London & Quadrant Housing Trust (202101094)

REPORT

COMPLAINT 202101094

London & Quadrant Housing Trust

28 April 2022

Our approach

The Housing Ombudsman’s approach to investigating and determining complaints is to decide what is fair in all the circumstances of the case. This is set out in the Housing Act 1996 and the Housing Ombudsman Scheme (the Scheme). The Ombudsman considers the evidence and looks to see if there has been any ‘maladministration’, for example whether the landlord has failed to keep to the law, followed proper procedure, followed good practice or behaved in a reasonable and competent manner.

Both the resident and the landlord have submitted information to the Ombudsman and this has been carefully considered. Their accounts of what has happened are summarised below. This report is not an exhaustive description of all the events that have occurred in relation to this case, but an outline of the key issues as a background to the investigation’s findings.

The complaint

1. This complaint is about:
   1. The landlord’s handling of the resident’s requests for supporting information about its costs following an increase in her service charge;
   2. The landlord’s complaint handling.

Background and summary of events

Background

2. The resident is a shared owner of the property, and the lease began on
   10 November 2017. The property is a one-bedroom flat in a block. The lease agreement is between the landlord and the resident. The landlord took over the lease, from a previous landlord, around 2018.
3. The landlord is a tenant of the freeholder, which owns the estate. A chain of landlords therefore exists in this case. A management agent (the agent) is appointed by the freeholder to run the estate. The resident’s lease agreement refers to the freeholder as the “superior landlord”. The superior landlord’s name is given in schedule nine of the lease agreement.
4. The resident contributes to the landlord’s costs, broadly maintenance, management and repair, through a monthly service charge. The lease agreement shows the parties agree to comply with the provisions contained in sections 18 to 30B of the Landlord and Tenant Act (1985) in respect of the charges.
5. Complaints concerning the level of a rent or service charge increase fall outside the jurisdiction of this Service. The First Tier Tribunal (Property Chamber) can establish whether service charges are reasonable or payable. The Ombudsman can consider a landlord’s administration of service charges, including its response to requests for information about them.
6. Section 21 of the Landlord and Tenant Act (1985) gives leaseholders the right to ask their landlord to supply a summary of the relevant costs, which make up their service charges, for the last accounting period. The summary should be compiled by a qualified professional. A resident’s request must be submitted to the landlord in writing.
7. Section 22 of the Act gives leaseholders the right to inspect any receipts or invoices which support the landlord’s service charge figures. The request must be made within six months of receiving the summary. Requests must again be submitted in writing. The landlord must provide facilities for inspecting the information within one month of the request, and the facility must extend for a period of two months.
8. Section 23 contains provisions governing section 21 or 22 requests in situations where the requested information is held by a superior landlord. They apply when the request relates to costs incurred by or on behalf of the superior landlord. It confirms:
   1. A landlord that does not possess the relevant information to comply with a section 21 request shall, in turn, make a written request to the person or party that is its landlord for the relevant information. The superior landlord shall then comply within a reasonable timeframe.
   2. On receipt of a section 22 request, the landlord shall immediately inform the resident of the circumstances and provide the name and address of the superior landlord. Section 22 shall then apply to the superior landlord in the same way it applies to the landlord.
9. The landlord operates a two stage complaints procedure. It aims to resolve complaints in ten working days at stage one. At stage two, it aims to resolve complaints in 20 working days. At both stages, if it is unable to provide a response within the relevant timescale the landlord will update the resident. A further ten working days is allowed following the update.

