Housing Associations, Shared Ownership and consumer protection considerations

15th January 2018

Consumer protection considerations are key for Housing Associations involved in shared ownership and other innovative commercial/ownership arrangements. Walker Morris partners Karl Anders and Louise Power explain and offer their practical advice.

Housing Associations today are Real Estate businesses…

Modern Housing Associations (HAs) do much more than the traditional letting and management of social housing.  Against the political backdrop of a nationwide housing shortage, and in line with wider, socially responsible goals to provide more homes; to improve opportunities, independence and quality of life for residents; and to benefit the wider community, many HAs now engage in innovative commercial arrangements to increase and improve their housing stock.

For example, it is not uncommon these days for HAs to enter into joint venture or other partnering arrangements with landowners, investors, the HCA, housebuilders/developers, and/or construction contractors to provide increased and improved housing for residents via a variety of different means. HAs can therefore be involved in letting at affordable or market rents; Build-to-Rent/Private Rental Sector schemes; shared ownership development and sale; and even property investment and new-build home development and sale for purely income-generating purposes. In all of these scenarios, HAs deal with (and, crucially, target and market to) members of the public – individual/private home buyers/renters and potential purchasers/tenants – who are safeguarded by consumer protection legislation.

As property investors, owners, developers and managers, HAs today are real estate businesses to whom consumer protection and property promotion laws and good practice guidance apply. If a HA falls foul of its consumer protection responsibilities, it can face serious legal, commercial and reputational consequences.

…with consumer protection obligations

The Consumer Protection from Unfair Trading Regulations 2008 (CPRs) provide that businesses must not mislead consumers through giving false or misleading information or through failing to give material information.  They aim to protect consumers from unfair commercial practices at every stage of a property transaction and, crucially, no actual purchase or transaction needs to have been completed before a breach of the CPRs can occur and a prosecution can be brought.

It is a breach of the CPRs to give information to consumers that:

• is misleading to a material degree
• relates to one or more pieces of information which consumers are likely to take into account when reaching a transactional decision (such as the nature of a product or service, specification, price, locality, sales service, terms of sale, incentives or other aspect or characteristic of the product/service)
• causes or is likely to cause the consumer to make a different transactional decision.

Information might be misleading because it contains false information or because it is deceptive or likely to deceive a consumer even if, strictly, it is factually correct. This can include information which is given verbally, in writing or visually.

Giving false or misleading information under the CPRs also specifically includes any commercial practice or marketing which creates confusion with competitors’ products or services and also advertising that you are bound by any Code of Conduct, but not adhering to that Code.

The CPRs require businesses to be proactive. They impose a duty to disclose material information that a consumer needs to make an informed transactional decision. A common trap for the unwary is that liability for misleading by omission cannot be avoided if you do not know the material information, but have taken no reasonable steps to find it out.

Finally, the CPRs place a general prohibition on commercial practices where a business fails to act in a professionally diligent manner in accordance with honest market practice and/or good faith.

In the property context, the CPRs cover the following scenarios and apply to any business engaged in:

• The supply, marketing or other services relating to the sale of land.
• estate agents, buyers’ agents, letting agents, internet property retailers, auctioneers, solicitors operating services that count as estate agency work.
• The sale of property or land the buying of property or land for resale and/or investment.
• The provision of ancillary services related to any of the above.

Much of the business of a modern HA will therefore fall within the ambit of the CPRs, and could give rise to consumer protection liability.

The reach of the CPRs is wide, as are the enforcement provisions which attract both civil and criminal liability. Adverse reputational consequences are also a major factor in such instances.

Socio-economic context and the shared ownership example

Earlier this year the Office of National Statistics confirmed [1] that the cost of the average home in England and Wales has risen by 259% since 1997, while earnings increased only 68% in the same period.  The average house now costs 7.6 times average annual earnings, compared to 3.6 times in 1997.  The gulf is even wider in parts of the South East, where house prices can be 26.4 times average earnings.

This affordability gap represents a real barrier to home ownership for many. With pressures facing borrowers of all ages and across all socio-economic groups, it is likely that affordability concerns will continue, and even increase, over the coming months and years.  The social housing market has already started to respond to some extent, with Low Cost Home Ownership schemes such as shared ownership and shared equity arrangements now being made available by many HAs.  However consumer demand already outstrips supply and the trend looks set to continue.

Against this background, it is essential that all members of a HA’s staff should be familiar with their responsibilities and obligations under the CPRs, and should understand the issues that affect them.

