Sanctuary Housing Association (202201710)

REPORT

COMPLAINT 202201710

Sanctuary Housing Association

20 September 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

The complaint is about:
1. The landlord’s administration of the resident’s service charge and rent account.
2. The landlord’s handling of the resident’s request for arrears on her service charge and rent account to be waived.
3. The associated complaint.

Background and summary of events

Background

The resident is a shared ownership leaseholder of a lease commencing on 1 January 2020. The property is a second floor, two bedroom flat.
Under the terms of the lease, the landlord has various obligations to insure the building in which the resident’s property is situated and to maintain and repair the structure of the building and its common parts and parking space.
The resident is required to pay a proportion of the charges incurred by the landlord in complying with these obligations and associated costs. The resident’s proportion is paid by way of service charges.
A provision for the landlord’s likely expenditure in each year ending 31 March, known as the account year, is estimated by the landlord. Payments are made by the resident on the basis of the estimate. As soon as practicable after the end of each account year, the landlord determines the amount by which actual expenditure has exceeded or fallen short of the estimate and the surplus or deficit is notified to the resident.
The landlord maintains an account of service charges and rent due from, and paid by, the resident each month. Statements of the resident’s account have been produced to this Service for the purpose of the investigation. It is understood that it was not the landlord’s practice to provide residents with statements of their account as a matter of course and the resident did not receive statements during the relevant period considered in this report.
The landlord has a policy relating to disputes about service (and other) charges. Among other things, this provides that where concerns relating to charges are reported as part of wider dissatisfaction with the landlord’s services, these should be raised as a complaint under the landlord’s complaints procedure.
The landlord operates a two stage complaints procedure. At Stage 1, the landlord aims to acknowledge the complaint within 5 working days and provide a written response within 10 working days. Where a complaint cannot be resolved at Stage 1, the complaint can be escalated to Stage 2. At Stage 2, the landlord will conduct a review of the circumstances of the complaint and provide a written response within 20 working days of the complaint being escalated.

