London & Quadrant Housing Trust (202006559)

REPORT

COMPLAINT 202006559

London & Quadrant Housing Trust

18 June 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

The complaint is about:
1. The landlord’s handling of the resident’s service charge account.
2. The landlord’s handling of the resident’s request for a credit in relation to charges for scaffolding.
3. The landlord’s handling of the resident’s complaint.

Background and summary of events

The resident was the owner of a long lease of flat with the landlord. The lease was dated 15 January 1990, and was assigned to the resident on 18 December 2015. The property was purchased as a ‘buy-to-let’, that she intended to and, during the course of the events below, did let out.

Legal and policy framework

The lease provided as follows:
1. The resident was required to pay on demand a fair proportion of the expenses incurred by the landlord in carrying out their obligations set out in the lease, including maintaining in good repair the building in which the resident’s flat was situated, including the roof.
Under Section 42 of the Landlord and Tenant Act 1985, sums collected as service charges should be held on trust and duty to invested in accordance with the Trustee Investments Act 1961 (as amended by the Trustee Act 2000), or the Service Charge Contributions (Authorised Investments) Order 1988 as amended. The latter enables service charge monies to be invested in a deposit account with certain banks, or in a share or deposit account with building societies.
Section 20 of the Landlord and Tenant Act 1985 required the landlord to consult on any expenditure where the cost of major works will exceed the sum of £250 for any one leaseholder. If it failed to do so, the cost of any such works would be capped at £250 per leaseholder. The process is initiated by a notice, commonly referred to as a ‘Section 20 notice’.
Southern Land Securities Limited V Hodges [2013] was a case where the issue was whether additional works in that case were covered by a Section 20 notice. It considered:-
1. “Whether a notice sufficiently describes in general terms the works proposed to be carried out is a question of fact and degree to be determined in the circumstances of each case”.
2. Whether “as a matter of fact they were works which had to be done in order for the contract to be completed”.
3. Whether the additional work was an unexpected item of repair “which simply could not have been foreseen or envisaged at the time when the (..) notice was served”.

The service charge policy

The landlord was responsible for identifying and amending the next year’s financial estimates. This meant that the landlord was required to assess the actual costs incurred for the most recent financial year against the estimated costs which set that year’s service charge. If the actual costs exceeded the estimated costs, then the landlord could recover that additional cost from the resident. Conversely, if the actual costs were less than the estimates then the landlord would refund the difference to the resident.

The complaints policy

The complaints procedure was a two-stage process. The policy required that the landlord would contact the customer within one working day to personally acknowledge the complaint, fully understand the issues, what outcome the customer sought and what actions may be needed to resolve it. The resident had the right to escalate the complaint, on giving their reasons. Where the decision was that no further action is required, and all reasonable and appropriate measures had been taken, the resident would be informed they had reached the end of its complaints process and advised of her next available steps, namely referral to the Housing Ombudsman.

The compensation policy

Discretionary compensation payments can be made to acknowledge impact, inconvenience, distress, and time/effort and is paid in the following situations: –
1. “exceptional” worry, distress or inconvenience has been caused by the landlord’s service failure (e.g., service chargeable facilities, right to repair obligations).
2. The customer had spent an unreasonable and significant amount of time pursuing the matter.
3. In deciding the amount, the landlord should have regard for: whether it followed its policies, procedures and timescales, what caused the service failure, the length of time service lost, the time the customer took to chase the repair, and the distress (if any) caused to the customer.
4. It would award compensation as a goodwill gesture where its mistake or failure caused a customer inconvenience or distress or to invest extra time and effort when getting it to put things right, for example, the customer may have had to make contact on multiple occasions before it acknowledged and took responsibility for the mistake/failure.
5. Awards would depend on the circumstances of each individual case and must be appropriate and proportionate, taking into account the key principles of the compensation scheme as contained in the policy statement. While there are no fixed amounts, the policy sets out the following scale:
  1. Impact Inconvenience Distress Time/effort
  2. High £60 £60 £200
  3. Medium £40 £40 £100
  4. Low £20 £20 £50

