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Midland Heart Limited (202214585)

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REPORT

COMPLAINT 202214585

Midland Heart Limited

30 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

  1. The complaint is about the redress offered by the landlord following a refund of service charges.

Background

  1. The resident was a shared owner who occupied a two-bedroom property under a lease with the landlord. The lease commenced on 9 October 2015. The resident applied to staircase her ownership to obtain the freehold for the property.
  2. During the time the property was subject to the conveyance process, the resident queried the service charges detailed in the transfer with her landlord. Initially, the landlord said that the service charges would still apply to her after she had purchased the property. It later stated that the service charges did not apply to her property and should not have applied to her at any time during the period she was a leaseholder. It refunded her in full for the applicable service charges. These were backdated to the commencement of the lease.
  3. The resident raised a formal complaint on 27 July 2022, for the way her service charge query had been handled by the landlord. The landlord upheld her complaint at stage 1 and offered her compensation of £375. This was for the failure to recognise the mistake with the service charges, the inconvenience, poor communication, and complaint handling delay.
  4. The resident was dissatisfied with the landlord’s response. She said the landlord failed to recognise how the delay in responding to her concerns had impacted the length of time it took to complete the purchase of the freehold. She stated this was approximately 2 months and wanted to be reimbursed for the rent and interest paid on her mortgage for that time.
  5. The landlord issued its final response on 26 September 2022 and upheld the resident’s complaint. It offered an additional £170 compensation to recognise the delays caused by investigating the service charge. However, it did not agree to refund the rent or pay the mortgage interest. The landlord explained that it could not award this to the resident because the error was part of the due diligence process undertaken in all property sales and there is no set time for this.
  6. The resident told this Service that her desired outcome was for her landlord to refund the following:
    1. 2 months’ worth of rent for the delay in investigating her service charge query;
    2. 2 months’ worth of interest charges for her mortgage payment for the delay in investigating her service charge query;
    3. 25% of the landlord’s management fee due to the mismanagement of the service charges on her rent account; and
    4. the additional property valuation that would not have been required had the conveyance not been delayed.

Assessment and findings

  1. The resident queried her service charges with her landlord on 28 April 2022. Initially, the landlord told the resident that the service charge was for communal areas which were maintained by a third-party company (‘Company A’). It later stated the service charge was for a different third-party company (‘Company B’). The resident requested to see the invoices for the services rendered by both companies, but the landlord was unable to provide these to her. On 13 May 2022, the resident found, from her own investigations, that Company B did not service her property and called her landlord to inform it of her discovery.
  2. On 6 June 2022, the landlord suggested that the service charges may have been related to an attenuation tank. On 13 June 2022, it transpired that the attenuation tank did not have a servicing regime. This meant there was no third-party responsible for maintaining the tank. The landlord stated the service charge was an error that had been incorrectly applied to the resident’s property from when the developers handed the property over to it. As a result, the landlord refunded the resident’s service charges thought to be for Company B. This amounted to £1602.59.
  3. The landlord upheld the resident’s complaint on both occasions and provided a compensation offer for all the issues the resident raised. Therefore, the Ombudsman considers that the landlord did acknowledge its failings and tried to put things right.
  4. The landlord offered the resident £545 in compensation. The resident considers she is entitled to a refund of the interest charges she paid to her lender (for the mortgage) and rent payments. In short, the resident says she would not have had to pay these had she obtained the freehold sooner. This, she says, was directly caused by the landlord’s delay in handling the issues with the service charges. The landlord, in response, said that it would not award charges for this as it would not set a completion date and had to undertake due diligence.
  5. It is the Ombudsman’s view that the resident will have been responsible for the interest to the lender both before the 100% staircase and after – unless she became a mortgage-free freeholder. Therefore, the interest would not be due.
  6. It is clear the handling of the service charges by the landlord did cause some delay from April 2022 to June 2022. It is unlikely the resident would have had to pay rent on the landlord’s share had the process been completed sooner. Therefore, the landlord should contribute 50% of the rental payments for the delayed period (£544.69).
  7. I do not consider the landlord to be responsible for 100% of the rental payments. This is because the resident will have received service charge accounts each year and could have queried these issues before the sale. Therefore, it would not be fair to hold the landlord responsible for the full delay. Moreover, there is not enough evidence for this Service to conclude with certainty that the delay in the conveyancing process was exclusively attributable to the landlord’s investigation of the service charges.
  8. The Ombudsman is not able to investigate the increase of service charges for management fees. If the resident believes the management fees were too high or not due, she can apply to the First-Tier Tribunal or the court to have these reviewed. Therefore, the Ombudsman will not comment on whether the management fee or part thereof should be refunded.
  9. The landlord should be responsible, however, for interest on the service charges paid. This is because it held the resident’s money in an account and the resident did not have the benefit of the money which was rightfully hers. Therefore, the landlord must pay interest on the service charges the resident was incorrectly charged.
  10. When assessing complaints, landlords must consider the Ombudsman’s Dispute Resolution Principles, to:
    1. Be fair
    2. Put things right
    3. Learn from outcomes
  11. In this case, the landlord did not fully put things right in the redress it offered the resident via the complaint procedure.

Determination

  1. In accordance with paragraph 52 of the Scheme there was service failure in the redress offered by the landlord following a refund of the service charges.

Orders and recommendations

Orders

  1. The Ombudsman orders the landlord to, within 28 days of the date of this determination:
    1. Refund the full services it has agreed to during the complaint procedure if it has not already.
    2. To this it must pay interest at a rate of 2% simple from the date the resident made each payment to the date that the landlord refunded the relevant service charges. This is to take into account that the resident was not able to use or benefit from the money and the landlord will have earned interest on it.
    3. Pay the resident £250 compensation for the distress and inconvenience caused by the issue.
    4. Refund the resident 1 month’s rent for the delay.
    5. Provide evidence to the Ombudsman of its calculations and payment to the resident.
  2. This order replaces the offer made by the landlord of £545. The landlord may deduct this from any payment due to the resident.
  3. The landlord is to provide evidence of its compliance with the above orders to this Service within 28 days of this determination.

Recommendations

  1. The landlord may wish to discuss the error found with those responsible for auditing its service charges, to ensure there is a robust and cyclical procedure in place to prevent this from happening again.