Summary of events

On 24 July 2020, the resident completed her purchase of the property. The completion statement showed that the service charge applicable was £198.90 per month.
For the remainder of the account year ending 31 March 2021, the resident paid by direct debit the sum of £198.90 per month in respect of service charges and an amount in respect of rent.
The statement of the resident’s account shows that, during the account year ending 31 March 2021, the amounts being paid by the resident were accurately recorded in the account. However, the amount due from the resident each month was under-recorded by the landlord. As a result, a (false) surplus accrued each month in the resident’s favour. The resident was unaware of this at the time as she did not receive a statement of her account.
On 25 February 2021, the landlord wrote to the resident advising her of the new service charge and rent amount for the forthcoming account year beginning 1 April 2021. The new rent amount was a small increase on the previous account year. However, the new monthly service charge was a considerably reduced figure of £39.89, from £198.90 the resident had previously paid. The letter attached a breakdown of the budgeted service charge cost.
The landlord adjusted the resident’s direct debit payment to the lower amount of £39.89 with effect from the new account year.
On 8 March 2021, the resident wrote to the landlord noting the revised monthly service charge. She informed the landlord that she had been paying significantly in excess of this figure since moving into the property. She asked for a refund of the overpayments which had been made.
In response, on 23 March 2021, the landlord confirmed that the resident’s account was in credit by £1333.69. It agreed to refund the credit and duly did so on 6 April 2021, thus clearing the balance on the resident’s account to zero.
According to the landlord, it reviewed the resident’s account in April 2021 and noted that the amounts due from the resident had been under-recorded during the previous account year. On 12 April 2021, the landlord corrected its error by making a service charge debit adjustment of £1491.87 to the resident’s account. The effect of the adjustment, in combination with the refund which had been made to the resident, was to place the resident’s account in arrears of £1491.87 at that date.
The landlord did not inform the resident that it had made the service charge debit adjustment nor of the balance on her account at this time. The resident was therefore unaware that her account was in arrears.
Thereafter, the statement of account shows that the landlord continued to record as due from the resident the higher amount of £198.90 rather than the lower amount of £39.89 which it had advised to the resident was due and was collecting under her direct debit. Due to the difference between the amount recorded as due from, and paid by, the resident, the arrears on the account continued to accrue by the amount of the difference in the months after 1 April 2021.
The landlord did not inform the resident that the amounts being recorded on the account as due from her in respect of service charges were higher than she had been advised on 25 February 2021.
On about 13 May 2021, the resident received a letter from the landlord advising a large outstanding balance on her account of £1650.88. The resident queried the letter with the landlord on 13 May 2021 and was advised it would look into it and she would receive a call back. The resident emailed the landlord a copy of the letter which she had received on 25 February 2021.
The landlord’s records indicate that between 13 and 17 May 2021, its Customer Services, Homeownership and Service Charge teams liaised internally regarding the resident’s query. However, no conclusion was reached and no one from the landlord responded to the resident.
On about 10 June 2021, the resident received a second letter advising of an outstanding balance of £1809.89. The resident contacted the landlord again on 10 June 2021 and 14 June 2021 seeking an explanation. She was again advised she would be contacted within a week.
The landlord’s records indicate that between 14 and 16 June 2021, it liaised further internally and established that:
1. the letter of 25 February 2021 advising the resident of reduced service charges had been sent in error;
2. the resident’s service charges should have remained at £198.90 for the account year starting 1 April 2021;
3. while it had amended this error internally, it had not written to the resident to advise her of this;
4. a debit adjustment in respect of service charges had been made on the resident’s account which, in conjunction with the refund made to her, had resulted in the large deficit owed.
The landlord did not contact the resident at this stage to explain this to her. The reasons for its failure to do so are not clear from its records.
On 6 July 2021, the resident received a third letter from the landlord advising of a now outstanding balance of £1968.90 and requesting payment. It stated that if the resident did not make payment, it would recover the amount through the courts with costs of £325. The resident called the landlord again on 7 July 2021 and was informed that someone would contact her housing officer to engage with her.
On 13 July 2021, the resident was visited by the landlord’s housing officer who informed her that the letter sent to her on 25 February 2021 was sent in error; that the monthly service charges should not have been reduced from £198.90; the direct debit should not have been reduced to £39.89; and the resident should not have received a refund of £1333.69. The landlord’s housing officer was not able to offer an explanation for why the 25 February 2021 letter had been sent, other than it was a mistake.
The outcome of the meeting was that the resident agreed to resume paying the monthly service charges of £198.90. However, she disputed that she should pay anything towards the arrears as these had accrued due to the landlord’s own mistakes.
