Flagship Housing Group Limited (202005674)

REPORT

COMPLAINT 202005674

Flagship Housing Group Limited

24 February 2021

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 resident complained about the landlord’s response:

(a)  to the identification of his overpayment of service charges between 2014 – 2019.

(b)  to his dispute about the calculation and increase of his rent and service charge for 2020 / 2021.

Jurisdiction

2. What we can and cannot consider is called the Ombudsman’s jurisdiction. This is governed by the Housing Ombudsman Scheme. When a complaint is brought to the Ombudsman, we must consider all the circumstances of the case as there are sometimes reasons why a complaint will not be investigated.
3. The Ombudsman is able to consider some limited issues around rent and service charges, largely in relation to the administration and management of these accounts or the associated services rendered. Therefore, jurisdictional decisions on such complaints can be complex and can often only be resolved following a detailed assessment of the complaint correspondence.
4. It is now clear that the aspect of the resident’s complaint concerning the increase of his rent / service charge for 2020 / 2021 ((b) above), which includes his questioning the inclusion of an amount for buildings insurance, are not matter that can be considered by the Ombudsman.
5. This is because paragraph 39(g) of the Housing Ombudsman Scheme states that the Ombudsman may not investigate complaints concerning the level of rent or service charge or the amount of a rent or service charge increase.
6. In light of these jurisdictional limitations, the Ombudsman does not have the resources or expertise to determine whether the amounts in question are reasonable and whether the complainant is legally obliged to pay the rent or service charges in question. And so while the Ombudsman can consider how the landlord responded to the resident’s enquiry in relation to this, it cannot consider the level of increase itself or its constituent parts.
7. Such matters would need to be dealt with by the courts, which have the authority to interpret the relevant provisions within an occupancy agreement and make legally binding decisions on a resident’s liability to pay specific charges. The resident may, therefore, wish to contact the First Tier Tribunal Property Chamber for further information in that regard.
8. The Ombudsman can, however, consider the remainder of the complaint as detailed at 1(a) and (b)(i) above.

