Property factors update – increasing the float (and not being misleading)

Two recently-published linked decisions of the Homeowner Housing Panel (HOHP) have provided some helpful guidance in relation to property factors increasing the amount which factored owners must pay their factor as a float towards ongoing factoring costs, as well as commenting on how a particular section of the code of conduct for property factors should be interpreted.

The Facts

The homeowner, Mr Henderson, owned a number of flats within two large residential developments – Glasgow Harbour in Glasgow and The Strada in Edinburgh. Both developments were managed by Hacking & Paterson. In relation to each development, a deed of conditions had been registered by the original developers against the title to the developments and formed part of each homeowner’s title to their individual flats. The two deeds of conditions, while differing in detail, were drafted in fairly standard and comprehensive terms, including:- making provision for the appointment of a property factor to manage the common parts of the developments; the delegation of authority to the Factor to manage and maintain the common parts; and the placing of an obligation on each owner to bear a share of the costs incurred by the Factor in carrying out its functions.

In the case of The Strada, the deed of conditions required each owner to deposit with the Owners’ Association (which, at the time of the homeowner’s complaint to the HOHP, had not yet been set up) or to the Factor a sum which would be treated as a contribution to finance the cost of maintenance of the common parts of the development. The initial sum could vary and could be “such other sum as may be agreed between the Owners’ Association or the Factor and the Proprietors (ie the owners of the properties within the development) on an annual basis”. The deed provided that the deposit was to be returned by the Owners’ Association or the Factor under deduction of any outstanding costs or expenses when a Proprietor sold their property.

With the Glasgow Harbour development, the deed of conditions also provided for the setting up of a Proprietors’ Association which all property owners within the development required to join. This Association was given responsibility for the management and maintenance of the development and was empowered to appoint a property manager or factor to take charge of such matters. The deed gave the Factor the authority to exercise the rights and powers which could be exercised by a meeting of the Proprietors’ Association. Again the collective owners were obliged to pay to the Factor on taking entry to their property an advance (defined in the deed as a “float”) so that the Factor would have available a fund for the execution of necessary repairs and maintenance charges, insurance premiums, and management expenses and fees. The amount of the float was initially set at a level specified in the deed, but could be increased to such other sum as may be required for these purposes. Again the float was to be returned to the relevant proprietor following the sale of their property.

In the case of both developments, the Factor had taken the decision that the level of float held would require to be increased, in order that sufficient funds were held to meet the ongoing costs of properly managing and maintaining the common parts of each development. In the case of The Strada, the Factor wrote to all of the owners individually (in the absence of the Owners’ Association) explaining the reasoning behind the proposed increase, and subsequently a large majority of the owners paid the increased float to the Factor. With Glasgow Harbour, as well as writing to the owners, the Factor also liaised with the Proprietors’ Association. Again the majority of owners paid the increased float.

Mr Henderson, however, took the view that the Factor had no authority to impose this increase on owners, and refused to pay the increased amopunt for any of the properties owned by him within the two developments. He eventually complained to the HOHP, claiming (a) that the Factor had no legal authority to increase the float, and (b) that the communications from the Factor in relation to the proposed increases were in breach of section 2.1 of the Code of Conduct for property factors, which states:- “You [ie the property factor] must not provide information which is misleading or false”.

Increasing the Float

The Homeowner Housing Committee which determined the various applications decided that, based upon a reading of the two deeds of conditions, the deeds did give the Factor authority to increase the level of the float and that, in so doing, the Factor had acted properly. Accordingly, the Committee concluded that the Factor had not failed to perform their property factor’s duties.

It is not particularly clear why the homeowner had concluded that the Factor did not have authority or had not acted correctly in increasing the float, but in any event this complaint was not upheld. This seems to the writer to be a sensible and helpful decision for the Committee to take. While few homeowners will be overjoyed at the prospect of having to pay more money to their property factor, if the factor is proposing the increase because the costs of properly managing a housing development have increased, then providing that the Factor is acting within the terms of the applicable title deeds, and those titles give the Factor that authority, homeowners should make payment. Not wanting to pay doesn’t mean an owner needn’t pay.

