Anchor Hanover Group (202110135)

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REPORT

COMPLAINT 202110135

Anchor Hanover Group

31 July 2023


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 the landlord’s response to the resident about a sinking fund service charge increase.

Background and summary of events

Background

  1. The resident was a leaseholder of the landlord at the time of the complaint. The property is a 2-bedroom flat on an estate. The information provided advises that the resident sold the property following the complaint.
  2. The lease obligates the leaseholder to pay toward a ‘current’ service charge and  a deferred sinking fund service charge. The current service charge is for the costs and expenses for the day-to-day running and maintenance of the estate, while the sinking fund service charge is for the costs and anticipated costs of renewal and replacement of the lifts (if any) and plant within the estate, upgrading and improving the estate, and other future or contingent capital expenditure not included in the current service charge. The deferred sinking fund service charge is payable on completion of every assignment or disposition, and takes into account the purchase price and elapsed time. The deferred service charge proportion can be adjusted upwards or downwards to reflect the estimate of the sinking fund requirements, as long as notice is given to the leaseholders of all the dwellings. The lease allows the landlord to add any shortfalls in the deferred sinking fund service charge to the ‘current’ service charge.

Summary of events

  1. On 1 March 2021, the landlord wrote to the resident to give formal notice, as required by a term of the lease, of an increase in the level of sinking fund service charge contribution payable on the disposition of the property. It explained that it had a sinking fund for major repairs for which residents paid a one-off contribution when they left, which depended on the original purchase price, the length of time the property had been owned and a percentage figure in the lease. It explained that an appraisal of the sinking fund had concluded that the income generated based on a contribution of 1% of the purchase price per year of ownership would not meet anticipated expenditure. It said that to ensure that the sinking fund had enough money in it to pay for necessary major works in the future, it was therefore exercising its right under the lease to increase the contribution rate to 1.4%.
  2. The landlord responded to some enquiries from the resident the same day. It referred to a table that it said showed that estimated funds fell below estimated expenditure, which it said included works for roof, storage tanks and windows. It explained that the lease said it could adjust the sinking fund percentage upwards or downwards. In further correspondence, the resident requested the figures behind the increase in the contribution, which the landlord responded to within 8 days. Following this, the resident queried the inclusion of costs for storage tanks as there were individual cylinders in each property and had been previously charged as repairs under the ‘current’ service charge. The landlord responded that the cylinders had been highlighted in a stock condition survey and that once COVID-19 restrictions had eased, it would conduct an audit, update its records and reforecast its budget.
  3. On 29 March 2021, the resident said he had been supplied with a ‘guesstimate’ of future expenditure, and he asked to be provided with calculations of the income over the 30 year period the landlord was looking at. The following week, the landlord responded with what it explained was the sinking fund model for the 30 year period. On 14 April 2021, the resident requested the basis for the landlord’s assumptions about income, after which the landlord spoke to him and subsequently advised that the formula for how the income was arrived at was “purchase price x current % on sale of 1% x average occupancy (average number of years).” Following this, the resident queried what number of years was used for the average occupancy and was informed that this was 13 years. The landlord later surveyed the cylinders and revised a ‘spend’ profile.
  4. On 6 July 2021, the resident complained to the landlord. He was unhappy about the size of the increase and it being retrospective. He was unhappy about a lack of consultation with residents. He felt the increase suggested that the landlord had poorly managed the sinking fund.
  5. On 14 July 2021, the landlord provided its stage 1 response. It explained that it was unable to hold a meeting due to COVID-19 restrictions but it had informed a resident committee about the increase and offered support. It restated previous explanation about the necessity for the increase and the increase being in line with the lease. It said it was confident all processed had been followed.
  6. On 14 October 2021, the resident requested escalation of the complaint. He said a call to a committee member did not count as consultation. He noted that after concerns were raised with the works an adjustment had been done, and he queried if this should not result in an adjustment to the 1.4% increase. He noted that the roof would need to be replaced at some point but this was not urgent. He also noted that all windows had been replaced in the last 10 years.
  7. On 11 November 2021, the landlord provided its final response. It explained that the decision to increase the service charge at the point of sale to 1.4% was done following an appraisal that showed 1% was not sufficient to meet future major works costs. It said it recognised the impact this would have and the decision was not taken lightly. It apologised that a consultation meeting did not take place, and said in normal circumstances it would, but delaying the increase would have created problems later on. It explained that this would have meant major works could not be done or that leaseholders would have to be invoiced in advance of them, which would be unfair on new leaseholders who would have expected necessary funds to have already been collected. It said that on notice of the adjustment it became effectively immediately and covered the whole ownership term. It said that it needed to be consistent in its approach and noted that a percentage decrease, as had happened at other estates in the past, would have been handled in a similar way. It said that the previous responses had sufficiently answered the resident’s queries about the reasoning and process. It detailed his options for his dispute, including the First-Tier Tribunal, this Service and independent legal advice.
  8. The resident is unhappy that the landlord has increased the sinking fund service charge contribution by 40%. He complains that the fund has not been monitored over the 11 years he has owned the property, and says if it had been such a large increase would not have been necessary. He complains that there was no consultation with leaseholders about the issue. He was unhappy with the works and the related costs that the landlord said would be necessary in future and which contributed to the increase in the sinking fund service charge.

