Notting Hill Genesis (NHG) (202126775)

REPORT

COMPLAINT 202126775

Notting Hill Genesis (NHG)

10 October 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 landlord’s handling of the resident’s queries relating to third-party service charge costs.

Background

2. The resident is a shared owner of a flat in a residential building set within a block of several flats. A superior landlord is the freeholder of this block. The resident holds a lease with the landlord, a housing association, who is not the superior landlord. Throughout this report, the resident’s housing association will be referred to as ‘the landlord’.
3. The landlord provides or manages the common services of the block or estate, such as cleaning, communal maintenance, and gardening or they are provided on the landlord’s behalf by a managing agent (the ‘agent’). The agent acts on behalf of the superior landlord. The resident pays for these services through a variable service charge administered by the landlord. Part of the service charge costs relates to ‘third-party service charges’.
4. On 7 February and 8 April 2021 the resident queried the landlord as to why the third-party service charge was never itemised and why it was always the largest cost single line item for the block. In addition, he questioned that if the landlord was unable to break down the charge into something meaningful then residents would not know if what they were paying was fair. He also questioned the auditing process and was fearful that the landlord was either unable or unwilling to account for the third-party service charges. He wanted the landlord to provide the data on how the third-party service charges were calculated.
5. On 16 April 2021 the resident raised a formal complaint with the landlord. He raised a series of questions relating to the third-party service charges. In summary, he wanted an explanation for the over and under-estimation of the service charge accounts as well as an itemisation of the charges.
6. On 29 April 2021 the landlord responded to his complaint at stage 1 of its complaints process. In summary, the response said:
   1. The service charges for the block were prepared by the managing agent who would then send the invoices to the landlord. The landlord would pay the managing agent and pass these costs onto the leaseholders.
   2. The service charges for the block were variable and the estimates were based on the previous year’s budget. At the end of the financial year the actual account is prepared, this is where the estimated charges are compared with the actual charges which may result in a deficit or surplus.
   3. It had requested the service charge breakdown from the managing agent.
   4. It had spent less than its estimates for the service charge year 2019/2020, which was why it had refunded its surplus to leaseholders.
   5. The third-party cost was what the managing agent charged for the maintenance of the estate (the landlord provided a summary breakdown of the costs).
   6. The service charge accounts for 2019/2020 may not have been fully itemised and it would feedback on these comments to its managing agent. It further stated that the estate accounts were now processed individually for more transparency.
7. In the resident’s escalation request he queried why the estimated cost of third-party service charges was over £12,000 compared to the actual cost and asked whether discrepancies like this were investigated. He also asked why the repairs were not included in the third-party service charge. He said that the landlord should actively manage its relationship with the agent and a breakdown of costs should be provided to residents. As a resolution he wanted the landlord to provide a simple, clear, and accurate set of service charges along with a ‘rigorous’ audit of the service charge accounts.
8. The landlord issued its final response on 2 August 2021. In summary, it said:
   1. That after reviewing the breakdown of the third-party charges it did not total the amount provided to him. It apologised and said that it would seek further clarity on the correct breakdown.
   2. It was seeking clarity from the managing agent on the estimated costs for the current 21/22 year as to how they arrived at the estimated figure and a breakdown of costs would be provided.
   3. That the estimated amount was for budgeting purposes only and that once actual costs were realised at year-end any surplus would be credited back.
   4. That costs related to repairs fall under the managing agent’s responsibility and that it would follow this up with them and would feedback to leaseholders.
   5. It apologised that the resident was still awaiting answers to some of his outstanding queries and said that it would aim to provide him with the information requested by 1 September 2021.
   6. It apologised for the miscommunication and offered £75 compensation for the delays, distress, and inconvenience caused.
9. In the resident’s complaint to the Ombudsman, he said that the key issue of his complaint centred around the landlord’s handling of his queries relating to third-party service charges.  He was unhappy with the lack of clarity regarding the third-party charges and was unhappy that the charges were not itemised, as requested. As a resolution he wanted clarity around the charges and to understand what he was paying for.

Assessment and findings

Scope of investigation

10. The Housing Ombudsman will not investigate complaints about the level of a service charge. Paragraph 42 (e) of the Housing Ombudsman Scheme says: ‘The Ombudsman will not investigate complaints which, in the Ombudsman’s opinion, concern the level of rent or service charge or the amount of the rent or service charge increase.’
11. However, the Ombudsman will consider complaints in the context of a member landlord’s management of service charge accounts and handling of enquiries relating to service charges. Concerns about the level of service charges may be more appropriately dealt with by the First Tier Tribunal for arbitration of the reasonableness or level of service charges.
12. Therefore, this investigation is not about the level of the service charge requested by the landlord. It is about whether the landlord dealt with the resident’s concerns and whether it handled his queries about third-party charges appropriately.

The landlord’s handling of the resident’s queries relating to third-party service charge costs.

13. When investigating a complaint, the Ombudsman applies its Dispute Resolution Principles. This is 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 only three principles driving effective dispute resolution:

a.         Be fair – treat people fairly and follow fair processes; 

b.         Put things right, and; 

c.         Learn from outcomes. 

