Magna Housing Limited (202203854)

REPORT

COMPLAINT 202203854

Magna Housing Limited

28 March 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 handling of the resident’s concerns about an external management fee that forms part of the annual service charge costs.

Background

2. The resident has been a shared-ownership leaseholder of the property since 2013. The flat is in one of two blocks owned by the landlord that forms part of a wider, private development.
3. The resident made a complaint in October 2021 after receiving the actual service charge costs for the year ending March 2021. On this occasion the external management fee had increased from £33.61 per month the previous year to £60.47 per month.
4. The resident said that she had regularly queried the external management fee since moving in and that the management company had eventually agreed to half the cost. She said that two former members of staff had been willing to take the management company to tribunal over the charges. However, this had not been followed through once they had left their posts.
5. After liaising with the management company to investigate the costs, the landlord sent the resident its response to her complaint in March 2022. It said that, having looked into the detail, the £60.47 unit charge was accurate. It was the case that a 50% reduction in security charges had been previously negotiated, which the residents still had the benefit of. It said it had no control over the service charges that the management company passed on, although it could pick them up on any services not being provided. The landlord confirmed that it was responsible for ensuring that the management company’s accounts were accurate, which it was satisfied they were for 2020 to 21. It offered to arrange for someone to go through the breakdown of charges with the resident.
6. The resident remains dissatisfied. She thinks the landlord should renegotiate or take the management company to the Tribunal for unreasonable service charges.

Assessment and findings

Scope of Investigation

7. Paragraph 42 (e) of the Housing Ombudsman Scheme states that the Ombudsman will not consider complaints which in our opinion ‘concern the level of rent or service charge or the amount of the rent or service charge increase’. It is not the Ombudsman’s role to make findings about whether service charges have been charged at a reasonable level by a member landlord as such authority lies with the First-Tier Tribunal (Property Chamber). The tribunal has the authority to scrutinise the terms of the lease in conjunction with costs charged to the leaseholder and make a decision as to whether the landlord’s position is appropriate.
8. The Scheme provides the authority for the Ombudsman to best define a complaint in relation to the issues at hand. In this case, the complaint, as defined for the purposes of this investigation, has drawn a distinction between the level of the service charge and the landlord’s response to the resident’s complaint about the external management fee that is an element of the overall service charge, as this enables the Ombudsman’s position to be clarified from a jurisdictional perspective and provides for those aspects of the complaint that are within jurisdiction to be identified and addressed.

The landlord’s handling of the resident’s concerns about an external management fee that forms part of the annual service charge costs

9. The resident’s flat is part of a prestigious, centrally located, development. It is the case that being part of such a scheme will usually attract higher service charges than a self-contained social housing scheme, due to the nature of the amenities being provided.
10. The landlord is the tenant of the development company and is subject to the terms of a head lease that it signed in March 2011. In that lease the landlord agreed to pay a proportion of the annual service charges in relation to the overall estate. The head lease includes a schedule of provisions which lists the services the developer is required to provide in respect of the estate – which includes some of the items that the resident is unhappy about, such as maintenance of a fountain. Whilst the resident has raised dissatisfaction with some of the charges, she has not disputed that she is obligated under her own lease agreement to pay towards the external management costs. The landlord’s position is that it believes it is appropriate to pass the full cost of the external management fee for services onto its tenants.
11. The Ombudsman considers a degree of discrepancy between the estimated and actual service charges to be normal. The head lease and the landlord’s policy allows a variable service charge that is not set and which may vary from year to year, due to the variation between estimates and actual costs, which may benefit the resident when the actual costs are less than the estimate.
12. The landlord’s estimate for the external management fee for 2020 to 2021 was £33.53 per month, whereas the actual cost was £60.47. The landlord has explained that there is a disparity between the way it and the management company manage their accounts. The management company’s financial year runs from January to December, whereas the landlord’s runs from April to March. Therefore, unless the management company provides its closing accounts by February of each year (which it is unlikely to ever do), the landlord will be relying on a best guess in terms of setting its estimate. The reason why the actual figure for 2020 to 2021 was so much higher was because the management company issued the service charge deficits for the previous two years. This is a reasonable explanation in response to the resident’s enquiry.
13. The resident says that she pays for but doesn’t benefit from certain amenities. In particular she mentioned the concierge and security service, as well as the fountain, in her complaint to the landlord.
14. In October 2021 the resident said the security guard put in an appearance for a short time after she complained but that one had not been seen for well over a year. The landlord contacted the management company in response to this and was provided with details of the dates and times of visits, including a few dates when visits did not happen due to sickness. It said that the patrols were carried out at random times of the day and night to avoid creating a regular pattern of visits. It asked the resident to let it know if she still felt that the patrols remained an issue and it would speak to the management company again. It was mentioned that the patrols were recorded on body-worn cameras, meaning they could be evidenced if necessary. Additionally, the landlord confirmed that the 50% reduction for concierge/security that had been negotiated in 2014 was still in place. The landlord’s response shows that the landlord took reasonable steps to investigate the resident’s concerns about the external management fee relating to security and that it would be willing to follow the matter up again if necessary.
15. As the external management fee virtually doubled for 2020 to 2021, the resident says she is concerned that it will just continue to increase, which would make living in her flat unaffordable. She thinks the management company will keep increasing the fee by extortionate amounts just because they feel they can. But looking at the cost of the external management fee from 2015, there has not been a year on year increase and it has sometimes gone down from previous years. Also, the estimate for 2022 to 2023 had reduced back down to £40.60. Based on the available evidence, the managing agent’s budget reports are professionally written and subject to independent certification. Therefore, the Ombudsman is unable to conclude that the fee will be opportunistically increased by the management company.
16. The resident says the landlord’s finance team just pays the management company what they say is owed with no questions asked. The landlord’s service charge accounts procedure, in relation to external management services, says that ‘costs are identified via invoices’. The Ombudsman has seen evidence that the landlord was receiving invoices on a regular basis throughout the year and that it would later receive a statement with the full breakdown of the actual annual costs incurred. Whilst the landlord did not feel the need to challenge the 2020 to 2021 figures, it did do so in response to the resident’s complaint. The Ombudsman does not know the details of the discussions the landlord entered into with the management company. However, opening those discussions was an appropriate response to the resident’s complaint.
17. In conclusion, in the Ombudsman’s opinion the landlord’s responses to the resident were appropriate. It considered her concerns; discussed these with the freeholder where it considered this to be necessary; and it set out reasonable positions in accordance with a leaseholder’s normal obligation to pay towards a landlord’s incurred costs in respect to a property and estate. If the resident disagrees with the landlord’s position and wishes to take the matter further, she has the option to seek independent advice and to consider taking her case to the First-Tier Tribunal.

Determination

18. In accordance with paragraph 52 of the Scheme, there was no maladministration by the landlord in its handling of the resident’s concerns about an external management fee that forms part of the annual service charge costs.