For reasons which are not clear, the landlord did not write to the resident to confirm the correct amount of the service charges, nor did it adjust the resident’s direct debit payment to collect the correct amount of £198.90 which the resident had agreed to pay.
On 16 July 2021, the resident raised a formal complaint with the landlord. In the formal complaint, the resident:
1. set out the history of the matter and the mistakes made by the landlord which had resulted in the arrears on the account;
2. complained at the lack of communication by the landlord and communication between its departments compared to her own efforts to get the matter resolved;
3. explained the detrimental effect which the stress of the situation had had on her;
4. disputed that she was in arrears when this had resulted from the landlord’s own actions;
5. asked that the landlord resolve the situation by cancelling the perceived outstanding deficit.
There was a delay between the landlord receiving the complaint on 16 July 2021 and it providing its response on 10 February 2022. The reason for this is not apparent from the landlord’s records produced to this Service. The resident chased the landlord during this period, having not received a substantive response to her complaint.
The landlord’s Stage 1 response was issued on 10 February 2022 as follows:
1. It acknowledged that the level of service received by the resident was not acceptable and upheld the complaint.
2. It apologised and offered £150 as a gesture of goodwill in recognition of the time, trouble and inconvenience caused to the resident during the previous 12 months.
3. With regard to the substance of the complaint, the response:
  1. explained the historical sequence of events which had caused the arrears to arise;
  2. stated that it was not clear why the resident had been sent the letter of 25 February 2021 which was incorrect and did not include the full service charges payable;
  3. acknowledged that the resident’s direct debit was reduced incorrectly, that she was given a refund of charges that caused her to fall into arrears, and that she was given misleading information in regard to the charges for 2021/22;
  4. acknowledged that the resident was not provided with an amended budget nor was the direct debit amended to reflect the correct level of charges payable.
4. It apologised that the matter had taken too long to resolve and that the resident had sent a number of e-mails and made telephone calls to try and resolve the situation.
5. It summarised that the balance on the resident’s account was currently a deficit of £2570.05. The landlord offered to arrange a repayment plan to enable the resident to clear the amount in a way which was manageable to her.
6. It noted from the resident’s complaint that she did not believe she should be required to pay any arrears as this was the fault of the landlord. The landlord explained that it was a budget and that any underpayment of the charges would be reflected in the accounts at the end of the year, for which the resident would still be responsible under the lease.
Following an exchange of emails with the landlord in which the resident sought clarification on certain matters in the Stage 1 response, she requested on 24 February 2022 that her complaint be escalated to Stage 2. The resident asked that the landlord accept its responsibility for the arrears which had accrued by agreeing to waive them. She asked the landlord to offer a larger level of compensation more representative of the stress, anxiety and effort on her part in the past 10 months. She also asked that the landlord with immediate effect adjust her monthly direct debit to the correct amount.
The landlord’s case resolution officer acknowledged the resident’s request for escalation of the complaint on 28 February 2022 and informed the resident that she would also be assessing how the complaint had been handled at Stage 1 of the complaints process. The landlord aimed to respond within 20 working days. In the email, the landlord’s case resolution officer advised that she was unable to waive the arrears as part of the complaint process.
The landlord’s case resolution officer issued a Stage 2 response on 23 March 2022 as follows:
1. It summarised the background to the complaint and detailed the circumstance in which the arrears accrued.
2. It acknowledged and apologised for its various errors which had led to the arrears and its failure to provide a further budget letter or amend the direct debit.
3. It also acknowledged and apologised for its failure to respond to the resident’s complaint in the required timeframe in accordance with its complaints policy and procedure.
4. It stated that it was unable to waive the arrears on the account. It explained that it was a requirement of the lease that service charges were paid.
5. It offered the resident an increased goodwill payment of £400 made up of £250 in respect of time, trouble and inconvenience caused to her in respect of incorrect service charge handling and poor communication and £150 in respect of poor complaint handling.
6. It offered an arrangement to clear the outstanding arrears on the account over a 5 year period, which was an increase over the 2 year period which it would normally agree. It also confirmed that the resident’s direct debit amount would be increased to the correct amount with effect from 1 April 2022.
Following further discussion with the resident’s representative, on 25 March 2022, the landlord offered to increase the goodwill payment in respect of its incorrect service charge handling to £300 and in respect of its complaints handling to £300. The landlord confirmed that as part of its investigation it would provide learning outcomes from the case to the senior management of the departments involved.
On 27 April 2022, the resident referred the matter to this Service. The outcome sought by the resident was that the landlord write off the arrears or offer her compensation in the same amount, in recognition of the landlord’s poor service.