Background and summary of events

9. Since October 2008 the resident has had shared leasehold ownership of a 2nd floor flat in a development of properties owned and managed by the landlord. The landlord uses a property management company for the management of services and maintenance of the development, for which a service charge is charged through the landlord and held by the management company.
10. Under the leasehold agreement, the resident is obliged to pay the landlord the specified rent and service charges for the property. Under the lease, the landlord is entitled to calculate an annual increase in the specified rent by applying either the retail price index (RPI) percentage increase or 3%, whichever is the higher. The landlord has responsibility under the lease to arrange for buildings insurance.
11. Complaint (a) – overcharge of service charge 2014-2019: As the Ombudsman understands it, in July 2019 the landlord became aware of a service charge overpayment for the resident between April 2014 – July 2019. This had resulted from a double charging for contributions to a sinking fund. The management company was already charging for the resident’s contribution to what it called a sinking fund within the service charge collected by the landlord when in 2014 the landlord determined the need for it to charge separately as it considered its shared ownership properties had been insufficiently required to contribute. This was an error and resulted in a total overpayment by the resident of £665.44 in service charges.
12. On 19 July 2019 the landlord wrote to the resident and explained the error, but in its refund of the overpayment of the sinking fund contribution it deducted the amount it calculated was required by the management company for the sinking fund, which it calculated at £233.92. As a result the landlord refunded the resident only £431.52.
13. On 29 July 2019 the resident raised a [Stage 1] complaint with the landlord, requesting documentation to better explain how the overpayment had occurred; questioned the deduction from his refund as his neighbour had not had a similar deduction; and said he considered the errors showed a systemic failure in the landlord’s administration of the accounts. [Note: The landlord operates a three stage complaints process under which it aims to provide the outcome of its Stage 1 investigation within 10 working days and, if the resident remains dissatisfied, will conduct a Stage 2 review within 20 working days. At Stage 3 the resident can ask a designated person to liaise with the landlord if it considers an aspect of their complaint has not been addressed or agreed action not taken.]
14. The landlord replied on 9 August 2019, explaining the deduction but maintaining it had been correctly made.
15. On 12 August 2019 the resident asked the landlord to escalate his complaint [for Stage 2 review]. He disputed the deduction from the refund of his overpayment, pointing out a neighbour had not had it deducted, and asked why the overcharge had not come to light sooner. He said the landlord had not addressed the underlying error which had caused the overpayment, nor had it addressed the financial inconvenience to him of the error.
16. The landlord wrote to the resident on 20 September 2019 with the outcome of its review. With respect to the deduction it said it now determined this to have been unfair as it ‘related to errors in previous years, which should reasonably have been identified at an earlier stage.’ It undertook to refund the resident the £233.92. In explaining the original error, the landlord told the resident that its further investigation had identified that while it had been invoiced by the management company for an annual charge for a sinking fund, this had actually been a charge for housing management fees.
17. The landlord assured the resident that labelling the charge as a sinking fund had not been its error, and so its relying on that information was not maladministration on its part. The landlord assured the resident that the management company had now started a sinking fund and this was now included in his service charge. The landlord offered the resident a £50 goodwill gesture for the financial hardship the resident said the error had caused him.
18. Complaint (b): calculation of rent and service charge for 2020 / 2021 – On 20 February 2020 the landlord wrote to the resident to advise him that his monthly rent and associated charges for the forthcoming 2020/21 financial year – from 1 April 2020 – would be £370.05 per month. Of this, £288.30 was for rent; £76.16 for service charges; £33.33 for water; £0.10 for administration costs; and £5.49 for building insurance. It attached a form, however, which gave a total weekly rent figure of £403.38 from April 2020 with £33.33 for water, and £109.49 for service charges. A further attachment gave the previous monthly service charge figure of £76.16.
19. On 20 April 2020 the resident emailed the landlord a ‘proposed new complaint’ to say he was making an official complaint because he disagreed with the rent increase from £389.54 to £403.38 which he calculated as an increase of 3.6% and above inflation. He asked the landlord to justify the percentage increase.
20. And increase aside, the resident pointed to what he saw to be errors in the figures. He said his current rent quoted by the landlord (£384.90) was £4.64 less than what he had been paying (£389.54), he requested a refund of the apparent overpayment. He also queried the current service charge figure of £104.90 and the new proposed one of £109.49, asking the landlord to explain the basis of the figure. The resident said he effectively considered the landlord’s management of the account to be one of continuing maladministration that was causing him unnecessary stress and inconvenience.
21. In response, on 24 April 2020 the landlord explained that the new rent figure of £288.30 from April 2020 was calculated by increasing his 2019/20 rent figure of £279.90 by 3% in accordance with the terms of his lease. With regard to the service charge figure of £109.49, the landlord explained it was calculated using the actual costs incurred for 2018/19 which had been £76.16 per month service charge and £33.33 for water charges, and building insurance of £5.49. It explained that the current rent figure of £384.90 excluded the £4.64 monthly payments he had been making for building insurance.
22. The resident replied the same day to say he did not understand why the landlord had not in the previous year included his payment for building insurance in his rent figure as it always had before. He also queried the previous service charge figure of £104.90 saying he had only paid £80.24. He questioned the difference in total monthly figures of £370.05 and £403.38 given by the landlord in its 20 February 2020 notice. He also continued to question the increase in rent.
23. On 30 April 2020 the landlord replied. It explained that the £403.38 figure was correct, and that although it had correctly shown in its table of charges a water charge figure of £33.33 it had unfortunately omitted this from the total on the table, which therefore incorrectly gave a total of £370.05.
24. With regard to the confusion around not including building insurance, the landlord acknowledged its earlier figure of £384.90 should have taken account of the building insurance contribution and read £389.54.
25. As to the figure it had given for the resident’s previous service charge of £104.90 it explained this had comprised £71.57 service charge and water charge of £33.33. It apologised to the resident for his having had to raise the issue and undertook to confirm the correct charges in writing. It directed the resident to the First Tier Tribunal should he remain unhappy with either his rent or service charge.