Interestingly, in relation to the float for The Strada, the Factor had argued that the Committee did not have jurisdiction to consider the homowner’s complaint since the decision to increase the float was taken and communicated to owners in August 2007 – ie some considerable time before the Property Factors Act came into force on 1st October 2012. This argument is based on paragraph 28 of the Homeowner Housing Panel (Applications and Decisions) (Scotland) Regulations 2012. Paragraph 28(1) provides that no application may be made to the HOHP to determine whether there was a failure before 1st October 2012 to carry out a property factor’s duties. This is then qualified by paragraph 28(2) which says that a Committee may take into account any circumstances occurring before 1st October 2012 in determining whether there has been a continuing failure to act after that date.

The Committee did not accept this argument. Instead it concluded that, while the increased float became payable as from August 2007, the deed of conditions provided that the float was to be held by the Factor on behalf of owners and was to be returned to an owner when they sold their property. Accordingly, given that the Factor was holding the float on behalf of owners in terms of the deed of conditions, the matter complained of – the decision to increase the float – was an ongoing one which the homeowner was entitled to complain about and which the Committee therefore had jurisdiction to consider.

In arriving at this conclusion the Committee appears to have applied a particularly contorted thought process. It seems to the writer that any property management decision will have ongoing consequences – if the decision is taken to fix a leaky roof then once the roof is repaired it will be watertight for a period of time, but surely the decision to repair the leak is a one-off, taken at the outset, rather than an ongoing one? So if the decision to repair the leak was taken in 2007 but for some reason was not a decision which the property factor had the authority to take, can a homeowner complain to the HOHP about it? With Mr Henderson’s complaint the Committee placed store on the fact that the float was being held by the Factor on behalf of owners on an ongoing basis and would ultimately have to be returned to them (notwithstanding the fact that the factor wasn’t holding an increased float on behalf of Mr Henderson given that he had refused to pay it), but equally the same logic would suggest that if the factor wrongly fixed the leak in the roof, an owner could complain about the decision at any time, since the repaired roof which was repaired without authority continues to exist. It is also worth noting that paragraph 28(2) allows a Committee to consider pre-October 2012 circumstances in order to determine whether there was a “continuing failure to act” on the part of the factor after October 2012. But where was the failure to act here?

What this line of reasoning does perhaps demonstrate is that the President of the Panel when deciding whether to refer a homeowner’s application to a Committee, and the Committees themselves, will try very hard to bring a complaint within their jurisdiction, in order to give the homeowner the opportunity to be heard.

False or Misleading Statements

Another interesting comment made by the Committee related to the homeowner’s second complaint – that in communicating its decision to raise the level of the float, the Factor had breached section 2.1 of the Code of Conduct and had provided false or misleading information. Here, on the facts, the Committee concluded that the Factor had not made any false or misleading statements. The Chairperson did say, however, that “the parties were in agreement that, in order for there to be a failure to comply with paragraph 2.1 of the Code, it would be necessary for the factor either to have deliberately attempted to mislead or to lie or to have failed to take reasonable care when providing information to the homeowner. The committee considers that the parties were correct to construe the terms of paragraph 2.1 in this way.”

Again, this appears to the writer to be a helpful comment and a common-sense interpretation of this section of the Code. It contrasts with a previous decision of another Committee in relation to complaints by a Euan MacLeod against Hacking & Paterson (Case HOHP/PF/13/0063) which had concluded that incorrect information provided by the factor, which was put down to human error and which was corrected and apologised and compensated for, was nonetheless a breach of section 2.1. The Committee in that case said “It is clear, however, from the terms of section 2.1 that whether the [factor] intended to provide false and misleading information is irrelevant. It was clear from the evidence before the committee that the [factor] had provided false and misleading information to the [homeowner] and had therefore failed to comply with its duties under section 2.1 of the code”.

That previous decision might be seen as interpreting section 2.1 (and perhaps by implication other parts of the Code of Conduct) as imposing strict liability on property factors, and logically would mean that almost any factual error made by a factor in any item of correspondence issued to a homeowner might be open to challenge as a breach of section 2.1. The comments in the Henderson case may therefore redress the balance, although it remains the case that the decision of one Homeowner Housing Committee is not binding on other Committees.