14. The Ombudsman must first consider whether a failing on the part of the landlord occurred, and if so, whether this led to any adverse effect or detriment to the resident. If it is found that a failing did lead to an adverse effect, the investigation will then consider whether the landlord has taken enough action to ‘put things right’ and ‘learn from outcomes’.
15. Under the terms of the lease, the landlord is obliged to provide services for which leaseholders are obliged to pay by way of a variable service charge. The lease requires the resident to pay service charges in respect of services provided by the landlord and for services provided by the agent on behalf of the freeholder.
16. Section 23 of The Landlord Tenant Act 1985 says that if a request is made for a summary of costs incurred by or on behalf of a superior landlord, the landlord should inform the resident of the name and address of the superior landlord. The resident requested an itemised breakdown of third-party service charges. In this situation, the Ombudsman would expect the landlord to take the following steps:
    1. write to the agent/freeholder and request an itemised breakdown of the third-party service charges:
    2. request invoices where appropriate from the agent/freeholder:
    3. if necessary, chase the agent/freeholder for the information requested:
    4. the landlord should also provide the resident with the agent/freeholder contact details.
17. On 7 February 2021 the resident contacted the landlord about the third-party service charge. He questioned why this was never itemised and why it was the single biggest cost line. The landlord failed to respond to his queries which led to the resident chasing the landlord for a response 2 months later on 8 April 2021. The landlord’s failure to respond to the initial query would have caused frustration and inconvenience to the resident.
18. While the landlord provided an overall breakdown of the third-party service charges in its stage 1 response, thefigures provided were incorrect and did not add up to the actual costs in the service charge statement. This would have caused confusion to the resident. Further, it led to more questions being asked about the third-party service charge accounts.
19. The landlord’s final response apologised for this error and informed the resident that it would seek clarity on the correct breakdown and update him accordingly. While it was appropriate for the landlord to acknowledge and apologise for this error, there was no evidence that the landlord provided him with the correct figures, as it agreed it would.
20. Further, the landlord confirmed in its stage 1 response that the service charge accounts had not been fully itemised and that it would feed back his comments to the agent. Yet, the Ombudsman has seen no evidence of any dialogue between the landlord and the agent on this matter. Given the resident’s ongoing concerns, the landlord should have written to the managing agent about this and requested an itemised breakdown of third-party service charges and kept the resident informed throughout. This was a failure on the part of the landlord that would have caused delays in getting the matter resolved.
21. Additionally, the resident states he has not been provided with an itemised breakdown of third-party service charges, to date. This has inevitably impacted the resident’s confidence in the accuracy of service charges and likely affected the landlord-tenant relationship.
22. In response to the resident’s escalation request the landlord committed to providing further clarity on the correct breakdown of the third-party service charges, how the managing agent arrived at the estimated figure for the year 21/22 (along with a breakdown of costs), and an explanation as to why the repair costs were not included in the third-party service charges. However, it is unclear if the landlord kept to these commitments. In view of this, the landlord should answer these points if it has not already done so, and an order is made below for remedy.
23. The landlord has recently informed this Service that it faced challenges in confirming whether the necessary information was communicated to the resident following its final response. In order to try and ‘put things right’ it has put in place a record-keeping system to ensure correspondence is saved centrally and increased its offer of compensation to £150.  While it was appropriate for the landlord to acknowledge this failing and increase its offer of compensation, there is still no evidence that the landlord has provided the resident with an accurate breakdown of third-party costs for the year 2019/2020.
24. Overall, the landlord’s handling of the resident’s queries relating to third-party service charges costs was unsatisfactory. There was no evidence that the landlord engaged with the agent/freeholder on this matter, nor adequately assisted the resident with his queries. Further, it failed to provide him with the freeholder’s details, despite several opportunities, so he was unable to pursue this matter further. Moreover, the landlord is unable to evidence that it kept to the commitments it made in both its stage 1 and 2 responses. Given that this is an ongoing situation and there was no evidence that the landlord had actively sought to try to resolve the issue or engage with the freeholder, this amounts to service failure and orders are made below for remedy.
25. While it was appropriate for the landlord to offer compensation to try and ‘put things right’ for the resident, the Ombudsman considers that the landlord’s offer of redress does not adequately reflect the level of detriment caused to the resident for the failures identified in this report. Given the length of time the resident has waited for a response to the landlord’s commitments made in its formal responses its offer of £150 was insufficient. The Ombudsman’s remedies guidance suggests that compensation between £100 – £600 should be considered where the offer of redress was not proportionate to the failings identified and therefore an order for compensation is made below.

Determination

26. In accordance with paragraph 52 of the Housing Ombudsman Scheme, there was service failure in the landlord’s handling of the resident’s queries relating to third-party service charge costs.

Orders

27. The landlord must, within the next four weeks:
    1. Provide a written apology to the resident for the failures identified in this report.
    2. Write to the managing agent/freeholder and request an explanation for the estimated third-party costs for the year 21/22.
    3. Write to the managing agent/freeholder and request an explanation as to why the repair costs were/are not included in the third-party service charges.
    4. Write to the managing agent/freeholder and request a fully itemised breakdown of the third-party service charges for 2019/20 to date. The landlord should update the resident following the managing agents/freeholder’s responses to these queries.
    5. The landlord must also provide a copy of its letter to the Ombudsman. If after 4 weeks a response is not forthcoming or the resident is unhappy with the response, the landlord must chase the managing agent/freeholder for the information requested and assist the resident in raising his concerns directly with the freeholder/managing agent. The landlord must provide evidence that it has taken these steps.
    6. Pay the resident £250 compensation, which is broken down into:
       1. £100 further compensation for distress and inconvenience caused by the landlord’s handling of the resident’s queries relating to third-party service charge costs.
       2. £150 compensation recently offered, which must be paid to the resident if has not already done so.

Recommendation

28. It is recommended that the landlord consider whether it can implement audits of service charge accounts involving a third-party agent. If it decides not to do so, it should explain its reasons to the resident.