Assessment and findings

26. Complaint (a): As the Ombudsman sees it, the facts as to how the error concerning the double charge for a sinking fund occurred do not appear disputed, although the resident is understandably aggrieved that it was not spotted sooner. And if, as is suggested, the error was only identified following a query from another resident then that will not have inspired the resident’s confidence in the landlord’s management of the accounts.
27. Once it had identified the error and resulting overpayment, however, the landlord’s decision to then deduct an amount from the overpayment failed, in the Ombudsman’s view, to take account of what was fair and reasonable in all the circumstances of the case. The resident had an understandable grievance that he had been overpaying his service charge for five years, a grievance that was exacerbated by the sense that he was also now being treated differently to a fellow resident.
28. The Ombudsman therefore considers it was appropriate for the landlord, in its review, to agree to refund the resident the full amount of the overpayment. By this stage the resident had yet to be provided with an adequately clear explanation for the deduction and it was only fair that the landlord recognise the error ought to have been identified sooner.
29. While the occasion of this error does not constitute a systemic failing on the part of the landlord, the Ombudsman does expect a landlord, in its resolution of disputes, to have regard to the Ombudsman’s Dispute Resolution Principles. These principles are high level good practice guidance developed from the Ombudsman’s experience of resolving disputes, for use by everyone involved in the complaints process. There are three principles driving effective dispute resolution: be fair – treat people fairly and follow fair processes; put things right; and learn from outcomes.
30. It is clear that the resident has expended some time and energy in pursuing his complaint to get the overpayment fully refunded, and that the errors have impacted his confidence in the landlord’s administration of the service charge account. In terms of ‘putting things right’ the Ombudsman is not satisfied that the landlord’s refund and £50 goodwill payment have yet provided the resident with tangible recognition of the adverse affect on him of its errors. Not only did the overpayment undermine the resident’s confidence in the landlord’s management of the service charge account, he was then caused further frustration and inconvenience in having to seek to get the deduction removed.
31. Complaint (b): Putting aside the disputed rent increase (having already explained that is not for the Ombudsman to determine), the Ombudsman considers the resident was justified in querying the figures cited by the landlord in its letter of 20 February 2020 as on the face of it there was some contradiction and disparity. The resident was therefore entitled to a clear and prompt explanation from the landlord.
32. While the landlord responded promptly to the resident’s query, and appropriately explained the basis of its 3% rent increase, the Ombudsman finds the landlord failed at that stage to address all the issues raised by the resident, and its explanation of the previous service charge calculation and £384.90 rent figure merely confused rather than clarified the position. This necessitated a comeback from the resident which ought not to have been necessary and inevitably exacerbated his frustration and lack of confidence in the landlord’s handling of the matter.
33. That said, the landlord’s further response did provide a clearer explanation which in the Ombudsman’s view satisfactorily resolved the confusion of its 20 February 2020 letter and earlier response. The landlord’s response appropriately identified it had omitted water charges from its total sum of charges for inclusion in the new monthly rent figure and had omitted building insurance from the figure previously given for the resident’s past rent payments – which had led him understandably, albeit incorrectly, to consider he had overpaid.
34. That was an appropriate response from the landlord, but one that fell sufficiently short of drawing a line under matters for the resident. As the Ombudsman sees it, this was because the landlord had chosen to consider the matter not as a formal complaint in accordance with its complaints procedure as it had done for the earlier matter, and as requested by the resident, but as an enquiry.
35. While that did not prevent the resident ultimately obtaining the clarification he needed, and it is clear any confusion was short-lived, it did however mean the landlord did not then go on to consider the impact on the resident of its errors; a fundamental consideration in complaint resolution. At this point, the resident had already had his confidence in the landlord’s handling of his rent / service charge account undermined by the earlier overpayment and deduction. But this lack of confidence was further strained by the apparent inaccuracies contained in the notification of his new rent / service charge, which in having to go back to the landlord caused the resident some obvious frustration and inconvenience. The Ombudsman considers that in closing the matter as it did the landlord missed the opportunity to provide the resident with tangible recognition for the impact on him of its errors and lack of clarity.
36. Finally, on the matter of complaint handling, the Ombudsman also notes that in its conclusion of the matter, the landlord failed to signpost the resident to the Ombudsman.  While it was appropriate that it signpost him to the First Tier Tribunal with regard to the rent increase, as there were administrative aspects of his complaint which could fall to be considered by the Ombudsman, it ought also to have appropriately signposted him, as it did with his earlier complaint.

Determination (decision)

37. In accordance with paragraph 54 of the Housing Ombudsman Scheme there was service failure by the landlord in its response to the identification of the overpayment of service charges between 2014 – 2019.
38. In accordance with paragraph 54 of the Housing Ombudsman Scheme there was service failure by the landlord in its response to the resident’s dispute about the calculation of his rent and service charge for 2020 / 2021.

Reasons

39. The landlord identified and appropriately refunded the resident’s service charge overpayment and associated deduction. But the landlord failed to resolve the complaint at the earliest opportunity and although it took steps to put matters right through the refund and the £50 goodwill payment, this failed sufficiently to recognise the inconvenience and frustration its errors and complaint response had caused the resident and how its errors had undermined his confidence in its ability to manage the service charge account.
40. The landlord’s response to the resident’s dispute of its calculations of his 2020 / 2021 rent and service charge failed initially to address all aspects of the resident’s concerns, identify its errors and resolve the confusion. In closing the matter, the landlord failed to give reasonable consideration to redress for the worry and frustration its errors and lack of clarity had caused the resident.

Orders and recommendations

Orders

41. Within four weeks of the date of this determination the landlord is ordered:

(a)  to pay the resident £100 compensation for its service failures in relation to complaint (a);

(b)  to pay the resident £100 compensation for its service failures in relation to complaint (b).

Recommendation

42. In light of the overpayment and errors highlighted by the resident in his complaint, it is recommended that the landlord take the opportunity to review the rent accounts of other residents in the development, ensure all are being charged correctly and any adjustments made.