Chronology

The resident took possession of the property on 18 December 2015.
On 21 January 2016, the resident reported two leaks: one from the front chimney into the sitting room and a second leak from the back chimney. According to the landlord’s repairs records, the landlord investigated the leak around the chimney stack in two places on 26 January 2016.
On 10 February 2016, the resident reported to the landlord that its contractors had attended as arranged, and had informed her that it had painted fibreglass paint over some cracks in the render on the chimneys. This did not resolve the water ingress. A number of further inspections took place, which led to various suggested solutions to the water ingress, various requests by the landlord to the contractors including repairs to the gutters, inspection and rectification of the leaks from both chimney stacks and underlay membrane, and further actual remedial works. The evidence showed that scaffolding was erected in early September 2016. The exact date is not in the evidence but by 6 September 2016, the resident requested confirmation whether the rendering work was still outstanding, prior to the scaffolding being taken down.
The contractor wrote to the landlord to inform it that it had inspected the property on 16 December 2016 and did not find any breach in the rendering to the rear elevation, or to the concrete covering to the side elevation. It recommended a waterproof sealant be painted to the area in order to eliminate any water entry from the back and side wall. The landlord replied the same day agreeing to the proposed approach of sealing the area.
The landlord wrote to the resident on 7 August 2017 with its final service charge invoice. It stated that the cost of communal repairs of £952.98 included works to inspect and rectify leaks around the chimney stacks. The resident’s contribution was capped to £250.00, as the landlord had not consulted with the resident in relation to the repairs under Section 20 of the 1985 Landlord & Tenant Act. It also charged £39.60 for “for water testing”. It stated that if her statement showed a credit, it would be posted to her “rent account” but she could contact the landlord and request it be paid to her.
On 5 February 2018, the landlord sent a notification of the resident’s direct debit change from £23.78 to £89.30.
The resident wrote to the landlord on 12 March 2018 querying the increase of her direct debit. She was confused that her service charge invoice requested payment in the amount of £476.49, being her share of the total of £952.28, but the cover letter stated that those costs were capped to £250. Her view was that the entire costs of the communal repairs should have been £250 due to the fact the repairs were mismanaged. She did not wish to pay for the “first job” as it was “below standard”. She offered £250 as fair for the all the work carried out, namely the sealing of the two chimneys, aligning the roof felt, and the scaffolding, not 50% of £952.28.
The landlord responded on 19 March 2018 that two of the items charged in relation to 2016/17 were a) inspecting water ingress into the flat and b) work carried out for rectifying leaks from the chimney stacks and underlay membrane. The former was capped to £250 in the final demand for 2016/17 dated 7 August 2017.
The resident responded on 20 March 2018 that the works were in relation to a single issue. The landlord accepted this position on 5 April 2018, and said it would amend the invoice accordingly.
On 30 July 2018, the landlord wrote to the resident with the final Service Charge Reconciliation for 2017/18. It included a further demand for £250. It also included a demand for water testing in the amount of £39.60 for that year.
The resident wrote to the landlord on 3 December 2018 requesting an explanation for the £250 charge in relation to communal repairs and £39.60 charge for water testing, in respect of 2017/18. The grounds of her objection were that no communal repairs had taken place that year, and the water supply was not tested. The resident also requested an explanation for the charges in the amounts of £180 for communal works and £30 for water testing, in respect of 2018/19.
The landlord’s response on 19 December 2018 stated that the £250 charge related to the capped charge for scaffolding in relation to the roofing works in 2016/17. It stated that the disputed item related to “the scaffolding which is only part of the roofing works”. As the landlord had processed and paid the invoice for the scaffolding on 16 August 2017, the amount was still payable.
On the same day, the resident referred the landlord to its email dated 5 April 2018 which had accepted that the initial jobs were a duplication. In addition, her view was that the charges were excessive in any event.
