Vivid Housing Limited (202014652)

REPORT

COMPLAINT 202014652

Vivid Housing Limited

7 October 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

The complaint is about the landlord’s response to the resident’s concerns about:
1. it requesting for the resident to pay the service charge to it directly;
2. its calculation of the service charge.

Background and summary of events

Background

The resident is a shared ownership leaseholder. The landlord is a registered provider of social housing.
The property is part of a development containing multiple properties. The properties in the development are owned by a developer. The landlord is a leaseholder of several of these properties.
The landlord is a party to a headlease agreement for the property dated 22 December 2011. In the headlease, the landlord is the leaseholder and the developer is the superior landlord. The headlease also includes a management company which is responsible for the superior landlord’s service obligations. The resident is not a party to the headlease.
It is a term of the headlease that the landlord pays the headlease service charge and heating charge to the management company. The headlease notes that the management company will prepare an account for these charges on 1 January each year.
The resident and landlord entered into a shared ownership sublease for the property dated 12 February 2014.
It is a term of the sublease that the resident pays the rent, service charge, headlease rent, and headlease service charge (paragraph 2.4). The resident is also required to pay utilities (paragraph 3.4). It is a further term of the sublease that all sums payable under the sublease are to be paid as the landlord shall require (paragraph 1.6). In particular, the headlease rent and headlease service charge are to be paid directly to the landlord, or as it otherwise choses to direct (paragraph 3.2.1). Schedule 8 of the sublease notes the accounting year for the property ends on 31 March each year.
The landlord operates a two stage complaints policy.

Summary of events

Prior to 2017, the resident has advised that she paid the service charge directly to the management company. Around this time, a new management company was appointed. During the transition period, the landlord collected the service charges.
In or around September 2017, the landlord advised the resident that from January 2019 onwards, the management company would collect the service charges and utility charges payable by the resident.
Following correspondence about the service charge between the parties, the landlord advised on 9 October 2018 that the management company did not wish to collect the charges directly, but that it was continuing to discuss the arrangements with them. On 4 February 2019, the landlord confirmed that following discussions, the management company would collect the charges directly from January 2020 onwards. In the meantime, the landlord would collect the service charge.
It is evident that in January 2020, the landlord made a request for the service charge to be paid to it directly. On 26 February 2020, the resident queried why the service charge was not to be paid to the management company, as previously advised by the landlord.
On 2 March 2020, the landlord confirmed that its advice had been correct at the time, but that subsequently, the management company no longer wished to collect the charges directly. The landlord would therefore collect the charges and pay the management company accordingly. The landlord apologised for the confusion this had caused.
On 5 March 2020, the resident queried what term in the lease allowed the landlord to collect the charges directly. She also explained it was her understanding that it was a term in the lease that she pay the management company directly.
On 18 March 2020, the landlord advised that as per the terms in the lease, it was possible for the resident to pay the charges to the management company, but only if the landlord and management company agree. It suggested that the resident seek legal advice if she did not agree with this interpretation.
In or around September 2020, the resident queried the service charges requested by the landlord and noted that they differed from the estimated charges. The landlord replied and provided detailed breakdowns of all the charges. It also explained that there was likely to be some variation between the charges as the management company’s financial year ran from 1 January each year, whereas its financial year ran from April 1 each year. This resulted in some final charges not being available when the charges were requested.
On 1 October 2020, the resident reiterated it was her understanding that the lease stated she was to pay the service charges directly to the management company. She also reiterated her concerns about the calculations for the service charges being levied by the landlord. She requested her concerns be treated as a formal complaint.
Throughout October 2020, the landlord provided the resident with further information and statements about the service charges. It confirmed it considered its position was that the charges were correct and that the delays to final charges were due to the different accounting years between itself and the management company. The resident continued to express her dissatisfaction with this explanation and so the landlord confirmed it would provide a formal response.
The landlord provided its stage one response on 6 November 2020. It noted the resident’s position that the lease stated she should pay the management company directly, but advised that it did not consider this position to be correct. It provided extracts from the relevant lease agreements noting the landlord could direct how the payment was made. It also reiterated its position regarding the variation in service charge requests being due to the different accounting years.
The resident requested an escalation of her complaint and the landlord provided its stage two response on 21 December 2020. It reiterated its position on both issues and once again provided extracts of the relevant lease clauses to support its position. It also noted it had sought legal advice which had supported its position.