Assessment and findings

Scope of the investigation

  1. It is clear from the residents’ complaint that he has concerns about the cost implications of matters in relation to the deferred sinking fund.
  2. This investigation notes that under paragraph 42 (g) of the Housing Ombudsman Scheme, we will not investigate complaints which concern matters where the Ombudsman considers it quicker, fairer, more reasonable or more effective to seek a remedy through the courts, other tribunal or procedure;
  3. This means that the Ombudsman does not have the jurisdiction to investigate complaints about the level of service charges, as the appropriate body that has jurisdiction to consider such complaints is the First-Tier Tribunal (Property Chamber), which it is noted the resident was informed about by the landlord and this Service. The Tribunal can determine the appropriate level and amount of service charges recoverable by a landlord; decide if the charges were reasonably incurred; by whom they are payable, and when. If the resident has continued dissatisfaction that the landlord’s approach is not reasonable, or disputes that the landlord followed proper procedure to legally increase the sinking fund contribution, this appears to be in effect a dispute over the reasonableness of charges, which the First-Tier Tribunal may be able to decide.
  4. The Ombudsman has however considered whether in its response the landlord kept to the law, followed proper procedure and good practice, and acted in a reasonable manner.

The landlord’s response to the resident about a sinking fund service charge increase

  1. The resident’s lease confirms that this obligates a leaseholder to pay toward a deferred sinking fund at a relevant point. The lease also confirms that the landlord may adjust the level of the deferred service charge based on its estimate of the sinking fund requirements, as long as notice is given to the leaseholders of all the dwellings. The notice that the landlord gave on 1 March 2021 appears to fulfil its obligations in respect to the increase in the sinking fund.
  2. The resident raised dissatisfaction about a lack of consultation on the matter. While further consultation would have been customer focused, the landlord provided reasonable reasons about why a limited consultation occurred. It is not evident that it was obligated under the lease to carry out any wider consultation ahead of the notice, nor is it evident that the level of consultation here removed the resident’s obligation to pay the increased contribution.
  3. The resident felt that the increase in the sinking fund contribution meant that the sinking fund had been badly managed. While this Service understands the resident’s point of view, the lease allows for the adjustment of the sinking fund contribution based on changing assessments of the fund’s requirements. This shows that an increase of the fund contribution is a possible occurrence under the lease, and does not necessarily equate to there having been failings in respect to the management of the fund. It is not in the Ombudsman’s expertise to make definitive decisions about such matters, however the landlord had reasonable considerations when it increased the contribution, and provided reasonable explanation about this. It is also reasonable that as time passes the landlord may need to update its assessments about its stock’s requirements, taking into account any newer information considered relevant, leading to adjustments in the deferred service charge proportion.
  4. The resident made a number of enquiries and requests for information, and he was unhappy with works and related costs which contributed to the increase in the sinking fund service charge. This Service recognises the impact of such increases and how these may cause concern and worry. It is evident that the landlord was sympathetic to this. It gave regard to the resident’s enquiries and information requests, and set out positions in calls, email replies and complaint responses. It also provided appropriate signposting to independent legal advice, the First-Tier Tribunal and this Service. This demonstrates that the landlord has sought to address the resident’s queries in a positive and customer focused way.
  5. Overall, the landlord has addressed the resident’s queries and complaint in an appropriate way, as it provided notice of the increased contribution to the sinking fund in line with the lease, and considered and responded to the resident’s queries in an appropriate and reasonable way. If the resident continues to have dissatisfaction with the landlord’s increase of the sinking fund service charge, this Service would recommend that he seek legal advice on further challenging the issue via channels such as the First-Tier Tribunal.

Determination (decision)

  1. In accordance with paragraph 52 of the Housing Ombudsman Scheme, there was no maladministration in the landlord’s response to the resident about a sinking fund service charge increase.

Reasons

  1. The landlord demonstrates that it provided notice of the increased contribution to the sinking fund in line with the lease, and considered and responded to the resident’s queries and complaint in an appropriate and reasonable way.