. She complains it:
- Did not take proper account of the fact her company is a social enterprise business.
- Treated her company unfairly compared with another community group at the same site, regarding the terms on which they occupy their premises.
- Did not justify its decision to start charging her for car parking spaces.
- Unreasonably delayed arranging a new lease for her business premises and was influenced in this by her complaint.
- Sent a final complaint response that was vague, contained inaccuracies and misled the Mayor on the facts of the case.
The Ombudsman’s role and powers
- We investigate complaints about ‘maladministration’ and ‘service failure’. In this statement, I have used the word fault to refer to these. We must also consider whether any fault has had an adverse impact on the person making the complaint. I refer to this as ‘injustice’. If there has been fault which has caused an injustice, we may suggest a remedy. (Local Government Act 1974, sections 26(1) and 26A(1), as amended)
- 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)
- We cannot investigate late complaints unless we decide there are good reasons. Late complaints are when someone takes more than 12 months to complain to us about something a council has done. (Local Government Act 1974, sections 26B and 34D, as amended)
- Miss X has raised a range of concerns about how the Council supported her business over the past three years. I have only exercised my discretion to investigate the time it took to finalise her lease. This is because it was reasonable for Miss X to only make a formal complaint about this matter when the draft lease was finalised in 2018, and then complain to the Council. I have not investigated any other issues, including discussions about the land use agreement in 2014 because this is too long ago.
- 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)
How I considered this complaint
- I spoke to Miss X and considered evidence she provided.
- I considered evidence provided by the Council.
- I gave the Council and Miss X the opportunity to comment on my draft decision. I considered Miss X’s comments before making a final decision.
What I found
Relevant law, guidance and Council policy
- The term ‘social enterprise’ is used to describe businesses that are mainly created to help people or communities. They have mainly social objectives and reinvest surpluses in the business or community, rather than making profits for shareholders or owners.
- Social enterprises can be set up in a variety of ways, including as limited companies, charities and community interest companies. Miss X’s childcare company is a social enterprise that is set up as a limited company.
- The Local Government Act 1972 requires councils to get the best price for land they dispose of. The Local Government Act: General Consent Order 2003 gives councils permission, in some circumstances, to consider promoting wellbeing when deciding about disposals at less than market price. However this must not involve the Council giving unlawful State Aid. “State Aid” rules control the extent to which Government (including local government) can selectively support companies.
- The Social Value Act 2012 requires public sector organisations to have regard to how their commissioning decisions can benefit economic, social and environmental well-being. It only has to apply to contracts over a financial threshold. The Government has said it is good practice for social value to be considered in all contracts.
- This Council does not have a policy that defines what it considers as a social enterprise. Its procurement strategy allows it to consider social value when making procurement decisions. It aims to give a fair and equal opportunity to all suppliers including social enterprises and voluntary organisations. This means that when it considers tenders from organisations bidding to deliver council services, it can choose to give some weight to social value outcomes, alongside other matters such as price.
- Miss X ran a social enterprise business in the Council’s area, providing services for children, families and schools.
- In 2014 the Council agreed Miss X ‘s business could use an area of woodland in 2014 that is part of a larger, Council owned venue. It allowed the business to use parking for cars. It did not formalise these agreements.
- In 2015 the Council started to discuss with Miss X, her use of a building at the venue under a lease. Miss X also asked the Council to consider plans for her business to expand and use other premises at the venue. The Council sent Miss X a draft outline lease to use the building. However, the Council did not finalise the lease. During 2016 the business occupied the building, seemingly with the Council’s knowledge and acceptance.
- Miss X kept trying to finalise the lease for her use of the premises during this period. She tried to clarify the situation with the Council, including any on-going liability for rent. The Council did not give a definitive response.
- In December 2016 the Council prepared a new draft lease but did not send this to Miss X. During 2017-2018 the Council reviewed its use of the entire venue, seeking a new operator for the whole site. It put all action about existing lettings, including resolving the situation for Miss X’s business, on hold.
- In 2018 a voluntary group moved into a neighbouring property at the venue with the Council’s agreement. The Council agreed that the voluntary organisation could use the parking area that had been used, until then, by Miss X’s business.
