The Riverside Group Limited (202220540)

REPORT

COMPLAINT 202220540

The Riverside Group Limited

25 January 2024

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 the landlord’s:
1. Response to the resident’s concerns about changes made to the Memorandum of Staircasing (MOS) by the landlord’s solicitor prior to the sale of the property.
2. Decision not to refund the resident’s £13,500 sinking fund contribution following changes made to the MOS by its solicitor prior to the sale of the property.
3. Response to the resident’s reports of not receiving the services paid for by way of service charges during lockdown in 2020.
4. Handling of the resident’s complaint.

Jurisdiction

What the Ombudsman can and cannot consider is called the Ombudsman’s jurisdiction. This is governed by the Scheme. When a complaint is brought to this service, the Ombudsman must consider all the circumstances of the case, as there are sometimes reasons why a complaint will not be investigated.
After carefully considering all the evidence, in accordance with paragraph 42(f) of the Housing Ombudsman Scheme, the following aspect of the complaint is outside of the Ombudsman’s jurisdiction:
1. The landlord’s decision not to refund the resident’s £13,500 sinking fund contribution following changes made to the MOS by its solicitor prior to the sale of her property.
Paragraph 42(f) of the Housing Ombudsman Scheme states that the Ombudsman 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.
The resident advised that for 2-months prior to the sale of the property in March 2022, she believed she was not liable to pay a contribution to the property’s sinking fund. The landlord’s solicitor advised it initially issued documentation incorrectly having removed a clause from the MOS. It states that that this was rectified, all parties notified before the sale completed, and all advised that in accordance with the remaining provisions of the lease, the sinking fund payment was due.
The resident’s complaint states that she should not be liable for the sinking fund contribution due to this error. She says the solicitors indemnity insurance should cover her contribution.
This part of the resident’s complaint requires a decision by a court or tribunal service. It is outside of the jurisdiction of the Housing Ombudsman Service and is within the jurisdiction of the First-Tier Tribunal (Property Chamber). It is therefore appropriate that the resident has advised us that she raised this legal matter with her solicitor and sought free and independent legal advice from the Leasehold Advisory Service (LEASE).
The resident has said that the issues surrounding the MOS and sales process caused her stress and affected her mental health. In this case, the Ombudsman has considered the landlord’s response to the resident’s complaint points however we are not able to determine whether the landlord is responsible for any deterioration in health. Such decisions require an assessment of liability and would best be decided by a court.

Background and summary of events

Background

The resident initially held a 50% shared ownership lease from October 2006. The property comprised a top floor apartment within a 4-storey listed building.
As part of the sale of the property in March 2022 the resident agreed to pay a staircasing premium for the further 50% equity. This enabled her to market the property at 100% equity. The information provided advised that the resident made a complaint following the sale of the property. The resident has no reported health vulnerabilities.