The landlord’s response on 20 December 2018 was that the repairs and the scaffolding were separate ‘orders’ and therefore the final reconciliation would not be changed, confirming its position that the resident was liable for the scaffolding.
On a date in March 2019, the letter is not dated, the resident made a formal complaint as follows:
1. She requested that the landlord review their correspondence, refund the additional £500, refund the water charge, and review the estimate on charges on account of £180 pa.
2. She requested compensation for her time, effort and stress spent on getting the repairs done and dealing with the poor administration of the costs.
On 22 March 2019, the landlord escalated the complaint to ‘step 2’. It gave itself a response date of 29 March 2019. It acknowledged the complaint and promised a reply in 10 working days.
The landlord responded on 4 April 2019 as follows:
1. The works invoiced in the 2017/18 final demand were “in addition” to the costs incurred and re-charged in the 2016/2017 year. The email correspondence only stated the cost of the works incurred in the 2016/17 year would be capped, and the scaffolding costs were paid for the following year.
2. The landlord agreed to refund the water charges, together with the associated management fee, totalling £43.56, and would credit the resident’s account within 5 working days and there would be no further charge.
3. The estimated communal repairs of £180.00 pa had been included in the estimated service charges for the previous 2 years.
4. The landlord had fulfilled its obligations under the lease to repair the building, while the resident had an obligation to contribute a fair proportion of the expenses “payable in compliance with the Landlord and Tenant Act”. The estimate was based on the average of the three previous years, and in the circumstances, it was of the view that the estimate of £360.00 was not excessive. The costs were reviewed on an annual basis and provide a contingency for repair and maintenance as repairs could be unpredictable. The charges were then reconciled so that the landlord only recovered the actual expenditure incurred in each financial year.
5. The landlord is under no obligation to justify the charges based on clauses within the lease agreement. The resident would be aware of her obligations from the lease. It referred the resident to an organisation for advice, and the first-tier tribunal if the resident was of the view the service charges were unreasonable or were calculated incorrectly.
6. The landlord would close the case unless it heard from the resident within 14 days.
The resident replied on 28 October 2019, explaining the delay in her reply was due to illness, as follows: –
1. The costs incurred in 2016/17 should have been capped and the scaffolding was part of the 2016/17 works, therefore part of the works that were capped. The resident took the view that ‘accounting standards’ required that costs arose at the point that services were provided, not at the date of invoice or payment.
2. She stated that the water testing charge was to be refunded. She was also still being charged in advance for the current year (together with the associated management charge).
3. She disputed that the £180 on account for communal repairs was correct, given there were no repair costs in the previous 2 years.
On 14 November 2019, the landlord authorised a refund of the water charges.
On 15 November 2019, the landlord wrote to the resident. It explained it had closed the complaint given a significant amount of time that had elapsed, however it had obtained the following information for the resident as follows: –
1. The charges for repairs are dealt with invoice by invoice, not year by year.
2. It would refund the water charges, and it apologised for its omission in not having sent the refund previously.
3. As the repairs had been nil for the last two years, repairs would be more likely to arise in the near future.
On 25 November 2019, the landlord informed the resident she would receive a refund for a) 2018/19 overpayment of £231.00 credited to her account on 18 July 2019 b) the water charges, plus associated management fee in relation to 2017/18 of £43.56 c) 2019/2020 charge of £242.55 amounting to £517.11.
On 26 November 2019, the resident stated that the landlord was not entitled to build a reserve, only to recoup reasonable costs. She requested a final statement.
According to the statement the resident had requested, the landlord had not credited the refund of water charges on 4 April 2019 but it did refund the amount on 15 November 2019.