Summary of events

10. On 16 September 2019 the landlord contacted the resident about its final service charge reconciliation for the year 2018-19. The correspondence included the resident’s final service charge balance and a service charge statement, along with supporting invoices from the agent.
11. On 20 September 2019, the resident asked the landlord for a written summary of the costs underlying her service charge for the period 2018-19. She said the request was being made in accordance with section 21 of the Landlord and Tenant Act (1985). The resident copied in two of the landlord’s email addresses and the agent to ensure her request was received.
12. The landlord acknowledged the request on 8 October 2019.  The information seen suggests it provided information, 35 days later, on 25 October 2019. This was after further correspondence between the parties during the interim period. During this correspondence, the parties disputed the correct response deadline. While both parties agreed the landlord was required to respond within one month, the landlord said it received the resident’s request on 26 September 2019. As a result, it could therefore respond within the correct timescale on 25 October 2019.
13. The Ombudsman hasn’t seen the landlord’s email from 25 October 2019. We have seen some of the attached documents, along with the resident’s reply from 30 October 2019. In her reply, the resident said the landlord’s summary breached the provisions of the Act because it lacked clarity on several grounds. For example, it failed to distinguish between items the landlord paid in the period covered, and items which were invoiced but not yet paid.
14. She also said the accounts were unaudited and had been compiled by an individual that did not seem to be registered to provide audited accounts with a relevant professional body. Further, there were number of errors in the landlord’s end of year calculations for 2018, along with its 2019 budget. For example, the information contained an entry for “lift repairs” when the block didn’t have a lift. She said the landlord should take several actions to rectify the situation. These included making receipts for the year ending 2018 available for inspection at a mutually convenient time.
15. Though the resident’s request for receipts was included among a number of other queries, it can reasonably be considered a section 22 request. This is confirmed by the landlord’s later correspondence from 30 November 2020.
16. The landlord replied on 23 December 2019. The landlord said its accounts were certified by a qualifying accountant. It had therefore not committed an offence by having the accounts produced rather than audited. It responded to several of the resident’s queries and said it was awaiting supporting invoices, which would be sent to the resident in due course.
17. The resident asked the landlord for the invoices again on 4 March 2020. She said her service charge was due to increase by around £30 per month. However, she wouldn’t pay the increase until she’d seen the underlying invoices and received an explanation as to why there was a difference between the landlord’s budget and its actual expenditure for 2018.
18. The landlord provided two invoices from the agent on 30 March 2020. This was around five months after the resident first asked for receipts. It said its actual expenditure for 2018 was more than predicted due to a break-in, which needed to be repaired. Further, the resident was obliged to pay her rent and service charge without any deductions. This was because payment could only be withheld where the landlord failed to include a Summary of Tenant’s Rights and Obligations with her rent and service charge notices.
19. The resident responded the same day. She said she was legally entitled to inspect the underlying invoices, which she had asked for, and not just demands from the agent. She said the landlord was in breach of its legal obligations and should provide the information she requested in October 2019. From the wording of the resident’s reply, it is reasonable to conclude she was requesting information held by the superior landlord, about its costs, at this point.
20. On 12 May 2020 the landlord gave the resident additional information, which included a copy of the agent’s schedule for 2020. The document was titled “service charge budget statement” and it included itemised costings for expenses such as cleaning or maintenance.
21. The resident responded the following day. She said the landlord failed to account for differences between the agent’s budgets for 2017 and 2018 and financial statements for the same years. Since the information provided suggested the landlord’s costs were lower than forecast, residents should be in surplus. She said the landlord should either provide a clear account of its costs or confirm the service charge would be reduced.
22. The landlord replied on 8 July 2020. It responded to queries around the block’s water pump, communal maintenance and cleaning. It said the final accounts for 2017 and 2018 were signed off and received on 27 May 2020. Because this was after the cut-off date for the financial year, any credits or debits would not be evident until the following year. Further, the service charge would not decrease, instead it would be offset against the actual costs at the end of the year.
23. On 10 July 2020 the resident said the landlord should provide a breakdown of its costs, in line with its legal obligations, instead of providing information piecemeal.
24. The resident contacted the landlord again the following day.  She said the agent also managed an adjacent block. The information she was given suggested the agent was confused around which costs were associated with each block. She therefore restated her request for a full breakdown of the costs associated with the block, along with relevant supporting evidence in the form of invoices and receipts.
25. The landlord acknowledged the resident’s enquiry on 13 July 2020. It said it would investigate and respond by 24 July 2020. Further, its investigation would require information from the agent.
26. The landlord updated the resident on 24 July 2020. It said she was entitled to view the invoices it paid on her behalf. These had been provided and invoices for the 2019-20 period would be available from the end of September 2020. It said it contacted the agent to request access to invoices supporting the agent’s 2017 and 2018 accounts. It would update the resident again when it heard back from the agent. However, it expected the closing balances for both years to be in credit. The landlord’s email included financial statements for the years ended December 2017 and December 2018. 
