Summary: there was fault in the Council’s decision to cancel Mrs X’s first Right to Buy application. This had a significant financial impact because the valuation and purchase price had increased significantly by the time she made a new application. The Council has agreed to a personal remedy for Mrs X and made service improvements.

The complaint

1. Mrs X is a Council tenant. She complained that the Council unreasonably cancelled her first Right to Buy (RTB) application in October 2022. It did this without giving her the opportunity to respond to any further queries or submit additional supporting evidence. When she challenged the decision, she says a Council officer told her she could restore the position if she made a new RTB application. She did that but the property valuation for the second RTB application was £25,000 higher which significantly increased the purchase price.

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The Ombudsman’s role and powers

2. 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 significant injustice, or that could cause injustice to others in the future we may suggest a remedy. (Local Government Act 1974, sections 26(1) and 26A(1), as amended).
3. If we are satisfied with an organisation’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)
4. We publish guidance on remedies which sets out our expectations for how organisations should apologise effectively to remedy injustice. The council should consider this guidance in making the apology I have recommended in my findings.

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How I considered this complaint

5. I have spoken to Mr Y who is Mrs X’s son and acting as her representative with her consent.
6. I considered the relevant law and guidance and the Council’s response to my enquiries including the RTB records.
7. Mr Y and the council had an opportunity to comment on my draft decision. I considered their comments before making a final decision.

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What I found

Relevant law

8. The ‘Right to Buy’ (RTB) refers to rights granted under the Housing Act 1985 to secure tenants of councils to buy their home at a discount provided they meet certain criteria.
9. Under the scheme, a tenant receives a discount on the property value based on the time they have been a tenant. There is a maximum discount.
10. There is a strict procedure for RTB applications:
• The process begins with the tenant completing an application form (RTB1). The Council must then either accept or decline the application within four weeks by issuing a RTB2 notice.
• If accepted, the Council must make an offer by serving a ‘Section 125 Notice’ within eight weeks of accepting the application for a freehold property, or twelve weeks for a leasehold residence. The Notice sets out the valuation of the property, the years of tenancy and discount applied and the purchase price.
• The applicant then has up to twelve weeks to accept the offer. If the applicant fails to respond, the Council issues a reminder giving a further 28 days to reply. If the applicant does not accept, the Council may issue a notice to ‘drop’ the offer. The applicant must then re-apply if they later want to buy.
• Any disagreement with the valuation can be appealed within three months of the offer, via an independent valuation by the District Valuer. The applicant then has twelve weeks to either accept the valuation, issued via a ‘Section 128 Notice’, or withdraw from the sale.
• If either party disagrees with the independent valuation, they may appeal to the District Valuer within 28 days of the S128 Notice.
• Once the applicant accepts an offer, the Council may send a ‘First Notice to Complete’ which gives the applicant 56 days in which to complete the sale.

Government guidance on RTB

11. The Department for Levelling Up, Housing and Communities (DLUHC) has published guidance for councils: “Right to buy: a guide for local authorities". It includes guidance on the cancellation of applications. It says the only time a council can cancel or withdraw the application is either:

After serving a relevant notice on the tenant.

Relevant notices are defined as a:

• Default Notice – when the tenant has not responded within the 12 week period given in the Section 125 or the Section 128(5) offer notice has expired; or
• First Notice to Complete – served no less than 3 months after the date of the Section 125 or Section 128(5) offer notice if the tenant is delaying proceedings and has not completed all necessary transactions; or
• Final Notice to Complete – served after the notice period in the First Notice to Complete has expired if completion has not taken place

Or:

After receiving a signed request to cancel the Right to Buy claim from the tenant(s).

12. There is nothing in the Housing Act 1985 or the DLUCH guidance on Right to Buy about whether, or how, councils should apply anti-money laundering regulations when they process RTB applications. The Council told us it does not have an internal policy or procedure for processing RTB applications but strictly follows the government guidance issued to local authorities. 

Discretion to investigate

13. Section 181 of the Housing Act 1985 gives the County Court powers to decide any question arising about the RTB (other than a dispute about the valuation of the property). In normal circumstances it would be reasonable to expect Mrs X to have used that right. However, if the Council has wrongly cancelled RTB applications, this may be a systemic fault which potentially affects other RTB applicants in the Council’s area. I therefore decided it was in the public interest to exercise 26(6)(c) discretion to investigate this complaint.