Summary of events

The landlord wrote to the resident on 11 November 2020. It advised that it had approved her valuation and she could instruct an estate agent to market the sale of her 50% equity of the property.
On 26 November 2020 the landlord issued an annual service charge statement to the resident. It covered the period 1 June 2019 to 31 May 2020. The statement advised that £124.06 was to be credited to the resident’s account.
On 26 January 2021 the landlord wrote to the resident in response to her questions regarding staircasing. It advised that it agreed to her carrying out “back to back staircasing.” This meant she could acquire and sell its 50% equity of the property during her proposed sale. It advised based on a valuation completed on 29 October 2020 it would require £75,000 for its share following the sale should she choose this option. The letter advised that the current valuation would expire on 29 April 2021.
On 28 April 2021 the landlord sent a notice of new service charges to the resident. The letter explained the annual breakdown due from 1 June 2021.
The resident informed the landlord on 6 August 2021 that a sale for her 50% equality had fallen through. She had arranged a new valuation as the previous one had expired. She would send the valuation report for its approval once complete. The landlord acknowledged this information.
On 2 November 2021 the resident requested permission to market the property at 100% equity. She advised she was now willing to pay the legal fees required to complete back to back staircasing. She had been unable to sell for almost a year and considered the shared ownership was causing her difficulties. The landlord acknowledged this request and gave its permission. It advised that a MOS would be required for the solicitors to progress a sale.
On 29 November 2021 the landlord issued a Section 20B notice to the resident. It explained that it had been unable to finalise the annual balance of service charges for 1 June 2020 to 31 May 2021. It was serving the Section 20B notice with an estimate as a precautionary measure. The delay had been caused by a malware attack on its computer systems. It apologised for any inconvenience, advised it would issue the final accounts on or before 30 June 2022, and reassured her that no data breach had occurred.
Between 2 February 2022 to 22 March 2022 email communication took place between the landlord and its solicitor, and directly between both solicitor firms handling the property sale and final staircasing arrangements. On 22 March 2022 the landlord’s solicitor identified that it had made a typographical error when collating the MOS clauses. During this time the resident’s solicitor insisted she was not liable for the sinking fund contribution. The landlord’s solicitor refuted this and explained that it was clear from the lease which “both parties saw prior to the issue of the MOS, that the clause was to remain since final staircasing of a shared ownership lease did not remove any provisions for the removal of service charge provisions. The leaseholder would have also been advised of this when she purchased the property.”
The landlord’s solicitor emailed an invoice to the resident on 17 March 2022. The sum of £13,735.55 was due on completion of the sale of the property to cover the sinking fund contribution. The solicitor had already deducted £149.67 from the total, due to a service charge credit owed. The property sale completed on 23 March 2022
On 8 April 2022 the resident emailed the landlord’s resales team a stage 1 complaint. She repeated her complaint via its “info@” email address on 11 April 2022. Her complaint points were:
1. Her requirement to pay a sinking fund contribution.
2. Additional solicitor fees incurred due to the landlord’s solicitors “typographical” error.
3. The landlord’s lack of communication and availability to discuss the matter which had impacted her mental health.
The resident emailed the landlord on 19 April 2022 as she had not received an acknowledgment of her complaint. It acknowledged her stage 1 complaint on 20 April 2022. It advised that it aimed to provide a response by 27 April 2022.
On 25 April 2022 the landlord communicated with its solicitor about the resident’s complaint. The solicitor said:
1. It had informed the resident’s solicitor of the initial error and in accordance with the provision of the lease advised the clause must remain.
2. It explained that clause 3.19 of the lease provided the resident with an option to contribute towards the reserve fund on completion of any sale rather than making payments annually. This had been the option she had taken as a resident.
3. Although there had been an initial typographical error in proposing to remove clause 3.19, the sinking fund contribution would still be due on the sale in accordance with clause 7.4 which remained.
4. It said the resident’s solicitor had been informed that she remained liable for the payment as she had benefited from not making annual payments.
On 27 April 2022 the landlord emailed its solicitor. It discussed the error made to the initial MOS. It explained that the resident had said she would incur additional legal fees and it would “like to put her back in the position she was before the error.” It sought assurance from its solicitor that it would pay, upon production of evidence, the additional fees incurred. Its solicitor confirmed that it would reimburse her any additional fees charged. The resident had indicated that this was approximately £500.