27. The resident updated the landlord on 6 August 2020. She said she was pleased it now recognised she was entitled to view the underlying receipts and not just the accounts previously provided. She said the accounts showed residents should have been granted a credit which they had not received. Further, her queries about “irregularities” in the accounts were not answered. Because nine months had passed since her request for invoices, the landlord was in breach of its obligations under the Act.
28. The landlord responded to the resident on 10 August 2020. It said it had provided the requested information in line with the lease agreement and its statutory obligations. Having read the lease agreement, it was unable to find any clause showing it was obliged to provide the agent’s breakdown of costs or invoices. Further, it was not a requirement of the lease to provide the agent’s accounts, but the landlord was happy to supply further information when requested. This was providing any requests were made in accordance with relevant timescales. It also said the credit balance would be reflected in the resident’s 2020-21 final statement.
29. The resident raised a formal complaint around 17 November 2020. She said in 2018 she received notification her service charges would increase by 50%. Having asked the landlord for a breakdown of the charges, she was eventually told the increase would not be applied. In 2019 she again received notification of the increase, so she asked for the same information.
30. She said the landlord advised she was not entitled to a summary of costs under section 21 of the Landlord and Tenant Act (1985). The reason for the increase was therefore unclear. However, the landlord provided financial reports and budget schedules that showed it had apportioned costs incorrectly to the resident’s block.
31. The landlord acknowledged the resident’s complaint on 18 November 2020. It said it aimed to respond in ten working days. However, service charge complaints were often complex and could take longer to resolve.
32. The landlord responded to the resident’s complaint on
    30 November 2020. The response thanked the resident for her query and apologised for a delay in responding. The main points were:
    1. The service charge estimate for 2018-19 was produced by the previous landlord. The landlord was unaware the resident raised any queries in relation to this information.
    2. A revised service charge estimate for 2019-20 was sent to the resident on
       11 March 2019, along with a breakdown.
    3. The landlord responded to the resident’s section 22 request on 30 March 2020. The invoices provided related to the final service charge figures for 2018-19. This was the first final charge produced by the landlord.
    4. The landlord had not prevented the resident from accessing any information she was entitled to review. It had advised on several occasions she could review the agent’s invoices to the landlord. However, she was not entitled to review invoices between the agent and its contractors. These were the only invoices the landlord had declined to provide.
    5. The landlord had provided all the information it could. The resident could contact LEASE for relevant impartial legal advice.
33. The resident escalated her complaint on 31 January 2021. This was on the basis her concerns were not addressed in full. She said the landlord claimed it only needed to supply invoices from the agent to comply with the relevant provisions in the Act. However, these invoices only showed aggregate costs and lacked detail.
34. She said the lack of transparency was troubling and that legal protections for leaseholders could not be circumvented so easily. Further, she didn’t accept she had to rely on the landlord to challenge the agent’s costs on her behalf. This was because it had failed to justify a 50% increase in its service charges.
35. The landlord acknowledged the complaint on 3 February 2021. The acknowledgement indicated service charge complaints could take longer to resolve, but it said the landlord would respond in due course. Because it didn’t respond, the resident followed up her complaint in emails on 1 and 15 March 2021.
36. The landlord’s internal correspondence shows it received her first email on the same day and internal guidance was sought about how best to respond. The resident’s second email said 30 working days had passed and she hadn’t received any response from the landlord.
37. The landlord updated the resident on 12 May 2021. It apologised for the delay in reviewing her concerns in line with its complaints procedure. It said it encountered operational issues during the pandemic and it was working through a backlog of stage two complaints. However, her case was now allocated for investigation, and it hoped to respond in ten working days.
38. The landlord issued its stage two response on 26 May 2021. This was ten working days after the landlord’s update email. The main points were:
    1. The agent provided all services to the estate.
    2. The agent issued the landlord an annual budget which the landlord made available to residents on request. This information was given to the resident at the first stage of her complaint.
    3. Under the terms of the lease agreement, the resident was only entitled to view invoices the landlord paid on her behalf. Since the costs included in the service charge were invoices paid by the agent, the resident could only view them if she reached an agreement with the agent.
    4. The landlord was unable to compel the agent to share the information. However, its service charge team would review the agent’s budget information annually and challenge any costs it deemed unfair.
    5. To date the landlord had not challenged any of the agent’s costs because they were considered fair and reasonable for the services provided to the estate.
39. The landlord’s internal correspondence from 17 November 2021 suggests it was in contact with the agent about the issue of information requests. It said the agent declined to allow residents access to its buildings, to inspect its invoices, during the pandemic, however it had shown willingness to accept requests going forward. It said the agent had no obligation to show residents its invoices, but it was obliged to comply with any requests that came directly from the landlord.

