Gateway Housing Association Limited (202114470)

REPORT

COMPLAINT 202114470

Gateway Housing Association Limited

24 March 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. The complaint is about:
   1. The landlord’s administration of the resident’s service charge.
   2. The landlord’s complaints handling.

Background

2. The resident is the leaseholder of the property, a 1-bedroom flat. The landlord is the freeholder.
3. The landlord intends to complete major works to the resident’s building, including internal and external redecoration, replacement of the windows and roof covering, and other associated repairs, such as works to improve fire safety. The cost of the works will be recovered from leaseholders via the service charge. As insufficient funds are currently held in the sinking fund, a significant additional contribution from each leaseholder will be required to meet the cost of the works.
4. The resident made a formal complaint to the landlord, stating that he believed it had failed to adequately maintain the sinking fund for cyclical repairs to the building since 2016, in breach of its obligations under his lease and its policies and procedures. He also complained that it had failed to follow the statutory consultation process for major works, that its accounting practices did not meet the required standard, and that there had been other administrative failings in the management of his service charge, including use of the wrong correspondence address and failure to provide information when requested.
5. The complaint was not upheld at stage 1 of the landlord’s complaints process. The landlord found that a section 20 consultation in 2016 was ‘carried out as legally required’. It agreed to restart the section 20 process in respect of the coming works for ‘clarity and transparency’. Regarding its accounting practices, the landlord concluded that the service charge accounts met the statutory requirements. It noted that the guidance the resident referred to was ‘not a legally binding statutory document’. The landlord explained that the sinking fund was maintained at its discretion. It aimed to accrue sufficient funds to cover cyclical works, however, additional works may need to be charged separately.
6. The resident requested the escalation of his complaint, stressing that if the landlord had followed the accounting guidance, there would be no deficiency in the sinking fund. He highlighted the areas of the stage 1 response where the landlord had failed to respond, or where its response was disputed, requesting further clarification on some points. At stage 2, the landlord partially upheld the complaint about the section 20 consultation, which it had agreed to restart. It concluded that all other aspects of the complaint had been adequately responded to at stage 1.
7. The resident raised further concerns about maintenance of the sinking fund and the landlord’s accounting and audit practices, with reference to the 2020 accounts. He submitted a complaint about the Chair’s conduct and failure to respond to his queries. The landlord confirmed that a new complaint would be opened and expedited to stage 2, noting that there was no stage 3 right of appeal. The resident complained that the landlord had failed to follow its complaints process. The landlord maintained that it had the right to escalate the complaint, ‘if the complaint overlaps a similar complaint previously escalated to stage 2’. The landlord committed to provide a response from a ‘fresh pair of eyes’ in the form of a director from a different business area. A copy of the landlord’s stage 2 response to the second complaint has not been provided to this investigation.

Assessment and findings

Jurisdiction

8. The resident has raised concerns about the landlord’s administration of his service charge since 2016. In accordance with paragraph 39(e) of the Scheme, the Ombudsman will not investigate complaints that were not raised with the landlord as a formal complaint within 6 months of the matter occurring. The scope of this investigation is therefore limited to consideration of the landlord’s actions in the 6 months prior to the formal complaint of 26 April 2021, although the Ombudsman will comment on the adequacy of the landlord’s response to the issues raised.
9. The resident has complained about the landlord’s accounting and audit practices. The Ombudsman does not have the technical expertise to assess whether the landlord has complied with statutory accounting requirements. In accordance with paragraph 39(m) of the Scheme, the Ombudsman will not investigate matters which fall properly within the jurisdiction of another Ombudsman, regulator, or complaint handling body. The resident may therefore wish to approach the Financial Reporting Council (FRC) in relation to this aspect of the complaint. Further information about the FRC can be found on its website here: https://www.frc.org.uk/.
10. In accordance with paragraph 39(i) of the Scheme, the Ombudsman will not investigate complaints concerning matters where it is considered quicker, fairer, more reasonable, or more effective to seek a remedy through the courts, or other tribunal or procedure. The Ombudsman does not have the authority to provide a binding determination on whether the landlord complied with the statutory consultation requirements, or its obligations to maintain the sinking fund in accordance with the lease. These aspects of the complaint are therefore outside the jurisdiction of this Service. The resident may wish to seek independent legal advice and consider referring these matters to the First Tier Tribunal (Property Chamber) (FTT) for a binding determination. Further information about the role of the FTT can be found on its website here: https://www.gov.uk/courts-tribunals/first-tier-tribunal-property-chamber.
11. The resident has disputed that additional service charges should be levied in respect of the upcoming major works, due to the landlord’s alleged failures. In accordance with paragraph 39(g) of the Scheme, the Ombudsman will not investigate complaints concerning the level of rent or service charge or the amount of a rent or service charge increase. The complaint about whether additional service contributions are due is therefore outside the jurisdiction of this Service. The resident may also wish to seek legal advice in relation to this aspect of the complaint.
12. In light of the foregoing, the Ombudsman’s investigation is focussed on assessing whether there were failings in the landlord’s administration of the resident’s service charge since October 2020, including whether its response to the concerns raised in the formal complaint was fair, reasonable, and appropriate in the circumstances.