Assessment and findings

Payment of the service charge

The Ombudsman advises that the following analysis is based on the Ombudsman’s understanding of the terms of the headlease and sublease. This interpretation is not binding, and should the resident dispute the Ombudsman’s interpretation, this issue would be more suited for a court to determine. The Ombudsman notes the resident has the option to seek further legal advice in relation to this.
As noted above, while the headlease requires that the landlord pays the headlease service charges to the management company, the sublease does not contain any such requirement. The terms of the sublease instead allow the landlord to direct how the service charges are to be paid, which could include directly to the management company, but equally could include directly to the landlord.
The resident has advised this service that upon entering into the shared ownership sublease, she had paid the management company directly. This arrangement was permissible under the terms of the sublease, however, this does not prevent the landlord from altering this arrangement, as per the terms of the sublease.
It is evident that during the transition between management companies, the landlord directed the resident to pay it directly, which was in accordance with the terms of the sublease.
It is evident that in or around September 2017, it was the landlord’s intention and understanding that the new management company would begin collecting the service charges directly from January 2019 onwards. This service has been provided with the internal communications from the landlord during the period of the complaint. These communications indicate that following its advice to the resident, the management company informed the landlord that it no longer intended to collect the service charges directly. The landlord appropriately kept the resident informed of its discussions in October 2018, and subsequently confirmed the situation in February 2019.
The landlord noted that the management company would now begin collecting the service charges from January 2020, however, in January 2020, the landlord made a request for the service charges to be paid to it directly. The Ombudsman notes that this would have been both confusing and frustrating for the resident, however, based on the landlord’s internal communications, its earlier advice regarding the management company had been correct at the time, and it is not evident it sought to mislead the resident. While it would have been helpful to have given the resident advanced warning that the arrangements had now changed, the landlord is not obligated to do so, and it was reasonable that it informed the resident of the change as part of its request for payment of the service charges. It was also appropriate that it apologised for the confusion this had caused.
Following the resident’s concerns about whether the landlord was entitled to request the service charges directly, it is evident that the landlord consulted the leases and also sought legal advice in relation to its position. Following the resident’s queries, the landlord made a reasonable attempt to explain its position and also appropriately reminded the resident she had the option to seek legal advice if she disagreed with its interpretation.
Given that the resident raised a formal complaint about this concern, the landlord also appropriately included screenshots of the relevant terms in both leases and provided the resident with copies of the full leases. It also confirmed it had sought legal advice regarding its position.
In summary, it is the Ombudsman’s understanding that the terms in the sublease allow the landlord to direct how the service charges are paid. Given that the management company no longer wished to collect the service charges, it was reasonable that the landlord requested these be paid to it directly. The landlord also provided reasonable responses to the resident’s queries about whether it was allowed to do this.

Service charge calculation

The Ombudsman notes that concerns regarding the level or amounts of services charges are outside of the Ombudsman’s jurisdiction in accordance with paragraph 42(e) of the Housing Ombudsman Scheme. Complaints relating to the level or amounts of service charges are more appropriate for the First-tier Tribunal (Property Chamber) (the FTT) to consider. The Ombudsman can, however, consider how a landlord responded to concerns about service charge amounts.
As noted above, the accounting year for the headlease runs from 1 January each year. This means that the management company will provide accounts for the headlease service charge for this period each year. The accounting year for the sublease runs from 1 April each year. This means that the landlord, who is collecting the sublease service charge from the resident, must provide an estimated service charge for this period. It is not evident that either the management company or the landlord could adjust their accounting year periods given that they are set in the terms of the respective leases.
Given that there is a cross over in the accounting year, there is a gap in the estimated accounts, which the management company will only provide to the landlord following the estimation of its own accounts. This has resulted in the landlord having to make a second request midyear once it has received these. This is undoubtedly frustrating for the resident, however, it is the Ombudsman’s understanding that the landlord is not in breach of its obligations in taking such an approach. As noted above, should the resident dispute this interpretation, it would be more appropriate for the FTT to consider this concern.
Following the resident’s query in September 2020 regarding the multiple requests, the landlord appropriately provided a detailed breakdown of the charges and provided an explanation regarding the issue with the overlapping accounting years.
Additionally, following the resident’s formal complaint, the landlord initially attempted to provide a more detailed explanation, before then providing a stage one response in which it again articulated the circumstances leading to multiple requests for the service charge. It reiterated this explanation in its stage two response.
While the Ombudsman appreciates the frustration that would be caused by the overlapping accounting years, the landlord nevertheless made a reasonable attempt to explain this situation to the resident, which it reiterated in its formal responses.

Determination (decision)

In accordance with paragraph 52 of the Housing Ombudsman Scheme there was no maladministration by the landlord in respect of the complaints regarding its response to the resident’s concerns about:
1. it requesting for the resident to pay the service charge to it directly;
2. its calculation of the service charge.

Reasons

Payment of the service charge

Based on the Ombudsman’s understanding of the terms of the leases, the landlord was entitled to direct the resident to pay the service charges to it directly. Following the resident’s queries on this point, it carried out a reasonable investigation by consulting the leases and obtaining legal advice, and its formal responses appropriately included the relevant terms of the leases.

Service charge calculation

While frustrating for the resident, given the overlapping accounting years, the landlord’s response that it was forced to make multiple requests for various parts of the service charge was reasonable, and it provided appropriate breakdowns of how this was calculated in its formal responses.