- In February 2019 the Council finally sent Miss X a draft lease for her occupation of the building. Its initial proposal was that Miss X continue to use the building but that her service users now had to park at the main car park at the venue. This was some distance from Miss X’s business on an unlit pathway through woodland.
- Miss X said the car park was unsuitable for the users of her business because it was dark, unsafe and too far from the business. The Council then proposed an amended lease that offered alternative land for car parking but for an extra rental. The total lease it offered was for use of the building occupied by Miss X’s business (£7,200 per year), and an additional cost (£3,900 per year) for it to lease the car park area. Miss X’s business rejected this offer.
Complaint to Council
- Miss X had, meanwhile, complained to the Council in December 2018. She said it had still not sorted out her lease for several years. She said if it had acted promptly in 2016, her position at the venue, including access to parking, would have been secure. She said this uncertainty had prevented her applying for external grants. This was because funding organisations needed her to be certain about the security of her business premises.
- She said the viability of her business was under threat because of the new voluntary group user. She said the Council was treating her unfairly, when compared with its treatment of the new user that did not have to pay rent. It should have tendered for use of the building now occupied by the voluntary group. She said the Council did not understand social enterprises. She was not expecting the property rent free. She was prepared to pay a fair rent, taking into consideration the social value of her business.
- The Council replied to the complaint in January 2019. It accepted it had taken a long time to finalise the lease but had not charged any rent for the past two years. It confirmed it would not recover any back payment of rent from 2016 until 1 January 2019, but would expect Miss X’s business to pay rent from then. Miss X asked for the complaint to be considered at stage 2.
- The Council replied at stage 2 in February 2019. It said it understood Miss X’s business was a social enterprise, delivering services that benefited the community. It explained however that it was significantly different to a voluntary organisation (that did not charge for services). This was because Miss X’s business generated surpluses for reinvestment. Its decision to offer the neighbouring property to the voluntary sector organisation without going through a tendering process was justified.
- The Council explained that to allow Miss X’s company to continue to use the property on a long lease, below market value, would likely be in breach of State Aid regulations. It had decided, having sought legal advice, that an application for an exception to these regulations in this case would be unlikely to succeed. The Council had not openly marketed the buildings now used by the voluntary group. Therefore it had not needed to put this out to open tender before deciding to allow the voluntary group to use the building.
- It accepted and upheld part of Miss X’s complaint that it had taken too long to agree a lease for use of the property. It recognised this fault may have caused inconvenience and loss of income to Miss X’s business. It explained the fault was because of turn-over of staff and the Council having changed its plans for the long-term use of the whole venue. It would therefore not require Miss X’s business to pay rent from 2016 to 2018. It said this was appropriate compensation for the consequences of its delay. It asked for payment of rent from January 2019 onwards.
- During 2019 Miss X relocated her business from the Council’s venue. She told me this is a temporary location and she cannot take on new clients.
- Later in 2019 Miss X corresponded with the directed elected City Mayor in 2019 about letters sent in his name to users of her business. These referred to the Council’s support for the business in recent years. Miss X said they were inaccurate and that the business had to relocate because of the Council’s delays and inaction. She said the Council had not properly considered the social value of her business in its decisions.
- Miss X told me she had contacted the Council multiple times between 2016 and 2018 about the lease not being signed and her not paying rent. It had not listened to her. She said the Council had not looked at any other options such as her business purchasing the land or offering a grace period on rent for the business to apply for grant funding. She told me the parking the Council had offered (for an increased rent) was unaffordable and the alternative was unsuitable and unsafe for her clients to use. She said the Council had not checked the parking it offered was suitable. She said if the Council had acted promptly to sort out the lease in 2016, her position would have been secure.
- The Council says Miss X knew the lease would likely be on commercial terms from October 2015 when it sent her heads of terms that refer to rental of £7,200 per year. It says the business paid no rent to the Council for the lease or utility bills, or use of an outdoor area during its occupation of the venue. It believes disruption to the business, arising from its move from its venue, was minimal. Miss X says it had a significant impact on her and the business.