On the same day the landlord emailed the resident its stage 1 response. It understood her complaint to be about the sinking fund contribution error, additional solicitor fees incurred, its communication during the sale of the property, and service charge matters. The landlord’s response states, but was not limited to:
1. It acknowledged to resolve her complaint the resident sought a refund of the £13,500 sinking fund contribution, reimbursement of additional legal fees incurred, an apology, and for the service charge accounts to be issued showing a rebate for services not received during 2020.
2. It sincerely apologised for the distress caused and acknowledged that there had been a lack of communication by its resales team. It offered £150 as a goodwill gesture in recognition for this failure.
3. It acknowledged that its solicitor had initially made a “typographical error” removing clause 3.19 within the MOS. Under this clause she had not been required to make any annual payments towards the sinking fund. However as she had not made these payments while living at the property, clause 7.4 of the lease confirmed payments were due on the sale of the property.
4. Although it would not consider refunding the sinking fund contribution, it would compensate any additional solicitor’s fees she had incurred due to the error.
5. It advised that the property had a May year end. As such account updates were normally due in November. Due to suffering a malware attack its services were disrupted. As such it had issued a Section 20B letter to all affected resident’s informing them that accounts would be issued by 30 June 2022. It apologised for any inconvenience caused.
6. It advised that during the Covid-19 pandemic window cleaning services were affected during March to June 2020. It confirmed that the resident’s scheme had been credited £144.20 for the financial year 2019 to 2020.
On 10 May 2022 the resident asked the landlord to escalate her complaint to stage 2 as she was not satisfied with the outcome of its response. The resident said:
1. It had addressed its response to her in another person’s name.
2. Its response had not addressed that its complaint handling had been outside its policy timescales.
3. She did not accept that the removal of clause 3.19 from the MOS was a “typographical error.” She considered it had been “actively” removed from separate documents which she had already signed and returned to solicitors.
4. She considered the MOS amended the original lease and believed that no sinking fund contribution was due. Therefore the removal of the clause should stand.
5. She appreciated the landlord’s offer to cover any additional legal fees and compensate her for the time spent trying to resolve the matter. However she would wait on the outcome of its stage 2 response.
6. She would like a copy of the service charge account. She referred to cleaning, site visits, routine repairs, and gardening being stopped for “2-months” during the Covid-19 lockdown. She advised that her buyers solicitor was holding £100 in the eventuality of a deficit of service charges and she believed a rebate was due for the 2020 to 2021.
Internal communication on 12 May 2022 discussed that the resales team had not acknowledged the resident’s initial complaint within its complaint policy time frame. It sought to identify who was responsible for ensuring she received a timely stage 2 response.
On 23 May 2022 the landlord issued the delayed notice of service charges for 1 June 2020 to 31 May 2021. As the resident’s sale had completed this was sent to the new leaseholder. A copy, along with her relevant final account statement was provided to the resident separately.
The landlord sent its stage 2 response on 24 May 2022. The response states, but was not limited to:
1. It sincerely apologised for addressing its stage 1 letter to the wrong recipient. It offered £150 compensation for its complaint handling failure.
2. It reiterated its position regarding the initial error on the MOS. It advised that this was rectified, sent to her solicitor, and her legal requirement to pay the sinking fund contribution remained. However its offer to provide compensation for any additional legal fees incurred due to the error remained.
3. It confirmed it had credited £144.00 for window cleaning service charges for the 2019 to 2020 financial year when services were affected by Covid-19.
4. It acknowledged that the resident was correct and gardening services had also been affected during Covid-19. It had calculated a credit of £210.12 (covering April to June 2020).
5. It advised that it was unable to provide the current year end accounts as they were currently being prepared (for November). It was therefore unable at this stage to advise if there was any deficit or funds due.
6. As her solicitor was holding a retention, it advised her to contact them directly once the accounts were available to arrange a refund if applicable.
7. It understood that she had received copies of the previous years’ service charge accounts as requested. It asked that she let it know if this was not the case.

