London & Quadrant Housing Trust (L&Q) (202231192)

REPORT

COMPLAINT 202231192

London & Quadrant Housing Trust (L&Q)

19 April 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

1. The complaint is about the landlord’s handling of the increase of the resident’s charges and the amendment of his direct debit.

Background

2. The resident is a shared-owner leaseholder of the landlord. The lease was assigned on 19 March 2018 and the property is a third-floor, 2-bedroom flat. The resident’s lease says that the rent will increase each year by the percentage of the previous September’s Retail Price Index (RPI) + up to 0.5%. The resident paid his rent and service charges by direct debit.
3. The landlord’s annual rent and service change increase letter for the resident is dated 14 February 2022. The letter confirmed new rent and service charge costs totalling £720.04 for 2022-23, increasing from £666.13. The letter stated “If you already pay us by Direct Debit, we’ll change your payment to the new amount automatically from 1 April 2022. If your rent account is in arrears, we may increase your direct debit by an amount greater than your total new rent to reduce your rent arrears. We’ll send you a notification in March / April time to let you know we have done this.” However, it did not update the direct debit in April 2022.
4. On 7 August 2022, the landlord sent the resident notification that it would be increasing the direct debit collection to £805.05 as of 1 October 2022. Its internal records state that the increase was to clear the resident’s arrears over the next 12 months, calculated at current charges + £85.01. The statement provided to the Service indicates that in addition the shortfall in the direct debit, there was unpaid ground rent on £200 added in April 2022 and periodic increases in arrears arising from the timing of payments.
5. On 6 October 2022, the resident phoned the landlord stating he was unhappy that his direct debt had been amended unauthorised and without notification. He stated that he did not receive the letter notifying the rent and service charge increase that was sent in February 2022 and had not received communication that he was underpaying his rent. The landlord logged a formal complaint.
6. On 11 October 2022, the landlord sent the Stage 1 complaint response. It noted that the increase letter of 14 February 2022 advised that if there were arrears on the account the direct debit may be higher that the new charges to reduce the arrears. When it came to light that it had not increased the direct debit to reflect the new costs, it increased the direct debit to £805.05. It accepted that its level of service was not at the high standards it aimed to provide and offered a goodwill gesture of £25. This was paid to the resident’s rent and service charge account.
7. On 31 October 2022, the resident spoke to the landlord stating that he wanted to escalate his complaint. He reiterated that he did not get his rent and service increase letter, and believed he should only be charged the new rent costs from the date he was made aware of them. The landlord advised it would continue to chase for the arrears and offered to set up repayment plan at a more affordable amount. The resident declined.
8. On 2 November 2022, the landlord sent the Stage 2 response, attaching the rent and service charge letter of February 2022. It confirmed that the letter had been posted but it had no control of delivery once it was in the post. The landlord explained that during a further review of direct debits, it had noted that the resident’s direct debit had not been amended therefore was increased in accordance with the increase letter. It noted that it had offered a goodwill gesture for not updating the direct debit when it should have been, and that it was satisfied with this response.
9. The resident stopped his direct debit after the Stage 2 response and now makes monthly manual payments. However, he has not cleared the arrears on his account.