Assessment and findings

40. The key aspect of the resident’s complaint concerns whether the landlord provided sufficient information to comply with its statutory obligations under the Landlord and Tenant Act (1985). The timeline confirms the parties disagree about the matter, so this assessment will seek to clarify the issue with a view to resolving the dispute. It is recognised the dispute has been ongoing for a considerable period, and that the resident made several requests for information during the timeline.
41. In a situation where there is a superior landlord, an intermediate landlord and individual leaseholders, the intermediate landlord will usually seek to recover from the individual leaseholders sums they have paid to the superior landlord in service charges. The following principles offer a useful guideline in these circumstances:
    1. Where a leaseholder questions the reasonableness of the service charge claimed from them, it is for the intermediate landlord to justify the reasonableness of the amount claimed – they may need to seek assistance from the superior landlord to do this.
    2. The Ombudsman recommends that landlords should ensure they are proactive in pursuing managing agents and freeholders for meaningful account information in relation to service charges to ensure it is provided in a timely manner.
42. On the other hand, case law has shown landlords are only responsible for providing the invoices they have, and they are not responsible for the adequacy of the information provided. On that basis, invoices from the agent, which the resident was given on 30 March 2020, were likely sufficient to satisfy the resident’s initial section 22 request from 30 October 2019. It was noted the initial request, although it could be understood in the context of the information the resident was previously given, was not specific about the information she required.
43. However, the timeline shows the landlord was around four months outside of the relevant, one-month, statutory timescale when it provided the information. Given the date range, between 30 October 2019 and 30 March 2020, lockdown restrictions had little impact on this timeframe. While the landlord’s correspondence suggests it sought to obtain the information on the resident’s behalf, it is unclear whether it was sourced internally or through the agent. In any case, the length of the delay shows the landlord failed to manage the request by proactively chasing the information.
44. The intent of the resident’s request could be clearly identified at the point of her second section 22 request on 30 March 2020. At this time, the provisions in section 23 of the Act obliged the landlord to immediately confirm the request related to costs incurred, and information held, by a superior landlord. Further, it should also have provided her its name and address.
45. This would have allowed her to redirect the request to the superior landlord, and the provisions in section 22 of the Act would have applied to it in the same way. No information was seen to show the relevant details were included in the landlord’s response, or any documents preceding the resident’s second section 22 request. It is noted the above provision, from 1985, predates the widespread sharing of information through means such as email.
46. Alternatively, the landlord should have submitted its own section 22 request to the superior landlord to obtain the information for the resident. This approach is also in line with the provisions contained in section 23 of the Act and it represents a fair and reasonable course of action given the circumstances of the case. This is because it avoids the possibility of the superior landlord rejecting any direct request from the resident in error.
47. The timeline shows the landlord only began to explain the circumstances, almost four months after the resident’s second section 22 request, on 24 July 2020. It also suggests the landlord adopted an informal approach to obtaining the information from the agent. Further, significant attempts to resolve the resident’s problem weren’t made until much later in the timeline.
48. No information has been seen to show the resident eventually received the invoices she requested. The timeline confirms she repeatedly requested the information from the landlord. The wording of these requests suggests she found the issue frustrating. Overall, she felt she was being prevented from examining her increased service charges contrary to the provisions of the Act.
49. Overall, the evidence shows the landlord failed to comply with its obligations under the Act. It was responsible for significant delays during the timeline, including failures to conform to statutory timescales. The information seen suggests this occurred because it failed to identify statutory requests promptly or manage them proactively. Further, it adopted the wrong approach towards the resident’s section 22 requests, which should have been handled in accordance with section 23 of the Act. The lease agreement confirms the Act is a key reference point in respect of service charge matters.
50. Given the above, the landlord’s handling of the resident’s requests for information, supporting an increase in her service charges, amounted to maladministration.
51. In relation to the landlord’s complaint handling, the timeline shows the resident’s complaint was handled in accordance with the landlord’s complaints policy at stage one. However, there was a delay of around eight weeks before it responded to the complaint at stage two. While the landlord’s stage two acknowledgement indicated there could be a delay, an alternative timescale was not offered at this point. This could have been helpful if the landlord was dealing with exceptional circumstances in the form of a backlog resulting from the pandemic.
52. The landlord’s complaints policy shows it should update residents when it is unable to respond to a complaint within its relevant timescale. Issuing this update then allows the landlord additional time to respond to the complaint. The timeline shows the resident asked for updates on two occasions after the 20-working day response timescale had elapsed. It also shows the landlord was aware the resident was seeking an update, but it still didn’t reply.
53. Given the above, the timeline confirms the landlord’s handling did not conform to its complaints policy. The resident was aware of the policy and sought updates accordingly. It is reasonable to conclude that chasing the landlord was inconvenient. The resident’s complaint also involved the landlord’s failure to respond to the resident’s requests within applicable timescales.
54. While is acknowledged the delay was explained to the resident on 12 May 2021, and an apology was offered, the evidence suggests the landlord did not recognise the full extent of its failures. For example, it did not mention the resident’s requests for an update or that internal guidance was sought about how to respond. It would also have been better for the landlord to address the delay in its final response letter, rather than an update email, which was its formal response to the complaint. As a result, the landlord’s apology was insufficient to redress what went wrong.
55. Given the above, this assessment found there was service failure in respect of the landlord’s complaint handling.