Events following the internal complaints procedure

On 24 November 2022 the landlord issued its annual service charge statements for 1 June 2021 to 31 May 2022.
On 5 December 2022 the resident requested a copy of the 1 June 2021 to 31 May 2022 statement. The landlord sent a copy to her on 7 December 2022. The calculation showed a balance of £45.89 that was owed to the landlord.
During communication with both the resident and landlord, we were able to confirm that the resident did not produce evidence of additional legal fees incurred. Therefore the landlord advised it had made no additional payments to her. Furthermore, it confirmed that it had not paid the compensation offered as the resident had not responded to confirm her acceptance of its offer. The resident said she had been concerned that accepting compensation would void her complaint with the Housing Ombudsman Service.

Assessment and findings

Policies and procedures

The lease states that the financial accounting year end for the property is 30 May each year. Statements are provided to residents by the end of November.
The landlord operates a 2 stage internal complaints procedure. At both stages a resident can expect an acknowledgement within 2 working days and responses within 10 working days.
The landlord’s financial redress and compensation procedure states that financial redress or gestures of goodwill fall into 3 categories:
1. Financial redress is to ensure a resident is not out of pocket because of the landlord’s failure in service.
2. Gesture of goodwill is an apology for when its level of service fell below the standards expected. This could include delays in resolving matters, unsatisfactory communication, or poor complaint handling.
3. Legislative requirements prescribed by law. Such as the Right to Repair Scheme.
A summary of Clause 3.19 of the tenants lease states that the leaseholder shall:
1. Pay the landlord administrative costs and expenses not exceeding 0.75% of the market value of the premises.
2. Pay the landlord a sum representing 0.75% of the market value for each year to provide a sinking fund for depreciation upgrading and improvements.
3. Pay the landlord such sums until the date upon which a new tenant or occupier becomes liable.
A summary of Clause 7 of the tenants lease states that:
1. 7.2 the leaseholder hereby covenants with the landlord to pay the service charge during the term by equal payments in advance at the times in which and in the manner in which rent is payable under the lease.
2. 7.4 the service provision shall consist of a sum comprising:
  1. The expenditure estimated by the landlord in the account year.
  2. An appropriate amount as a reserve for or towards matters which are likely to give rise to expenditure after such account year, such as matters as the decoration of the exterior of the development and the maintenance and repair and renewal of communal facilities and the replacement of the same as and when necessary.
Under Section 20B of the Landlord and Tenant Act 1985, a landlord has 18 months within which to notify a resident of service charge costs being incurred or demand payment. A Section 20B notice letter notifies residents of costs incurred to date and that they will be required to contribute towards.

Response to the resident’s concerns about changes made to the MOS by the landlord’s solicitor prior to the sale of the property

Scope of investigation

The resident has raised concerns about the identified error in the initial MOS supplied by the landlord’s solicitor. She disputes that the error was a “typographical error” and believes she should not have had to pay the £13,500 sinking fund contribution. The issues surrounding the MOS, initial removal of clause 3.19, validity of clause 7.4, and matter of liability to pay the sinking fund contribution are issues for a court or tribunal service. Therefore this part of the resident’s complaint falls outside of the Ombudsman’s jurisdiction.
However, we have considered it reasonable in the circumstances to assess the landlord’s response to the resident’s reports of this error.
There is evidence that upon receipt of enquiries from the resident’s solicitor prior to the property sale, the landlord contacted its solicitor to clarify the resident’s concerns. It received confirmation from its solicitor that an error had been identified with the initial MOS draft. It was therefore reasonable that the landlord sought to ensure that this document was put right and the resident reimbursed any additional legal costs incurred due to the error.
The resident provided an estimate of additional legal costs of £500. It was reasonable that the landlord ensured that its solicitor agreed to pay this sum upon receipt of evidence of this cost. This demonstrated the landlord’s desire to put the resident back to the position she was before the error.
Furthermore the landlord acknowledged that the resident had initially encountered difficulties contacting its resales team about this issue. It apologised and offered £150 compensation for its communication failure. This was appropriate and in line with the landlord’s financial redress and compensation procedure. It is also in line with the remedies guidance available to us.
The landlord does not dispute that there has been service failure during the resident’s sale of the property. The Ombudsman would therefore have made a finding of some level of maladministration but for the steps taken by the landlord to put things right. The landlord has apologised, offered compensation, and sought to ensure its solicitor put right the error it made. This included paying any additional legal fees which was estimated to be £500. This demonstrates its efforts to correct the mistake and restore the resident to her original position.
Based on the above, the Ombudsman considers that the compensation amount offered and offer to reimburse any additional legal fees incurred was reasonable and proportionate in the circumstances. It is therefore the Ombudsman’s opinion that the landlord has offered reasonable redress in its response to the resident’s concerns about changes made to the MOS by the landlord’s solicitor prior to the sale of her property.