Assessment and findings

The landlord’s handling of the resident’s service charge account.

The resident’s complaint in relation to her service charges account can be summarised as follows:
1. The landlord demanded water charges it was not entitled to.
2. The landlord had requested an inflated amount of costs on account of service charges.
3. The landlord had delayed refunding overpayments.
4. The resident requested to be paid interest on any overpayments.
5. Dealing with her queries resulted in the resident incurring time and trouble in resolving the issues.
While the service charge policy stated that the landlord would refund any overpayment, the covering letter to the service charges stated any overpayment would be credited to the service charges account and a refund would be effected on request. It was therefore reasonable for the landlord to await a request from the resident before making a refund. It would have been administratively burdensome to automatically effect a refund whether requested or not, and some residents may prefer to have these amounts credited to their account for use against future charges.
The landlord’s delay in dealing with the resident’s query in relation to water charges was unreasonable. The resident had contested the water charge on 3 December 2018. It took the landlord nearly four months, until 4 April 2019, to accept those charges were incorrect. The landlord promised to credit the overpaid charge to her account. The landlord did not do so. The resident requested a refund on 28 October 2019 which was authorised on 15 November 2019. While the financial impact on the resident was not significant, the error should not have arisen in the first place, and the resident was caused some inconvenience in identifying the error, seeking and chasing a refund.
Service charges are often payable twice yearly, or even quarterly. The resident did not object to this principle of collecting service charges on account. Indeed, it is often good practice to collect service charges in advance, so that the landlord has sufficient funds to fund any repairs and to ensure all the residents in a building are prepared for most contingencies. In addition, it assists in a landlord’s credit control function and reduces the burden of administrative debt collection and therefore administrative charges, for which the resident is ultimately responsible. It is to the benefit of the residents that a deficit to the service charge account is avoided. The landlord’s service charge policy envisaged that a specific team of the landlord was responsible for calculating estimates of service charges in advance. However, the lease, which would override the policy, set out an obligation for the resident to pay the service charges on demand that had been incurred, but did not include a provision to collect monies on account, or prior to expenditure. In other words, the payment of service charges in advance, while a sensible arrangement, was not an obligation of the resident. It was, in the circumstances, inappropriate that the landlord insisted on payment in advance. It would have been appropriate for the landlord to have considered the resident’s request to consider reducing her payments in advance with that in mind. However, given the resident did not object in principle to payments in advance, the impact on the resident was not significant.
It was not appropriate of the landlord to state in its response at 4 April 2019 that it was not obliged to justify its service charges. It misunderstood the resident’s point, who was not objecting to the principle of paying service charges and complying with her obligations under the lease. The resident was in fact, querying the reasonableness and level of charges, which she has a legal right to do, as set out in Sections 18-30 of the Landlord & Tenant Act 1985. These rights are set out in the statement accompanying her service charge invoices, in line with the landlord’s obligations to do so under the same act. Equally it was not appropriate for the landlord to state that the resident’s liability for service charges arose from the “Landlord and Tenant Act”. Liability arose from the terms of the lease. However, there was no impact on the resident, given the landlord responded to the points the resident raised, if not always satisfactorily. Nevertheless, these are issues for the landlord to take note of.
There is evidence of the landlord effecting at least three adjustments, the water charges, the £180 charged on 15 July 2017, and the initial duplicate charges in relation to the roof works in 2016/7. While the refunds were for small amounts, the resident evidently experienced some frustration at having to pursue, and chase, her queries.
However, the landlord rectified its errors. The period following the completion of the landlord’s complaint process is outside the Ombudsman’s jurisdiction, therefore outside the remit of this report. However, it is noted that, while in its response of 15 November 2019, the landlord had declined to remove the estimated charges, it shortly after exercised its reasonable discretion and credited the resident with the estimated charges raised on 15 July 2019. It made a full refund, so that the account balance of the resident’s account at 4 December 2020 was nil, with the outcome that the landlord had addressed the resident’s complaint regarding the management of her service account in full.
While the landlord had an obligation to place funds in a deposit account, there was no obligation under the lease or in the landlord’s policy that interest would be paid to the resident rather than credited to the service charge account. In the circumstances, the decision not to pay interest (as the resident had requested) was reasonable.

The landlord’s handling of the resident’s request for a credit in relation to charges for scaffolding.