Taking the shared ownership arrangement as an example, the 2008 case of Richardson v Midland Heart Ltd [2] confirmed that a shared ownership lease – and the entirety of the interest for which the customer/social housing tenant has paid a premium and rent – is simply an assured tenancy to which the Housing Act 1988 (the Act) applies.   It follows directly that, if and when a shared ownership lease is terminated by a court order for possession made under that Act, there is no option for relief for the leaseholder or its lender (with the latter’s security being irrevocably lost).  In those circumstances, the customer/social housing tenant is not entitled to the return of its premium, nor to any capital appreciation on the property.

It also follows that it is incorrect – and therefore misleading and potentially an offence in contravention of the CPRs – for HAs, landlords, developers or lenders to advertise, or to refer in any way and in any of their marketing or customer-facing materials or discussions, to shared ownership schemes as “part buy, part rent” (as is very commonly done). The same equally applies to using any other terminology or slogan which could give rise to confusion or which suggests or could suggest that the shared ownership customer purchases anything other than merely an assured tenancy leasehold interest at any time prior to the 100% staircasing stage.

How Housing Associations can protect themselves

If faced with prosecution under the CPRs in the shared ownership example or in any other property transaction or scenario, it may be possible to raise a defence if the offence was committed because of a mistake or reliance on information supplied by another, or because of some other accident or cause outside your control; and if all reasonable precautions and due diligence were undertaken to try to avoid commission of the offence in the first place.

It will not be possible to raise the due diligence defence if a HA or other organisation knowingly or recklessly allow its employees’ conduct to fall below honest and professionally diligent standards.

There are some sensible, reasonable steps that HAs and indeed all responsible Real Estate businesses can take to avoid commission of CPR offences. Following these should also provide organisations with evidence to support a due diligence defence if and when any complaint, investigation or prosecution is instigated:

• Providing training to all staff involved, directly or indirectly, with the sales and marketing (including production of hard and soft copy materials) of services/products – in particular making sure that they understand and accurately represent the legal structure of a shared ownership or any other such arrangement – and retaining records and evidence of such training achievements.
• Taking care that all information, in all forms, that is gathered and presented to consumers (potential and actual) is accurate, fair, not deceptive or misleading and does not leave out material facts. Having safeguards in place as to the accuracy and security of all such information.
• Updating (or introducing) policies and procedures regarding the review/maintenance/correction and updating of marketing material and other consumer-facing information.
• Investigating further where changes, inaccuracies, gaps or queries come to light.
• Assessing and, where necessary, verifying the validity of information provided to the HA/organisation by others.
• Acknowledging clearly to the consumer any necessary or unavoidable gaps in information provided by the organisation.
• Signposting consumers to any publicly available information which might affect or assist with their transactional decision.
• Maintaining a comprehensive audit trail of all your efforts.

There are also some simple practical tools that you can deploy to defend yourself:

• Firstly, is the complaint actually time-barred? Depending on the circumstances of the offence/complaint, there is an applicable limitation period after which no prosecution can be brought.
• Secondly, can a complaint be negotiated away? (If it can, note that negotiating a settlement with a consumer complainant may not, of itself, prevent a prosecution, and it may not guarantee confidentiality.) Seek specialist legal advice to assist with any settlement negotiations and to make sure that any agreements are properly documented and include confidentiality obligations.
• Treat every customer and potential complainant fairly, politely and professionally, and be honest and open in all your dealings, so as to foster good relationships. Good customer relations can avoid or quickly resolve complaints and can help to avoid formal legal action.
• Finally, can you raise the “due diligence” defence?

WM Comment

There is no doubt that shared ownership and other innovative arrangements will play an increasingly important role in the every day business of the modern HA. HAs should therefore get their documents, processes and staff training right as soon as possible, so that they can maximise, with confidence, the opportunities that this emerging market can afford.

A key area for improvement for many HAs, landlords and mortgage lenders alike, is, however, the presentation/branding of shared ownership schemes and the drafting of internal and external communications that relate to them. Thoroughly reviewing marketing materials, and simplifying and streamlining the documentation and processes involved, should go a long way towards encouraging profitable engagement in the market and should minimise the risk of facing a CPRs complaint or prosecution. If the worst does happen, having good practices, policies and training records in place should also assist in establishing the statutory defence.

For further advice or information, for assistance with the drafting or updating of appropriate policies and procedures, or to enquire about Walker Morris’ CPRs training for businesses, please contact Louise Power or Karl Anders.

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[1] Statistical bulletin, Housing affordability in England and Wales: 1997 to 2016
[2] [2008] L&TR 31