Determination (decision)

56. In accordance with paragraph 54 of the Housing Ombudsman Scheme there was maladministration in respect of the landlord’s handling of the resident’s requests for supporting information about its costs following an increase in her service charge.
57. In accordance with paragraph 54 of the Housing Ombudsman Scheme there was service failure in respect of the landlord’s complaint handling.

Reasons

58. The landlord failed to proactively manage the resident’s initial section 22 request to avoid delays. It therefore responded outside of the applicable statutory response timescale. When the resident made a second request the landlord adopted the wrong approach and failed to comply with its obligations under section 23 of the Landlord and Tenant Act (1985). It should have either provided contact details for the superior landlord or made its own section 22 request to the superior landlord on the resident’s behalf.
59. There were delays and failures during the landlord’s complaint handling which resulted in the resident chasing progress updates. The evidence shows the landlord was aware the resident had asked for an update, but it failed to respond. It is reasonable to conclude this was inconvenient and the complaint involved delays on the landlord’s part. Though an apology was ultimately provided, it was insufficient to redress what went wrong.

Orders and recommendations

Orders

60. The Ombudsman orders the landlord to contact the resident within four weeks to clarify what documents she is seeking. Once clarified, the landlord should submit its own section 22 request to the superior landlord to obtain the information on the resident’s behalf.
61. The Ombudsman orders the landlord to pay the resident a total of £300 compensation within four weeks comprising:
    1. £200 for any distress or inconvenience the resident was caused by its delays and failures while handling her requests for supporting information about the increased service charges.
    2. £100 for any distress and inconvenience the resident was caused by delays and failures during its complaints handling.
62. The Ombudsman orders the landlord to take steps to share this report’s key findings with its service charge teams within four weeks. This is to ensure staff are aware of the provisions where statutory information requests concern costs incurred by a managing agent on behalf of a superior landlord.
63. The landlord should provide the Ombudsman with evidence of compliance within four weeks of the date of this report.