Response to the resident’s reports of not receiving the services paid for by way of service charges during lockdown in 2020

The legal responsibility of a landlord regarding notifying residents of annual service charges are governed by the terms outlined in the lease. Landlords are generally required to provide clear and transparent information to residents regarding charges, including the amount, breakdown of costs, and any changes. The resident’s lease states that the financial accounting year end for the property is 30 May each year with statements provided to residents’ by the end of November.
Generally, there is evidence that the landlord has adhered to these procedures. In November 2020 it identified that a credit of £124.06 was due and sent the statement on time. This was appropriate and as outlined in the lease. There is further evidence that its sent the annual service charge change statement on time in April 2021.
Although it is clear that the landlord was unable to complete and provide the resident with an end of year statement in November 2021, it took steps to notify her of an attack on its computers systems. Under Section 20B of the Landlord and Tenant Act 1985, a landlord has 18 months within which to notify a resident of service charge costs being incurred or demand payment. As the malware attack had prevented it from calculating the final annual bill, it was appropriate that it issued the resident with a Section 20B notice, explained the cause for the delay, and set a new response date of 30 June 2022. It successfully met this deadline and issued the final statements on 22 May 2022. This demonstrated its efforts to keep the resident informed and resolve matters following an attack on its computer systems.
Within communication with the landlord the resident raised concerns that services had stopped during Covid-19. This included window cleaning and gardening. It was therefore appropriate that it acknowledged the periods these services were affected and calculated refunds. However although there is evidence that it had identified and refunded service charges for window cleaning, it was not until the resident’s complaint that it acknowledged and recalculated a refund for the temporary stop in gardening services. It is our opinion that this should have been identified and recalculated without the need for the resident to raise it at a later date.
For the reasons set out above there was service failure with the landlord’s response to the resident’s reports of not receiving the services paid for by way of service charges during lockdown in 2020. The resident was required to spend time and effort raising this matter as a complaint to ensure that the landlord assessed and recalculate her service charges. Although it was appropriate for it to issue a refund, she was not compensated for the service failure. In line with the landlord’s financial redress and compensation procedure and our own remedies guidance, the landlord is ordered to pay the resident £75 to put things right.

Complaint handling and the compensation offered

The resident initially sent her complaint to the resales team by email on 8 April 2022. She repeated her complaint via another email channel on 11 April 2022. In line with the landlord’s complaint handling policy, she should therefore have expected a response within 2 working days. There is evidence that the landlord did not send its acknowledgement until 20 April 2022 and after being chased by the resident. This was not appropriate as it was 5 working days beyond its policy response time frames.
The landlord issued its stage 1 response on 27 April 2022. This was not appropriate as it was 2 working days beyond its 10 working day response time frame. There is no evidence that it informed her of any anticipated delay.
Within its stage 1 response, the landlord offered its sincere apology and acknowledged that it had failed to provide the resident with the expected level of service. However its acknowledgement and compensation of £150 was made in relation to the lack of communication from its resales team. This was specific to the resident’s concerns about changes made to the MOS rather than an acknowledgement of complaint handling failures.
On 10 May 2022 the resident asked to escalate her complaint to stage 2. She should therefore have expected an acknowledgement within 2 working days and by 12 May 2022. Although there is evidence that the landlord discussed internally issuing an acknowledgement, there is no evidence of anything being sent. This was not appropriate and not in line with the landlord’s complaint’s policy.
Although internal discussions that took place on 12 May 2022 demonstrated a desire to put things right and ensure it provided the resident with a timely response, its failure to evidence sending an acknowledgement failed to demonstrate it had learned from previous outcomes.
The landlord’s stage 2 response sincerely apologised for the error to address its stage 1 to the resident correctly. It acknowledged this as a service failure and offered £150 compensation for its complaint handling failure. This was a reasonable step to put things right and in line with its financial redress and compensation procedure and the remedies guidance available to us.
When there are acknowledged failings by a landlord, as is the case here, the Ombudsman’s role is to consider whether the redress offered by the landlord put things right and resolved the complaint satisfactorily in the circumstances. In considering this the Ombudsman takes into account whether the landlord’s offer of redress was in line with the Ombudsman’s Dispute Resolution Principles: be fair, put things right and learn from outcomes, as well as our own guidance on remedies.
The landlord demonstrated improved complaint handling at stage 2 and issued a response within its policy time frames. It had identified and discussed its failure to issue a timely response at stage 1 and ensured that this was corrected. There is evidence that it discussed internally its complaint handling failures at stage 1 and desire to “put things right” for the resident. Although this demonstrated some learning, it again failed to evidence issuing a timely acknowledgement to the resident’s stage 2 complaint.
As this had occurred at both complaint stages, the Ombudsman considers that the landlord’s complaint handling compensation would have been reasonable redress but for this repeat failure. Therefore we find service failure and the landlord is ordered to pay a further £50 for its handling of the resident’s complaint.