Lease Agreement, Policies and Procedures

13. The resident’s lease sets out the repairing and maintenance obligations of both parties and makes provision for the payment of a service charge by the resident to cover the landlord’s costs of meeting its obligations. Clause 5(c) of the lease provides that the service charge may include ‘such further sums as shall be considered reasonable and proper for the purpose of creating and maintaining a Reserve Fund for future anticipated expenditure of a periodical nature’.
14. Under its Service Charge Policy, the landlord commits to ‘provide … leaseholders with clear information about service charges’ and to ‘regularly review expenditure against service charge budgets and adjust charges annually in response to any significant budget variances’. The Policy states that ‘if leasehold there will be a sinking fund for roofs, windows, doors to the structure and communal areas’ and ‘provisions for future maintenance (or a sinking fund if the lease allows for this) will be informed by stock condition and planned maintenance data, which will be reviewed in partnership with leaseholders on an annual basis.’
15. The landlord commits to ensuring compliance with the statutory process prescribed by section 20 of the Landlord and Tenancy Act 1985. Its Service Charge Policy states that in the event the consultation procedure is not followed correctly this will be open to challenge by residents in the FTT and ‘any resident receiving a service charge who feels their costs have not been set in accordance with this policy can appeal using [the landlord’s] Complaints Policy.’
16. The landlord’s Complaints Policy sets out a 2 stage internal complaints process. The Policy states that a stage 1 response will be provided by the Service Area Manager and the stage 2 response by a director or Head of Service.

Administration of service charge account

17. The resident is only now alleging a historic failure to maintain the sinking fund, as the extent of the deficit only became apparent on receipt of the notice of proposed major works. Whilst, as stated above, the Ombudsman cannot make findings about the landlord’s actions since 2016, this investigation has considered whether the landlord adequately set out its response to the resident’s concerns about why the sinking fund contribution was not increased when extensive refurbishment works were envisaged.
18. The landlord’s position is that it has discretion over how the sinking fund is maintained. Whilst this is true, and in line with the terms of the lease, the landlord’s Service Charge Policy confirms that contributions will be informed by the property’s condition and any planned maintenance. The evidence indicates that in 2018 a survey of the roof area recommended replacement. The landlord was therefore aware of impending major works. It is not known when it became clear that window replacement works were also required. Internal and external cyclical works could have been predicted by reference to when works were last completed and to the terms of the lease.
19. It is not always possible to accurately predict the total cost of future major works programmes several years in advance. As information about a building’s condition becomes available, it may be reasonable for a landlord to group items of work together if this would be a more efficient and cost-effective means of managing the maintenance of the building. This can result in major works programmes where the costs cannot be met from the reserves currently held and additional service charge contributions may become due.
20. The Ombudsman does not consider that the landlord provided a satisfactory response to the resident’s query about its management of the sinking fund. It was not sufficient to simply state that the sinking fund is maintained at the landlord’s discretion, as the landlord must act reasonably and follow its policies and procedures in the exercise of its obligations. The landlord has failed to evidence that it investigated whether the sinking fund was maintained in accordance with the lease and the Service Charge Policy, and it did not provide a sufficiently detailed explanation of its position.
21. The landlord has provided a comprehensive response to the resident’s concerns about its accounting practices, although the resident remains dissatisfied with its position. It is not clear from the information provided whether the landlord sought clarification from relevant professionals, despite it stating that it had done so in the stage 2 response. In a complaint of this nature, the Ombudsman would expect the landlord to consult its legal advisers and accountants to ensure that the advice provided to the resident was clear and accurate.
22. The Ombudsman has not had sight of all correspondence between the parties prior to the formal complaint. The resident has indicated that he directed several enquiries to the landlord’s Leasehold Officer but did not receive a response. The landlord has failed to investigate or respond to this aspect of the complaint. In the absence of documentary evidence, the Ombudsman is unable to comment on whether the landlord failed to respond to the resident’s initial communications, although it is of concern that this evidence has not been provided.
23. The landlord failed to provide information requested by the resident during the complaints process about the nature of sums deducted from the sinking fund between 2017 and 2019. The resident has a right to be provided with details of historic service charge expenditure and the landlord has ignored this request. This amounts to maladministration.
24. The landlord has agreed to restart the section 20 process, which demonstrates that it has listened to the resident’s concerns, although its complaint response did not provide a clear indication of whether it believed it had met its statutory duties in the first instance.
25. The Ombudsman is not satisfied that the landlord demonstrated in its complaint responses that it has acted reasonably and appropriately in its administration of the resident’s service charge. The Ombudsman therefore considers that there was maladministration in relation to this aspect of the complaint.