Assessment and findings

The landlord’s administration of the resident’s service charge and rent account

As acknowledged by the landlord in its complaints responses, there were a series of failings in its administration of the resident’s service charge account:
1. In under-recording the amount due from the resident by way of service charges during the account year ending 31 March 2021. This led to a false surplus arising on the resident’s account.
2. In giving the resident incorrect information in its letter of 25 February 2021 of the amount due by way of service charges for the forthcoming account year. This led to a downwards adjustment in the resident’s monthly direct debit payment which was unwarranted.
3. In processing a refund to the resident of £1333.69 on 6 April 2021 when none was in fact due.
4. In making a service charge debit adjustment of £1491.87 to the resident’s account on 12 April 2021 in order to correct its under-recording error, without informing the resident of this or of the error which had made it necessary. This led to a deficit arising on the resident’s account of which she was unaware.
5. In failing to advise the resident that the information in its 25 February 2021 letter was incorrect when it became aware of it, which appears to have been in about April 2021, and failing to provide her with revised corrected information about the service charges at that stage.
6. In continuing to collect the incorrect service charge amount by direct debit after 1 April 2021 rather than adjusting it to the correct amount. This led to a further deficit continuing to accrue on the resident’s account in respect of the difference.
7. In failing to communicate with the resident regarding the service charges and balance on the account until 13 July 2021 and, in the meantime, sending arrears letters to the resident, one of which included a threat of court action.
8. In continuing to collect the incorrect service charge amount by direct debit after 13 July 2021, notwithstanding the resident’s request on that date that it be changed, and failing to action the change until 30 March 2022 following the Stage 2 response.
The result of the landlord’s various failings meant that the resident accrued a substantial outstanding balance on her service charge and rent account through no fault of her own.
The landlord’s failings caused detriment to the resident. She was caused stress and anxiety in receiving chasing letters on three occasions from the landlord for substantial arrears which she was unaware existed, including the threat of legal action; by the fact of having accrued a large deficit which she was unable to repay; and in having to spend time and trouble trying to resolve the situation on many occasions with the landlord. The resident was required to lodge a formal complaint in order to achieve an understanding and resolution of the matter.
Where there are admitted failings by a landlord, the Ombudsman’s role is to consider whether the redress offered by the landlord put things right and resolved the resident’s complaint satisfactorily in the circumstances.
The relevant considerations in this case are that the landlord’s errors resulted in the resident incorrectly receiving a refund of £1,333.69 which she understandably believed was hers to spend. The landlord also collected less than was due from the resident for her monthly service charges for the account year ending 31 March 2022. Whilst this meant that the resident had use of money which she otherwise would not have had, it also meant that she unknowingly and unwillingly accrued a large arrears and the burden of repaying it. She was caused stress and inconvenience by the landlord’s failings and spent time and trouble in resolving the matter.
The landlord reasonably sought to put matters right by agreeing a 5 year repayment plan with the resident to enable her to clear the arrears. However, the landlord’s apology and final offer of £300 compensation was not proportionate to the detriment suffered by the resident. In particular, it did not fully take into account that in order to pay off the debt within a timeframe manageable to her, this necessarily meant that the resident would have a debt hanging over her for a lengthy future period, which she had no responsibility for accruing.
The landlord’s offer did not fully recognise the stress to the resident of receiving letters chasing a debt which she was unaware of, one of which threatened legal proceedings with costs. Under the circumstances, and given the significant impact of the landlord’s failings on the resident, an award of £600 would be appropriate compensation.
The landlord is therefore to pay the resident £600 compensation inclusive of the £300 offered, if that has not been paid already.

The landlord’s handling of the resident’s request for arrears to be waived

The redress sought by the resident in her complaint to the landlord was a waiver of the service charge arrears or compensation of equivalent amount.
In its complaint responses, the landlord appropriately acknowledged its errors and upheld the resident’s complaint and offered redress (as referred to above). It reasonably sought to manage the resident’s expectations by explaining in its acknowledgement of her request for escalation that it would not be able to waive the arrears as part of the complaint process.
When declining to waive the arrears in its complaint responses, the landlord explained that it was a requirement of the lease that service charges were paid and that underpayments against the budget would remain the responsibility of the resident to pay at the end of the year. The landlord appropriately decided that the errors in its administration of the service charge account did not oblige it to waive charges that had been incurred as per the lease.
In this case, it would not be appropriate to link the resident’s redress of compensation to the outstanding balance of arrears when there is no correlation between the amount of the arrears and the detriment caused to her.