- The Council maintains Miss X’s use of the venue was as a commercial tenant. It says this is not comparable with the voluntary organisation’s use of its building. It had not carried out any formal assessment of the distance from the car park to the business.
The Council’s treatment of Miss X’s business as a social enterprise and comparison with how it treated a voluntary sector organisation
- The Council has considered, in some detail, the evidence provided by Miss X about the social enterprise nature of her business. It has explained, with reference to its interpretation of State Aid rules, why it considers it was justified to charge rental for the business to continue to occupy the premises. It has done so having considered evidence from Miss X about how her business is funded, largely from external grants, and knowing it reinvests surplus for social value ends.
- Having considered this evidence, the Council has explained why it considers Miss X’s business should pay market rent for its use of the venue.
- Councils have discretion to consider offering land at less than market value in some circumstances. This Council has explained why it does not consider it could use discretion in the particular circumstances of Miss X’s business case.
- It is only best practice but not essential for councils to apply the Social Value Act’s principles to smaller commissioning decisions such as this. The Council did not procure Miss X’s business to provide it with a service, or its use of its venue. The value of the rental agreement also falls well below the threshold set out in the Act.
- The Ombudsman cannot consider complex legal matters such as the correct application of regulations concerning State Aid. The Council has explained its reasoning for the decision it has taken. There is no evidence of fault in how it has made its decision because it has considered the specific context and method of operation for Miss X’s business and had regard to relevant legislation and policy, including its Procurement Strategy and Social Value Act.
Justification for charging for parking spaces
- The Council has explained why it considers Miss X’s business should be charged for use of land for car parking. It has decided to charge, having had regard to the business being a social enterprise. It has decided, in the knowledge of the business’s status, that it should pay a lease for the parking. This is a decision about which the Council has the discretion and is entitled to take and was therefore taken without fault.
Delayed arranging a lease
- The Council significantly and avoidably delayed arranging a lease for Miss X’s business premises. This was fault, causing Miss X uncertainty and, as the Council accepts, probable missed opportunities for her to bid for external funding.
- It is not possible to quantify, with sufficient certainty, any lost financial opportunity that resulted from this fault. Approval of any funding bids would have been subject to evaluation of a range of detailed criteria considering many factors and variables alongside security of tenure.
- Miss X also argues that her business put money into the building over this period, making improvements which it is now not able to benefit from. In the absence of an agreed lease arrangement this was action taken at Miss X’s business’s risk. It is therefore not an inevitable consequence of the Council’s fault.
- Miss X argues that, but for the Council’s fault arranging the license, her business would have been in a stronger position to keep using car parking close by. Instead, because of the lack of a lease, she lost use of the parking to the voluntary sector group.
- The draft, uncompleted lease agreements dating from 2016 do not refer to car parking. However, Miss X is left with uncertainty about whether this issue would more likely have been resolved in her favour, but for the fault.
- The Council’s agreement not to seek any recovery of rental for this period is appropriate to remedy some of the injustice caused by this fault. Had the Council finalised the lease in 2016, the business would probably have had to pay £14,400 for its occupancy during 2016-2018. Instead it did not have to pay any lease to the Council for its occupancy during this time. The Council should also apologise to Miss X for uncertainty caused by its delay.
- The Council is seeking to recover rent from Miss X’s business for the period of its occupation from 2019. It has put this matter on hold during this investigation. This was appropriate action. If Miss X continues to dispute the amount owed then this is a matter for the courts.
Final complaint response and Mayor correspondence
- Miss X is unhappy that the Council’s complaint response and correspondence from the Mayor refer to its long-term support for her business. She maintains this is inaccurate given her business’ continual struggle to secure a lease from the Council for the premises.
- By allowing the business to occupy the premises rent free for two years, the Council has given it some support. The Mayor was therefore entitled to refer to the Council’s support.
- The Council’s final complaint response adequately explained its position regarding how it had decided to treat her business with regard to its status as a social enterprise.
- Within one month of my final decision the Council will apologise to Miss X for its delay resolving the lease for her business occupancy of its venue.
- I have completed my investigation, finding fault causing injustice. The Council has agreed action to remedy outstanding injustice.
Investigator's decision on behalf of the Ombudsman