Remedies: Offsetting and the Ombudsman’s approach

Issue

In determining complaints about member landlords the Ombudsman, under the Housing Act 1996 and the Scheme must refer to what is, in the Ombudsman’s opinion, fair in all the circumstances of the case.

The Ombudsman notes that many landlord compensation policies provide that where compensation is to be paid by the landlord to the resident, the sum payable will be set-off against any monies that the landlord deems is owed by the resident. Commonly this is rent arrears but may apply to other sums. In a recent case this policy resulted in an attempt to recover housing benefit overpayment.

One of the risks associated with the blanket implementation of such a policy is that a resident who has been awarded compensation for direct financial loss or out of pocket expenses may not directly receive that sum to settle their financial outlay. The Ombudsman is concerned that landlords may not be appropriately considering the impact such a policy may have on an individual resident or whether the sum to be off-set is in dispute.

Legal Considerations

Set-off is a legal principle that is enshrined in law. In its purest form two parties to litigation may have a claim against each other which may cancel the claim altogether or leave a net sum to be litigated over when the deductions have been agreed.

Tenancy agreements seek to regulate this legal principle by on the one hand restricting a resident’s ability to set-off the rent due from any sums that they deem the landlord owes to them and on the other hand strengthening the landlord’s rights by reinforcing and expanding their ability to set off any sums deemed owed to them by the resident, from any monies they are obligated to pay to the resident.

This contractual imbalance stems from the bargaining position of landlords as property owners and residents who are provided standard terms which they cannot individually negotiate.

The Ombudsman’s powers under Schedule 2 paragraph 7(2) HA 1996 provides that:-

(2) He may in his determination—

(a) order the member of a scheme against whom the complaint was made to pay compensation to the complainant, and

(b) order that the member or the complainant shall not exercise or require the performance of any of the contractual or other obligations or rights existing between them.

This provision gives the Ombudsman absolute discretion to determine not only what compensation should be paid, but how such compensation should be paid. This provision is further enshrined in paragraph 54 (c) and (d) of the Housing Ombudsman Scheme:-

What the Ombudsman can do following investigation

54. The Ombudsman’s determination may uphold or reject the complaint and make orders or recommendations, including that the member:
55. performs or does not perform any of the contractual or other obligations existing between the member and the complainant;
56. exercises or does not exercise any of the rights existing between the member and the complainant;

The Ombudsman’s Approach

The Ombudsman will determine complaints by what is, in the Ombudsman’s opinion, fair in all the circumstances of the case. We aim to provide fair and proportionate remedies to complaints where the Ombudsman has found maladministration (this includes findings of service failure, maladministration and severe maladministration).

Where we have made a finding of service failure, maladministration or severe maladministration, the Ombudsman can order a landlord to implement the remedies we have identified for that particular case.

When investigating complaints, we carefully consider whether and how a resident has been adversely affected by the actions or omissions of the landlord. We then consider what remedies are required to put matters right. We try to work out whether it would be possible to restore them to the position that they would have been in, had there not been a failure in service by the landlord. In many cases this would not be possible, and so we also carefully consider what actions are needed to put matters right – this may be through an apology, an offer of compensation or other actions.

In some case we do order landlords to make payments to residents. Sometimes this payment is to reimburse a resident who, because of the landlord’s fault, has incurred an actual, proven financial loss. We may also decide a landlord should pay compensation in recognition of the distress and inconvenience that a resident has experienced, or for some other adverse effect that cannot otherwise be put right.

Some landlords will wish to offset any payment of compensation against a resident’s rent or service charge arrears. This approach will often be set out in a landlord’s compensation policy. However, it is the Ombudsman’s position that compensation awarded by this Service should be treated separately from any existing financial arrangements between the landlord and resident and should not be offset against arrears. This applies regardless of whether the landlord’s compensation policy allows it to do this and it is particularly the case where:

• the arrears are in dispute
• the arrears are the subject of the complaint
• the landlord is legally obliged to make the payment, such as a statutory Home Loss or Disturbance payment
• it would not be fair to do so – for example where a landlord’s maladministration resulted in the arrears in the first place
• the resident has incurred additional ‘out of pocket’ expenses as a direct result of the landlord’s actions or inactions – for example where a property requires major repairs to make it habitable and the resident incurred out of pocket expenses by having to pay for hotel accommodation as a direct result of a landlord not arranging the works needed or not offering them alternative accommodation whilst works were done.

In order for the Ombudsman to determine what is fair in the circumstances of a case his discretion cannot be fettered by any policy considerations of member landlords, nor by any decisions the Ombudsman has previously made. The overarching consideration will always be the circumstances of the individual case

Published March 2023