When rent arrears are just the tip of the iceberg…

The complaint

Rebecca Marsh, The Property Ombudsman

A landlord complained to a letting agent that they failed to correctly vet the tenants, ensure the upkeep of the property and correctly submit a rental insurance claim.

In November, the letting agent found tenants for the property and conducted referencing through a third-party company, deeming them suitable for the tenancy. The property was leased under an Assured Shorthold Tenancy for an initial six-month term at £1,650 per month, with a £1,903 security deposit protected by a deposit scheme.

The landlord instructed the letting agent to manage the property, agreeing to pay a monthly fee of £245.33, comprising 10% for management and 2.39% for rent insurance. The agent took out a rent insurance policy in their name, allowing the landlord to benefit from rent payments and legal costs in case of tenant arrears, with terms detailed in the policy documents.

The letting agent then served a Section 21 notice in July to end the tenancy and made a claim on the insurance policy.”

Six months later, the tenants started falling into rent arrears. The letting agent then served a Section 21 notice in July to end the tenancy and made a claim on the insurance policy.

The letting agent advised the landlord that the insurance claim had been declined. However, they assisted the landlord to regain possession of the property via court proceedings, of which the agent met the expense.

A property visit took place, revealing the property in poor condition. A claim was made against the tenants’ deposit for rent arrears, which was successful. The landlord received the property back through court proceedings.

The landlord made a formal complaint against the agent, alleging failure to vet tenants, maintain the property, and correctly submit a rental insurance claim. The agent responded to the complaint, rejecting compensation claims but refunding rent insurance fees and deposit deductions, a total of £791.45. Dissatisfied with the agent’s response, the landlord sought an independent review from The Property Ombudsman.

The Ombudsman’s findings

The landlord raised significant concerns about the agent’s failure to properly vet the tenants and communicate crucial information. Specifically, the lead tenant was found not to be occupying the property, and another individual residing there was not listed on the tenancy agreement. There were issues concerning selective licensing conditions set by the local council, which the agent failed to adequately address.

Although the agent instructed a third-party referencing company, the Ombudsman would have expected the agent to carefully consider the findings and follow up any discrepancies.

Furthermore, it was discovered that the tenants were allowed to pay rent in advance to satisfy affordability criteria.  Despite being recorded on the tenancy agreement, the Ombudsman was not satisfied that this was adequately disclosed to the landlord before the tenancy commenced. This failure to communicate crucial information resulted in the agent not meeting their obligations under Paragraph 11g of the TPO Code.

The Ombudsman was not satisfied that this was adequately disclosed to the landlord before the tenancy commenced.”

The landlord said the agent failed to adequately maintain the property, resulting in its poor condition upon return. Concerns included a lack of regular property visits and delayed reporting of maintenance issues, such as a roof hole, which cost approximately £2,800 to repair, and the need for extensive cleaning and replacements totalling £7,166.

The Ombudsman found the agent’s records indicated periodic property checks, timely reporting to the landlord and maintenance issues dealt with.

Mishandled claim

 The landlord said the agent mishandled the rent insurance claim, seeking compensation for the payments he would have received if the claim had been successful. The agent admitted responsibility for the claim’s failure, citing an error they made, leading to the insurer’s decision to decline it. However, the agent argued that they were not liable to the landlord as the policy was between them and the insurer.

The Ombudsman said the policy was inextricably linked to the service the agent provided and had the agent wished to restrict, or place conditions upon their liability they should have clarified the extent of their liability in their terms of business and drawn the landlord’s attention to this so he could make an informed decision whether to proceed. This would have been in accordance with the Consumer Protection from Unfair Trading Regulations 2008.

It was deemed fair and reasonable to compensate the landlord as if the claim had been successful.”

Given their acknowledgment of their error and failure to clarify policy terms, it was deemed fair and reasonable to compensate the landlord as if the claim had been successful.

Conclusion

Based on the outlined reasons, it was concluded that the landlord was entitled to compensation equivalent to what he would have received if the rental insurance claim had been successful. Additionally, compensation of £1,000 was awarded for undue aggravation, distress, and inconvenience caused by the agent’s failures. The proposed decision upheld two of the complaints and concluded the dispute with a compensation award of £10,264.50.

For more information on redress, go to The Property Ombudsman Scheme.