Determination (decision)

In accordance with paragraph 53(b) of the Housing Ombudsman Scheme, the landlord made an offer of redress which, in the Ombudsman’s opinion, satisfactorily resolves the matter of the resident’s dissatisfaction of its response to the resident’s concerns about changes made to the MOS by the landlord’s solicitor prior to the sale of the property.
In accordance with paragraph 42(f) of the Housing Ombudsman Scheme, the following aspects of the complaint are outside of the Ombudsman’s jurisdiction.
1. The landlord’s decision not to refund the resident’s £13,500 sinking fund contribution following changes made to the MOS by the landlord’s solicitor prior to the sale of the property.
In accordance with paragraph 52 of the Housing Ombudsman Scheme there was service failure with the landlord’s response to the resident’s reports of not receiving the services paid for by way of service charges during lockdown in 2020.
In accordance with paragraph 52 of the Housing Ombudsman Scheme there was service failure with the landlord’s handling the resident’s complaint.

Reasons

The landlord offered an apology, offered compensation, and sought to ensure its solicitor reimbursed her for any additional legal costs incurred due to its initial typographical error with the MOS.
The resident was required to spend time raising a complaint to ensure that service charges for services stopped during Covid-19 were recalculated and refunded where appropriate.
The landlord failed to evidence issuing an acknowledgement to the resident’s stage 2 escalation request having already previously failed to acknowledge the resident’s stage 1 complaint within its policy time frames.

Orders and recommendations

Orders

The landlord is ordered to take the following action within 4 weeks of the date of this report. The landlord must provide the Ombudsman with evidence that it has complied with these orders:
1. Pay the resident compensation totalling £275. This comprises:
  1. A further £75 compensation for the resident’s time and trouble raising service charge issues that had not been identified and recalculated.
  2. £150 offered at stage 2 if not already paid.
  3. A further £50 for any distress and inconvenience caused by the landlord’s failure to provide timely complaint acknowledgements.

Recommendations

If it has not already done so, it is recommended that the landlord reoffers the £150 compensation for its identified communication failures and response to the resident’s concerns about changes made to the MOS by the landlord’s solicitor prior to the sale of her property.
If it has not already done so, it is recommended that the landlord request the necessary evidence from the resident to reimburse her the additional legal fees incurred due to the identified typographical error with the MOS.
If it has not already done so, it is recommended that the landlord refunds the service charges for the loss of services during Covid-19.
If it has not already done so, it is recommended that the landlord confirms that the resident received a copy of the final service charge statement. This will enable her to communicate directly with her solicitor regarding any balance owed from funds held.