Published April 2024

Outcome: Complaint upheld in part

This case study covers a number of cases decided by the Ombudsman which were similar in the issues they raised. Each complaint was dealt with individually but they have been included in a single case study which aims to cover the arguments raised by the customers, the developers’ responses and the reasons for the Ombudsman’s decisions.

The Issues

The customers bought properties in developments which included provision for affordable housing as part of the planning permission granted for the sites.  The customers subsequently found that the developers had sold further plots on the developments in bulk to councils or housing associations.

Some of the customers felt that they should have been informed of this activity before their purchases had concluded, as it may have affected their decision to continue with the purchase. Others were concerned that the value and/or saleability of their properties had been affected by the bulk sales.  The customers felt that they had been misled by the developers in relation to the mix of property tenures on the developments and the proportion of properties which would be allocated to affordable housing as they understood it.

The Circumstances

In each case, the customers had been shown site plans which illustrated the provision of affordable housing according to the planning consent given for the development. 

Some customers said that the particular plot they had selected had been influenced in part by its proximity to the affordable housing shown on the site plans, and that this had been discussed with the developer; in another case the plot selected by the customer was adjacent to marked affordable housing provision.

It was clear from the customers’ complaints that they understood that, although individual plots may change slightly, what was shown on the plans was representative of expected affordable housing provision on the development.

The plans did not provide any detail about the other properties on the developments, beyond their size and style, but the customers understood them to be available for private sale, in contrast to the affordable housing properties.

In response to the complaints, the developers explained that the term “affordable housing” applied to properties that were shown on the plans.  These were part of the planning consent granted for the development and would remain as affordable housing in perpetuity.

According to the developers, all other properties were available for private sale on the open market.  These sales could be to a variety of purchasers including private individuals for owner occupation, investors for rental in the private sector or housing associations and councils to meet their obligations in relation to social housing. 

As all such sales were private, the developers did not disclose the nature of them to other residents or prospective purchasers for reasons of confidentiality.  Open market sales to housing associations were not categorised by developers as affordable housing as they were not designated in that way as part of the planning process.

The Ombudsman’s Decision

Understanding of what is meant by “affordable housing”

It was clear that there was a significant gap between the customers’ understanding of the term “affordable housing” and the narrower definition applied by the developers.  The customers did not draw a distinction between properties which formed part of the planning process and those subsequently sold to housing associations, regarding all as social housing provision.  The developers regarded the two scenarios as separate with one being mandated by the planning authorities, and the other part of their open market sales activity. 

That meant that, from the customers’ point of view, if they had asked questions about affordable housing at the point of reservation, they are unlikely to have understood that the developers’ responses were limited to what was shown on the development plans.

Understanding of what is meant by private or open market sales

In the Ombudsman’s view, the cases highlighted that the sales and marketing material provided by the developers was insufficiently transparent about how open market or private sales operate and the variety of buyers who could be involved.  In particular potential buyers would not be aware of the possibility of bulk sales to end buyers, including to housing associations and councils. As one of the fundamental principles underlying the Code is that developers agree to be transparent in the information supplied in relation to the purchase of a new home, the Ombudsman service upheld this aspect of the complaint.  Individual complaints about mis-selling were not upheld.

The Ombudsman service also considered whether the Code required developers to inform purchasers proactively about specific private sales during the course of their own purchases.  The Ombudsman concluded that the Code did not require developers to notify customers in this way.

Major changes

Some of the customers argued that, because the value of their homes had been affected by the developers’ actions that this amounted to a major change which the developers should have told them about. The Code does require developers to tell customers about their right to cancel their purchase in specific circumstances, where there has been a major change to the details shown in the reservation agreement or sale contract. The Code describes a major change as “a change that alters the size, appearance or value of the new home (including the layout inside the home).”

The developers argued that major changes relate only to changes to the property itself.  The Ombudsman concluded that there was some ambiguity in the way a major change was defined in the Code and it was arguable that the reference to “value” could be interpreted to include the impact of factors external to the property which the developer may have control over.  However, none of the customers had provided evidence that the value of their homes had been adversely affected by the developers’ actions, so it was not possible to determine that there had been a major change in relation to the Code.

Developer action

The Ombudsman service concluded that the developers should look again at the content of their sales and marketing material to ensure that prospective purchasers are clear about the types of sales which may be included in private, general or open market sales, in terms of single and multiple transactions and end purchasers.  Developers should also ensure that their staff are trained to handle enquiries about affordable housing in a way which helps customers understand that properties shown on development plans as affordable housing are a specific category, but that what consumers are likely to generally understand as affordable housing may also arise through private sales.

Further redress for individual customers was not considered justified by the evidence.  In cases where customers had claimed that the value of their properties had been adversely impacted by the increased incidence of affordable or social housing, no evidence had been provided to support the customers’ assertions. In cases where the customers had said that they would not have proceeded with the purchase if they had been aware of the bulk sales, it was not possible to establish that they would have decided not to reserve or purchase if they had been aware of the possibility of this activity.