HM Insights

A Pain in the Grass - when an RSL becomes the ex factor

The decision of the Homeowner Housing Panel (HOHP) in relation to a complaint by Philip Defew against Kingdom Housing Association (case HOHP/PF/13/0075) raises a number of issues which will be of interest to registered property factors, particularly registered social landlords (RSLs) who manage and maintain amenity areas within housing estates.

The key facts of the case can be easily summarised. Kingdom Housing Association built houses in Cupar, Fife, for shared ownership. Prior to the sale of the first shares in the houses Kingdom registered a Deed of Conditions over the title to the whole estate. The Deed of Conditions provided:

  • that each owner should bear an equal share of the costs of maintaining amenity areas within the estate, along with the other owners.
  • managing agents were to be appointed to maintain these areas
  • Kingdom would act as the managing agent for as long as Kingdom was the owner of a majority of the houses within the estate
  • after Kingdom ceased to be the majority owner, notice of that fact should be given to all owners, after which any owner could convene a meeting of the owners, with a view to establishing an owners association, which would then be responsible for the future management of the estate and for the appointment of a factor.

By the time Mr Defew complained to the HOHP, Kingdom had ceased to be the majority owner within the estate, but had not given notice of that fact to the owners as required by the Deed of Conditions. Kingdom did continue to act as manager and indeed had called a meeting of owners, although the purpose of the meeting was to seek approval to appoint Kingdom as a factor for a fixed period of five years, rather than to set up an owners association as envisaged by the Deed of Conditions.

In practice, the management activity seemed to amount to little more than periodically cutting the grass on an area of soft landscaping within the estate. This area was available for the use and enjoyment of the estate as a whole, although it was owned outright by Kingdom. When owners bought their houses, they did not receive a pro indiviso share in any amenity areas within the estate. The owners were, however, burdened with an obligation to contribute towards the cost of maintaining such areas, in the Deed of Conditions.

Mr Defew complained to the HOHP that Kingdom was in breach of its duty as a registered property factor to comply with the code of conduct which applies to registered property factors - specifically section 1.1aC(e) which requires the factor to provide each homeowner with a written statement of services, clearly setting out the factor's fee charging basis. The Homeowner Housing Committee which was appointed to hear the case concluded that, given the terms of the Deed of Conditions and the fact that Kingdom had failed to give notice to owners when Kingdom ceased to be the majority proprietor, Kingdom's authority to continue to act as factor, and to charge homeowners for any services, had ceased. Accordingly, there was no arrangement in place between the factors and the owners which could be reflected in the written statement of service. The Committee therefore made a property factor enforcement order (PFEO) requiring the withdrawal of Kingdom's written statement of services with retrospective effect, and the issuing of credit notes to Mr Defew.

On the face of it, the decision that Kingdom had not authority to continue to act as factor seems surprising. An alternative view is that, if a property factor was properly appointed then the factor is entitled to continue to act as factor even if there has been a subsequent change in circumstances, unless and until the factor is positively dismissed or replaced. Perhaps the best example of this is where a manager burden pursuant to which a factor is appointed by a developer is extinguished through the passage of time.

The present case can perhaps be distinguished, however, because of the specific wording of Kingdom's Deed of Conditions, which said that "the Association shall be managing agents for so long as they retain ownership of the majority of the dwellinghouse on the site". The logical implication of this provision, therefore, is that if Kingdom no longer retains majority ownership, then they cannot be managing agents and that the entitlement or authority to act as factor pursuant to the Deed of Conditions flies off.

This does, however, create something of a vacuum, since the Deed of Conditions simply envisaged owners possibly convening a meeting with a view to setting up an owners association, which would then go about appointing a new factor. The wording of the Deed of Conditions did impose an obligation on Kingdom to notify the other owners when it ceased to be the majority proprietor, but no obligation was then imposed on owners to actually convene a meeting to set up the owners association - the owners were simply given the ability to do that, if they so chose. This does therefore beg the question as to what would happen to the management of the estate if there was a gap between Kingdom ceasing to be the factor and the collective owners getting round to setting up the owners association, if indeed they ever did. Perhaps it is simply a case of the collective owners being forced to take action once they realise that they have an unmown meadow within their estate.

In the Kingdom decision, Kingdom appears to have accepted that, if the provisions in the Deed of Conditions entitling it to act as factor had flown off, there was no other basis in existence which would govern estate management arrangements between Kingdom and the owners, or which would allow Kingdom to charge the owners for the cost of the grass-cutting. However, the Deed of Conditions does impose a burden on all of the owners to pay towards the maintenance of the grassed area. The area was owned outright by Kingdom, so it seems logical that (a) Kingdom as owner of the ground could carry out such maintenance works to it as it saw fit and then (b) ask the owners to reimburse a share of the cost of that work, pursuant to the title burden which obliges each owner to make such payment. Regardless of the provisions of the Deed of Conditions relating to Kingdom's authority to act as factor, this would seem to be a proper basis for recovering maintenance costs from owners. It is therefore difficult to understand why the Committee felt it appropriate to order Kingdom to make a refund to the applicant of his share of the grass-cutting costs.

Also, while the Committee's decision was that there was no factor/homeowner relationship which could be documented in Kingdom's statement of services as required by the code of conduct, the Committee's decision does record the fact that the housing member of the Committee had dissented in relation to one aspect of the proposed PFEO. The dissenting member took the view that Kingdom was acting as property factor when providing the grass cutting service, even in the absence of any formal agreement which allowed Kingdom to charge the owners for its factoring services, because the Deed of Conditions did oblige owners to pay a share of maintenance costs.

In the view of the dissenting member, therefore, Kingdom should still issue a written statement of services, making clear the factoring service which it provided and that the authority or basis for it providing the factoring service is "custom and practice", as opposed to any agreed basis between the factor and the owners.

The Committee's written decision is slightly difficult to follow here. Certainly, Kingdom does appear to fall within the definition of "property factor" for the purposes of the Property Factors (Scotland) Act 2011, since (per section 2(1)(d) of the Act) it is a housing association which manages or maintains land which is available for use by the housing association and owners of any one or more neighbouring residential properties, where the owners of those properties are required in terms of their title deeds to pay for the cost of the management or maintenance of the land. However, the basis on which Kingdom does these things is not "custom and practice" (whatever that means in this context) but rather because (a) it is the owner of the land in question and (b) the other owners are obliged by their titles to pay towards the maintenance costs.

HOHP cases involving RSLs have been relatively few to date, in comparison with cases involving commercial factors. This particular case will be of interest to RSLs, not least because similar situations may well arise in mixed tenure estates, where the basis of the RSL's authority to act as factor flows from a deed of conditions, and where either the manager burden has been extinguished through the passage of time or where the authority depends upon the RSL continuing to own a specified number of houses. However, in many cases (including the many estates which were formerly owned by Scottish Homes), the amenity areas in the estates will be owned outright by the RSL and will not be common property, in which case it seems reasonable to conclude that the RSL should still be entitled to maintain the land and be paid for doing so by the homeowners on the estate.

Please note that this commentary is based upon the writer's analysis of the published decision of the Homeowner Housing Committee, as we did not represent Kingdom in the case. The commentary is also only intended to be of general interest and does not represent legal advice.