The landlord’s handling of the resident’s complaint

In its complaints process, the landlord recognised its failings in handling the resident’s complaint, which can be summarised as follows.
The resident made a formal complaint on 16 July 2021 which under the landlord’s complaints policy should have received a Stage 1 response within 10 working days. The resident did not receive a Stage 1 response until 10 February 2022, nor any indication from the landlord as to the reason for the delay.
This was an excessive delay of 7 months, considerably beyond the landlord’s policy and reasonable timescales.
The resident was caused detriment, in that the uncertainty of the situation she found herself in remained unaddressed. She spent time and trouble during this period in chasing the landlord for a response.
In its Stage 1 response, the landlord should have addressed its failure to respond in a timely manner to the resident’s complaint but it failed to do so.
The landlord rightly acknowledged its service failure in responding to the resident’s complaint when providing its Stage 2 response. It apologised and offered £150 in financial compensation. This offer was subsequently increased to £300 by the landlord on 25 March 2022.
The landlord’s apology and offer of compensation was reasonable redress for the detriment caused to the resident for its failings in handling the resident’s complaint. The landlord’s offer of compensation was within the range that the Ombudsman would expect to see in circumstances where a failure has adversely affected a resident, albeit not causing a permanent impact. The compensation amount was therefore proportionate.

Determination (decision)

In accordance with paragraph 52 of the Housing Ombudsman Scheme, there was maladministration by the landlord in respect of its administration of the resident’s service charge and rent account.
In accordance with paragraph 52 of the Housing Ombudsman Scheme, there was no maladministration by the landlord in respect of its handling of the resident’s request for arrears to be waived.
In accordance with paragraph 53(b) of the Housing Ombudsman Scheme, the landlord has offered redress to the resident prior to the investigation which, in the Ombudsman’s opinion, resolves satisfactorily the resident’s complaint in respect of the landlord’s complaints handling.

Reasons

There was a series of failings by the landlord in its administration of the resident’s service charge and rent account over a period in excess of a year. As a result, the resident unknowingly and unwillingly accrued substantial arrears through no fault of her own. The landlord failed properly to communicate with the resident during this time regarding its failings or the balance on her account. The resident was caused stress, inconvenience and time and trouble in resolving the issue. Although it apologised and awarded compensation, this was insufficient given the circumstances of the case.
The landlord offered redress to the resident for its failings in handling the resident’s service charge and rent account which did not include a waiver of the arrears. The landlord’s approach was appropriate in circumstances where the amount of the arrears was not correlated to the detriment caused to the resident.
The landlord’s Stage 2 complaint response appropriately recognised its complaint handling failures and made a reasonable offer of redress by way of apology and an offer of compensation.

Orders and recommendations

Orders

Within 4 weeks of this report, the landlord is ordered to:
1. Write to the resident to apologise for its maladministration in the administration of her service charge and rent account.
2. Pay the resident £600 compensation for the stress, inconvenience, and time and trouble caused to her by its failures in the administration of her service charge and rent account (which sum is inclusive of the £300 awarded through its complaints process if this has not already been paid).
The landlord should contact this Service within 4 weeks of the date of this determination to evidence its compliance with the above orders.

Recommendations

If it has not already done so, within 4 weeks of this report, the landlord should pay the resident compensation of £300 that it awarded for the failures in its complaint handling. The Ombudsman’s determination of reasonable redress is made on the understanding that this amount is paid to the resident.
The landlord should write to the resident and this Service to confirm what learning outcomes were provided to senior management of the departments involved in this case (as per its correspondence from March 2022) and how it intends to avoid similar service charge administration errors occurring again.
The landlord should reply to this Service within 4 weeks of the date of this determination to confirm its intentions in regard to these recommendations.