The resident initially put forward a number of objections to the charge for the works, including that the charges for works were excessive, that works should not have exceeded £250 in any event, that the charge was due to faulty accounting, and that the works were carried out in 2016/17.
It was not unreasonable of the landlord to reject those arguments. The works were carried out across two service charge accounting years and were not finalised until the service charge year 2017/18. Whether the works were excessive became irrelevant, as the landlord accepted that all the works, except for the scaffolding, were one job which was capped at £250. The dispute therefore became focussed solely on the £250 capped charge in respect of the scaffolding.
Issues that concern the level of service charge normally fall outside the Ombudsman’s jurisdiction under paragraph 39(g) of the Housing Ombudsman Scheme. The complaint having developed into whether the scaffolding should have come within the first capped charge of £250, the issue became the landlord’s approach to its determining the resident’s liability, rather than the level of the charges. Moreover, in the opinion of the Ombudsman, the matter does not fall outside the Ombudsman’s jurisdiction by virtue of paragraph 39(i) of the Ombudsman’s Scheme because, given the issue revolved around the charge of £250.00, it may not be quicker or more reasonable to seek a remedy though the property tribunal. In the circumstances, the Ombudsman has taken the view it would be proportionate for this service to deal with the matter.
The resident’s view was that the scaffolding formed part of a set of the same works, namely to address the water ingress from the two chimneys, and therefore she should only have been charged a total of £250. The landlord’s response to the complaint was inappropriate. It put forward a number of arguments for charging the resident for scaffolding in addition to the roof works. In its initial response of 19 December 2018, it accepted that the scaffolding was ‘part ‘of the repairs. However, it argued its justification for treating the scaffolding as a separate item was that the scaffolding, which was erected in 2016/7, had been paid for in the following service charge year (2017/8), on 16 August 2017. In its response of 20 December 2019, it argued that the scaffolding was a ‘separate order’ to the roof repairs. In its response to the resident’s complaint of 4 April 2019, it argued that it had been invoiced in the following year. In its letter of 15 November 2019, it said it passed on costs ‘invoice by invoice’ basis, not year by year. While it had accepted that the scaffolding was “part of the repairs”, it did not address the resident’s point that as the scaffolding were all part of the same works, it should come within a single cap of £250, given it was not a discrete part of the repairs. It sought to rely on the fact it had paid for the scaffolding in a later service charge year even though a) the original works capped at £250 spanned two service charge years (2015/2016 and 2016/2017) in any event b) it had employed two different contractors to carry out the works, c) it explored and tried various remedies for addressing the disrepair.
Neither taking into account the service charge year in which the works were carried out, or the date the landlord was invoiced are principles upon which to consider whether the scaffolding was part of the initial cap, and was not substantiated by any policy, or any legal right or obligation.
Moreover, it is not supported by how major works are dealt with under Section 20 of the Landlord and Tenant Act 1985. While the case of Southern V Hodges referred to a situation where a section 20 notice was served, the issue in that case, whether additional works were part of a set of works to be capped at £250, was the same as this instance. The disrepair reported by the resident on 26 January 2016 comprised of water ingress from two chimneys. The steps the landlord took was to address that disrepair. While there is evidence of scaffolding being erected on one occasion, in August 2016, the resident referred to scaffolding having been erected on three occasions. It is reasonable to conclude that scaffolding was part of the works, and was also a predictable element.
In the circumstances, the landlord ought to have considered the resident’s argument that she should not have been charged for the scaffolding as a separate item, under the principles of Southern Land Securities Limited V Hodges [2013],and ought to have considered taking legal advice and then clearly explained its position to the resident.
It is not the role of the Housing Ombudsman to speculate on what potential outcome any legal advice or further consideration would result in, but only to consider the landlord’s response to the resident’s reports, including its approach and what it did or did not consider. In the circumstances, the Ombudsman cannot speculate on what impact on the resident it would have had, if the landlord had considered the matter in the light of the judicial decision referred to, or sought legal advice. However, the resident was caused frustration, and incurred some time and effort in seeking to resolve this issue. While the resident had initially raised other arguments, the landlord declined to consider the matter in the context and terms that the resident suggested, namely whether the scaffolding was part and parcel of the remedial works, so that all the related costs, including the scaffolding, should have been subject to one single cap of £250.