Mrs X’s first RTB application – February 2022

14. The Council received Mrs X’s RTB 1 form on 28 February 2022. She was a sole applicant.
15. On 7 March the RTB team acknowledged the application. It explained it required proof of Mrs X’s identity and residence under the Proceeds of Crime Act 2002 and the Money Laundering Regulations 2007. If any family members were joint applicants, it would require similar evidence for them.
16. On 29 March the Council sent Mrs X the RTB2 form confirming her right to buy the property.
17. On 8 April the Council received a valuation report from an external surveyor who valued the property at £250,000.
18. On 28 April the RTB team sent Mrs X the section 125 offer notice. This confirmed the market value was £250,000. Mrs X was entitled to a discount of £84,600 which made the purchase price £165,400.
19. Mrs X was also asked to complete and return an anti-money laundering declaration form. She had to declare the source of funds for the purchase. She also had to complete and return a Notice of Intent within 12 weeks.
20. On 28 June Mrs X’s solicitor emailed various documents to the RTB team. This included:
• the signed Notice of Intent confirming Mrs X wished to proceed with the purchase;
• copies of passports and bank statements for Mrs X and her two sons.
• the completed anti-money laundering form where Mrs X stated that the purchase would be funded with her savings and money gifted to her by her two adult sons;
• a letter from each of her sons stating the amounts they were gifting to Mrs X and their bank account statements as evidence they had the necessary funds.
21. On the same day Mrs X wrote to query whether the discount had been calculated from the date she made the RTB application or the date of the purchase. An officer in the RTB team replied on 6 July. She explained the discount is calculated on the date the application is made. If the tenant wants an increased discount, they must cancel their application and re-apply. The property will then be revalued and the discount recalculated based on the date of the new application.
22. On 11 August the RTB team wrote to Mrs X’s solicitor to confirm it had referred the case to the Council’s legal service to prepare the documents.
23. On 25 August the legal service contacted Mrs X’s solicitor to request bank statements which were provided on 1 September.
24. On 1 September the legal service made further enquiries to Mrs X’s solicitor. He replied on 2 September. He explained certain transactions on Mrs X’s bank account which the Council had queried were transfers between her bank accounts and repayments of loans she had made to her son and a religious organisation. A copy of the contract for the loan to the religious organisation was also provided.
25. On 8 September an officer in the legal service referred the case to the Corporate Investigations team to ask if the source of funds for the purchase was acceptable to the Council. She drew attention to one specific transaction on Mrs X’s bank account relating to the repayment of a loan. She also highlighted amounts credited to one of her son’s bank accounts which were dividends paid by a company of which he was a director.
26. The Corporate Investigations team allocated the case to an officer in late September 2022.
27. Mrs X did not receive any further updates in September. On 19 October she contacted the RTB team to complain about the delay in processing her application and the lack of communication. She said her solicitor had provided all the information and evidence the Council had requested by 2 September. She said she intended to contact her MP and Councillors.
28. On 27 October the RTB team wrote to inform Mrs X it had cancelled her application. It said it had to make further enquiries into the source of funds used for the purchase of the property to satisfy due diligence requirements under the Anti- Money Laundering Regulations. It had considered the information Mrs X’s solicitor had provided about the source of the funds but decided it was not sufficient to satisfy these requirements. It had therefore cancelled the application.
29. The letter did not explain the Council’s specific concerns about the source of the funds. And Mrs X was not given the opportunity to respond to the Council’s concerns or provide further information or documents before the application was cancelled.

Mrs X’s second RTB application – December 2022

30. The Council received Mrs X’s second application on 29 December 2022. It acknowledged it on 23 January 2023.
31. On 24 January the Council sent Mrs X the RTB 2 letter confirming she had the Right to Buy the property. A request for valuation of the property was sent to surveyors on the same day.
32. The Council received the valuation report on 14 February and sent Mrs X the section 125 offer notice on 23 March. It said the market value of the property was now £275,000. The discount was £87,200 which made the purchase price £187,800. This was £22,400 more than the purchase price in the April 2022 offer notice.
33. On 6 June 2023 the RTB team received the Notice of Intent stating that Mrs X wished to proceed with the purchase. She also attached a letter asking the Council to honour the purchase price from the first valuation. She explained the background: the Council had cancelled her first RTB application due to insufficient evidence for the money laundering checks, even though she had provided all the documents needed for the application. She made the point that if there was any outstanding information, it would have been reasonable to give her the opportunity to submit the necessary documents. She said it was unreasonable to cancel the application and it was not consistent with the Right to Buy Guide published by the Department for Levelling Up Housing and Communities. She said she had been proactive and had not failed to respond to the Council’s queries, and she had not withdrawn her application.

