Factoring in good practice
The Property Factors (Scotland) Act 2011 has received significant cross party support in Scotland, which has also been reflected more widely through positive endorsements from the property management industry.
Acknowledging a greater level of professionalism for the industry and a recognised system within which to operate and address issues for both consumers and property managers, the Act is, for the most part, wide reaching and demonstrates a very positive step forward.
With many positive endorsements at both an industry and political level, this Act seems to be delivering on a number of levels, but with any new system the implementation of the register and compliance with the code of conduct, particularly perhaps for larger property factors, may demonstrate some teething problems over the initial implementation period.
Principal objects
The Act introduces a new statutory framework of protection to homeowners who receive services from a property factor in Scotland. It is now fully in force, with the final code of conduct having been published on 13 July, and existing property factors (and those intending to become property factors) having had formally to complete registration applications by 1 October. The completed applications are presently being processed and the register is yet to go live.
Previously, the industry, which services an estimated 225,000 homeowners in Scotland, was largely unregulated. The Act can therefore be said to represent a recognition of concerns about how some property and land management services were being delivered.
The Act introduced three main provisions:
- it obliges the Scottish ministers to prepare and maintain a public register of all property factors in Scotland;
- it requires the Scottish ministers to develop a code of conduct setting out minimum standards of practice for registered property factors; and
- it introduces a system of dispute resolution for those homeowners who feel that their property factor has failed in its duties or otherwise failed to comply with the new code of conduct.
The importance of registering
A person who is, or intends to be, a property factor had to apply before 1 October 2012 to the Scottish ministers for registration. No grace period was provided. Acting as a property factor while failing to register is now a criminal offence. Offenders are liable on summary conviction to a fine not exceeding level 5 on the standard scale (currently £5,000), or to imprisonment for a term not exceeding six months, or to both.
A “property factor” is:
- a person, who in the course of their business (or a local authority or housing association which) manages common parts of land owned by two or more other persons and used to any extent for residential purposes; and
- a person who, in the course of that person’s business (or a local authority or housing association which) manages or maintains land which is available for use (but not necessarily owned) by the owners of any two or more adjoining or neighbouring residential properties, where the title deeds oblige the owners to pay for the management or maintenance cost of that land.
The definition applies only to residential property factors. Commercial property factors are unaffected by the Act, although they must comply with other regulations.
For registration you have the test of a “fit and proper person”. Thus, excluded are those who have:
- criminal convictions for crimes involving dishonesty, violence and/or drugs;
- been found to practise unlawful discrimination of any of the protected characteristics in the Equality Act 2010; or
- contravened any provision of the law relating to tenements, property or debt.
Successful applicants will be added to the register for a period of three years, following which they must reapply. Property factors will receive a registered number and, once available, must take all reasonable steps to include this in any document sent to a homeowner. Given the relatively short period between finalisation of the code and the deadline for registration applications, registration numbers and certificates of registration are awaited. The first numbers and certificates were expected to be issued by the end of October when the register was due to go live.
Property factors must also submit, no later than three months after the end of each financial year, a “property return” to the Scottish ministers, providing details of any properties factored during that year.
Failure to include the registered number on documents, or to submit returns, attracts a fine on summary conviction not exceeding level 3 on the standard scale (currently £1,000).
For most offences under the Act, the general defence of “reasonable excuse” is available. There are provisions targeting the “relevant individual” in the property factors being held criminally accountable along with the organisation itself.
Code of conduct
The code of conduct sets out the minimum standards of practice for registered property factors in Scotland. It reflects their wide-ranging duties. It sets out requirements in relation to:
- issuing a written statement of services;
- communication and consultation;
- financial obligations;
- a written debt recovery procedure available on request;
- maintaining insurance;
- carrying out repairs and maintenance; and
- a written complaints resolution procedure.
The code is underpinned by the principle of transparency so that homeowners are clear about what they are paying for, the way in which charges are arrived at, and the routes available if they wish to make a complaint.
Having passed the registration application stage, many property factors are now reviewing their written statements of services which require to be issued to existing homeowners within the first year of registration. The requirements for statements are comprehensive and this exercise may raise further issues as it is implemented.
The dispute resolution process
The Act establishes a dispute resolution process, which creates a homeowner housing panel (HHP) and homeowner housing committee (HHC). A discontented homeowner may apply to an HHP if they feel that their property factor has somehow failed in their duties or otherwise failed to comply with the code of conduct. The president of the HHP operates a sifting function and decides whether to reject the complaint or refer it to a HHC.
The HHC will consider the complaint and, if they uphold it, can impose a property factor enforcement order (“PFEO”) to require the factor to undertake such action as the committee sees fit within a specified timescale, or to make some financial award in favour of the homeowner (in practice probably an abatement of outstanding factoring fees). The PFEO can subsequently be varied or revoked. Failure to comply with the PFEO carries a fine and constitutes a ground for removal from the register.
If a party is dissatisfied with the decision of the president of the HHP or by a HHC, it is open to them to make an appeal, on a point of law only, to a sheriff, whose decision is final, within 21 days of the decision.
A missed opportunity?
Property factors will continue to raise actions in court for non-payment of their charges. Perhaps the missed opportunity was to set up a specialist factoring tribunal. Only if there is a genuine dispute about the performance of the property factor (determined by the president of the HHC at the sift stage) can the HHC intervene. As reference to the HHP emanates from homeowners only, in the absence of any such reference the dispute resolution forum is likely to remain the courts. This is particularly so since the Act only states that the homeowner “may” apply to the HHP.
It remains to be seen whether sheriffs are tempted to direct defender homeowners to the dispute resolution provisions. One can envisage some actions for recovery of factoring fees being sisted pending a determination under the Act. The effect of s 19(4) is that if there is an adjudication by the HHC, a court may not interfere with that decision.
The provisions of the Act and the code are relatively straightforward. The introduction of a new regime on property factoring ought to provide safeguards for consumers on the one hand, and for property factors on the other a clear statutory statement of their obligations to their customers. For those reasons the Act presents real progress.
In this issue
- The discount rate debate
- Weighted scales
- "Mere squatters"?
- Extended, modernised and improved?
- Reading for pleasure
- Opinion column: Andrew Todd
- Book reviews
- Council profile
- President's column
- Crofting Register is all set to go live
- Ends of justice?
- A debt lifeline?
- Criminal injuries in the UK - how to make a claim
- LPOs: the next level of help
- The age of equality
- Human rights: a call to action
- Screen test
- Further, faster, smarter
- Drop dead date
- Shares for rights
- Vive la difference?
- Automatic? For employers, not quite
- Scottish Solicitors' Discipline Tribunal
- All change at ILG
- Factoring in good practice
- Worker or partner... what's the difference?
- Ask Ash
- Service game
- Medical law: committee appeal
- Law reform roundup
- Reality checks
- Business radar
- From the Brussels office