The landlord’s complaint handling

While the landlord sought some additional information for the resident and rectified its omission in not actioning a refund, it was not reasonable that the landlord did not accept escalation of the complaint, particularly given that the complaint policy did not provide a timescale for escalation. The Housing Ombudsman would not normally expect a landlord to keep a complaint open for several months. The resident did not request escalation until six months later, however, while not in any specific terms, the resident explained she had been unwell. The landlord did not consider whether her illness would have justified the delay. Moreover, as set out above, the landlord’s explanation in support of charging for the scaffolding charges separately was not satisfactory, and, in addition, had omitted to effect a refund. It would have been valuable for a senior manager to have reviewed this case, rather than propose the resident apply to the first-tier tribunal, as it had done in its first response. In all of the circumstances, it would have been reasonable for the landlord to have agreed to the escalation of the complaint. In any event, where escalation is refused, the policy stated that the landlord should inform the resident of her next available steps, namely referral to this service and it was therefore inappropriate not to have done so.
It is noted that the landlord’s complaint policy did not include the right for the leaseholder to refer their complaint to a designated person. Section 180 of the Localism Act 2011 states that a complaint against a social landlord is not “duly made” to the Housing Ombudsman under an approved scheme unless it is made in writing to the Ombudsman by a designated person, unless the complaint falls within certain exceptions under Section 180(7B) of that act. Being a leaseholder is not an exception under Section 180(7B). There is no evidence that either omission (the landlord’s failure to refer and state that a leaseholder could refer its complaint to a designated person) had any impact on the resident, nevertheless, again, there are issues the landlord should take note of.

Determination (decision)

In accordance with paragraph 55 of the Scheme there was:.
1. Reasonable redress in relation to the landlord’s handling of the resident’s service charge account.
In accordance with paragraph 54 of the Scheme there was:.
1. Service failure in relation to the landlord’s handling of the resident’s request for a credit in relation to charges for major works.
2. Service failure in relation to the landlord’s complaint handling.

Reasons

The landlord made a number of errors in relation to the collection of service charges and ought to have considered the resident’s obligations under the lease when seeking costs on account of service charges. However, the resident was not complaining about the principle of seeking costs on account, and the landlord resolved the complaint by making the appropriate refunds and adjustments to the resident’s service charge account.
The landlord did not consider the issue of it charging the resident for the scaffolding in addition to the roof works under legal principles. Its approach was also contradictory and illogical. This caused the resident frustration and inconvenience.
The landlord should have used the complaint procedure as an opportunity to consider a different approach to the resident’s points, such as considering seeking legal advice in a complex area of landlord and tenant law. While the impact was not significant in terms of amounts, it should have recognised that its errors caused the resident the inconvenience and frustration of a lengthy correspondence. It was inappropriate not to have had regard for its own policy that it would award compensation “where the customer may have had to make contact on multiple occasions before it acknowledged and took responsibility for the mistake/failure”. Without her vigilance, the errors would not have been identified.

Orders and recommendations

The Ombudsman orders the landlord to pay the resident a total amount of £250 within 28 days, as follows:-
1. £200 in relation to the landlord’s handling of the resident’s request for a credit in relation to charges for scaffolding.
2. £50 in relation to the landlord’s complaint handling.
The landlord is to confirm compliance to the Housing Ombudsman service with the above orders within 28 days of this report.

Recommendations

The landlord to consider providing appropriate staff training in relation to service charges.
The landlord to consider amending its complaint policy a) to provide a timescale for escalation of a complaint and b) to reflect the leaseholder’s right to refer a complaint to a designated person.