Assessment and findings

10. The landlord, under the lease, has a contractual right to increase the resident’s rent in line with the terms of the lease. The landlord also has the right to vary the service charge for the upcoming financial year based on anticipated costs. Correspondingly, the resident has a responsibility to ensure the full rent and services are being paid. According to the information provided to the Service, the landlord took appropriate steps to notify the resident of his increased rent and service charges and that the monthly direct debit would change accordingly by writing to him in February 2022.
11. The resident did not receive the letter of 14 February 2022 therefore did not realise that the direct debit payment should increase from April 2022. Taking together with the landlord’s failing to increase the direct debit at this time he fell into arrears.
12. The resident has a responsibility to monitor his rent and service charge payments and ensure they are at the correct level to prevent arrears occurring. This is reflected in the landlord’s Income Collection Policy which applies to shared ownership accounts and which states “we expect residents to pay their rent and service charges on time and in full to prevent arrears occurring” and “we will promote individual responsibility for meeting rent and other financial obligations.”  The resident could reasonably be expected to know that the rent and service charge would change every year, even if he had not received the letter notifying the increase. Therefore, he could have enquired with the landlord after April 2022 why his direct debit payments had not changed and whether he was paying the correct amount.
13. However, there is an onus on landlords to administer customer accounts effectively and efficiently so as to maximise income collection and prevent the escalation of arrears. The Income Collection Policy reflects this stating “… we will continue to take a proactive approach in contacting residents in the early stages of the arrears management process in order to try and avoid arrears escalating further.” The policy also states, “we will communicate regularly with residents who fall into rent arrears using any of the following methods – telephone calls, emails, text messages, letters, office interviews and home visits.”
14. In this case, arrears had arisen in the first instance due to the landlord’s error in not changing the direct debit. Subsequently, the landlord did not take early and proactive action to stop the arrears escalating. It did not notice or take action to resolve the shortfall in direct debit payments until 7 August 2022 when confirming it would increase the direct debit payment. By this time 5 incorrect payments had been made. It was unreasonable it took this length of time for the error to be remedied given the importance to all parties of correct payments. This indicates that there are shortcomings in the monitoring and review of resident’s rent and service charge accounts.
15. The way the landlord communicated with the resident was unsympathetic, insensitive to the possible impact of him finding out about unanticipated arrears. The landlord’s policy allowed verbal contact with the resident. Through this it could have explained the situation with the account, explored a payment plan for the arrears and listened to his concerns prior to writing to confirm it would be changing the direct debit; however, it did not take this option. Compounding this, the landlord did not explain why it was changing the direct debit when notifying it was doing so in its letter of 7 August 2022. This letter was a standard letter that simply notified of a change in direct debit, without making clear why the change was required in the first instance. The letter also did not enclose a statement or show any calculations which would further explain the change in payments.
16. The landlord’s Compensation Policy states that the landlord “will award discretionary compensation when our mistake or failure causes a customer distress and inconvenience and/or the need to spend unnecessary time and effort in getting us to put things right.”   The landlord in responding to the resident’s complaint offered him a discretionary goodwill payment of £25 compensation. This was not proportionate to the circumstances of the case given the landlord’s error caused arrears to accrue, it delayed in taking action to prevent the arrears increasing and its communication about the direct debit increase to remedy this was not reasonable.
17. The resident has stopped his direct debit resulting in the continuation of arrears. He complained that the increased rent and service charge should not start from April 2022 but from August 2022, the date he was made aware of them. The charges are a contractual commitment therefore the resident has a responsibility to pay them. This is the case even if the landlord delayed in notifying him of the increased rent and service charge and the arrears that had accrued. Therefore, it was reasonable did not agree to waive the arrears when responding to the resident’s complaint.
18. The resident has advised the Service that the landlord took a lump sum of around £960 from his rent and service charge account which left him with arrears of around £800. The service charge statement indicates that in fact the landlord took one direct debit payment of £805.05 on 3 October 2022 that left arrears of £963.65. This payment was in line with the advice in its letter of 7 August 2022, which at the time it had a reasonable expectation the resident received. Although the resident complained that the payment of £805.05 was unexpected, there is no evidence that he asked the landlord to return the payment or pay the difference between that amount and the direct debit payment he expected to be made.
19. In summary, the landlord made an error in not changing the resident’s Direct Debit in April 2022. It failed to take early and proactive action to stop the arrears escalating as required by its Income Collection Policy. When it contacted the resident about the arrears and changing the direct debit it did so in an unsympathetic way. It did not at first make clear how the arrears had arisen and discuss with the resident how they could be reduced. While the landlord offered compensation, it was not proportionate to the circumstances of the case.

Determination

20. In accordance with paragraph 52 of the Housing Ombudsman Scheme there was service failure by the landlord in its handling of the increase of the resident’s charges and the amendment of their direct debit.

Orders and recommendations

21. The landlord is ordered, within the next 4 weeks, to:
    1. apologise to the resident, in line with the Service’s guidance on apologies.
    2. pay the resident further compensation of £75 in respect of the distress and inconvenience caused by its handling of the increase in his charges and the amendment of the direct debit.
    3. confirm to the resident and the Service what steps it is taking to:
       1. ensure direct debits are adjusted in a timely way, in particular at the time of the annual increase in charges.
       2. ensure any failure to adjust a direct debit is identified and remedied in a timely way.
       3. ensure that residents are provided with a full explanation their direct debit payments need to be increased to correct underpayments.