Complaints handling

26. The landlord indicated to the resident that it would need additional time to respond to his stage 1 complaint, which was reasonable in the circumstances. However, the stage 1 response did not address all matters raised, including the resident’s complaint that the landlord continued to send correspondence to the wrong address.
27. In the resident’s escalation request he provided a clear and comprehensive breakdown of the elements of his initial complaint that did not receive a response at stage 1. The landlord’s stage 2 response did not address many of the areas highlighted. The landlord missed an opportunity to provide additional clarification to the resident on the areas where it had previously failed to respond. The final complaint response also failed to signpost the resident to the FTT should he wish to challenge the landlord’s ability to levy an additional service charge demand for the upcoming works.
28. When the resident raised additional concerns about the 2020 accounts, several of which were similar in nature to the complaint raised previously, the landlord correctly advised that there was no further stage of appeal for his previous complaint. It was reasonable in the circumstances for the landlord to expedite the resident’s new complaint to stage 2, as its overall position regarding its accounting practices and maintenance of the sinking fund would not change.
29. The resident has raised concerns that his complaint should not have been investigated and responded to by the Director or Finance and Resources, due to their prior involvement in the issues raised. As the landlord’s Complaints Policy provides that a stage 1 complaint will be investigated by a service area manager, it was not unreasonable for the response to be provided by the landlord’s finance Director, who is responsible for the oversight of its financial activities. The involvement of someone at Director level at stage 1 demonstrated that the landlord took the complaint and its accounting responsibilities seriously.
30. The resident states he never received a response to his subsequent complaints of 10 and 13 August 2021. Consideration of these complaints is beyond the scope of this investigation, however the landlord is urged to provide a final response to the resident, if it has not already done so.
31. Due to the failure to respond to some aspects of the complaint, and to provide sufficiently detailed complaint responses, the Ombudsman considers that there was maladministration in the landlord’s complaints handling.

Determination

32. In accordance with paragraph 54 of the Scheme the Ombudsman considers that there was maladministration by the landlord in its administration of the resident’s service charge.
33. In accordance with paragraph 54 of the Scheme the Ombudsman considers that there was maladministration by the landlord in its handling of the resident’s complaint.

Orders

34. Within 28 days of the date of this report the landlord is ordered to:
    1. Pay the resident £150 compensation in recognition of the time and trouble the resident took to raise his complaint about the landlord’s administration of his service charge and its failure to provide an adequate response.
    2. Pay the resident £100 compensation in recognition of the failures identified in the landlord’s complaints handling.
    3. Seek advice from its legal team and provide a further response to the resident, with reference to the lease and the landlord’s policies and procedures, setting out why the landlord believes it has acted reasonably and appropriately in its management of the sinking fund since 2016.
    4. Review the resident’s correspondence to ensure that all information and documents requested have been provided, or that the landlord has explained why such information will not be provided. This includes provision of the landlord’s accounting policies and details of major works completed between 2017 and 2019 and any associated consultations.

Recommendation

35. It is recommended that the landlord provide a final response to the resident’s complaints of 10 and 13 August 2021, if it has not already done so.