34. On 26 June 2023 Mr Y contacted the RTB team about the purchase price. He was told the increase in the market value was out of the Council’s control. The market valuation would remain £275,000.
35. Mrs X also sent an email asking the Council if it had received the letter attached to the Notice of Intent. She asked the Council to honour the original purchase price from the first application.
36. An officer in the RTB team replied on 29 June. She said the market value of the property had increased since the previous valuation and it was now £275,000. Mrs X had agreed to the purchase price in the March 2023 section 125 offer notice. If she had wished to dispute the valuation, she could have appealed to the District Valuer. She said the market price would remain £275,000.
37. Mrs X did not appeal to the District Valuer because she was not disputing the new valuation. Instead she was challenging the Council’s refusal to honour the purchase price from her first application after cancelling it without notice.
38. On 30 June Mrs X asked to escalate her complaint because the Council had not responded to the points in her letter of 6 June 2023. The Corporate Complaints team sent a final response on 6 July which reiterated the contents of the 29 June email. It said she could complain to the Ombudsman if she was not satisfied with the final response.
39. The RTB team forwarded the file to the legal service. On 3 July Mrs X’s solicitor was given contact details for the officer handling the case.
40. The processing of Mrs X’s current RTB application was then put on hold pending the outcome of our investigation.
41. In response to my draft decision, the Council agreed to reinstate the original valuation of £250,000. Due to the passage of time, Mrs X is now entitled to a higher discount of £87,200 based on the length of her tenancy. This new discount has reduced the purchase price to £162,800. The Council recently sent Mrs X a Section 125 offer notice to this effect.
42. The Council has also reviewed its procedures for cancelling applications and introduced new guidance for staff to ensure greater transparency and better communication with applicants and their legal representatives. It has delivered a training session to relevant staff in the Right to Buy and Legal teams.

My analysis

43. The Council was at fault because it did not follow the DLUHC guidance which explains the correct procedure for cancelling a RTB application. Mrs X did not withdraw her first application and the Council did not issue one of the prescribed notices before cancelling it. It therefore failed to follow the correct process set out in the guidance and so the decision to cancel the application was flawed. The Council accepts this was fault.
44. It is also a fundamental principle of good administrative practice to act fairly and give reasons for decisions. The Council did not explain its concerns and give Mrs X the opportunity to respond and provide additional evidence. It did not give adequate reasons for its decision to cancel the application. It was fault to cancel it abruptly without giving Mrs X this opportunity and without serving the required notice.
45. There was also fault in the way the Council considered Mrs X’s complaint. She presented her complaint very clearly but the Council failed to address the key points. Her specific concerns were about the way it made the decision to cancel the first RTB application. But the Council’s response focused on her right to challenge the second valuation by appealing to the District Valuer. That completely missed the point and was not relevant to Mrs X’s complaint about the cancellation of the first application.
46. This fault had a significant financial impact on Mrs X. When she reapplied, the market value of the property had increased by £25,000. The purchase price, after the discount was calculated, was £22,400 higher than it was in April 2022. The Council’s recent agreement to reinstate the original valuation has gone a long way towards restoring her position. But Mrs X suffered distress and inconvenience and is likely to have incurred abortive legal fees in pursuing the first RTB application.

Agreed action

47. Subject to Mrs X’s current RTB application satisfactorily completing due diligence checks, and progressing to completion, the Council will:
• Arrange for a senior manager to apologise in writing to Mrs X for the distress caused by the faults identified in this statement;
• Make a symbolic payment of £150 to Mrs X to recognise the distress and inconvenience caused by its actions;
• Ask Mrs X to provide evidence of any abortive legal costs she incurred in connection with the first RTB application and consider reimbursing her reasonable costs.
48. The Council should provide us with evidence it has complied with the above actions.

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Final decision

49. I have completed the investigation and found the Council’s fault caused injustice to Mrs X. The Council has already taken steps to reinstate the original valuation. It has agreed to provide a further remedy subject to the current RTB application proceeding to completion.

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Investigator's decision on behalf of the Ombudsman