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Assured rent payments

"Investors in Asia took advantage of an opportunity to receive assured rent for student accommodation, whether or not the rent had been paid. However, the agency failed to meet their commitments, says Katrine Sporle, The Property Ombudsman

Katrine Sporle

Colourful block of flats image

THE COMPLAINT

A case that The Property Ombudsman was asked to review came from a leaseholder concerning non-payment of rent.

The leaseholder had bought a property, to be let as student accommodation, from a developer who was targeting the build to let market. When the leaseholder acquired two apartments, he entered into a management agreement with the lettings agent that set out their obligations to the leaseholder over a five-year period.

In particular, the lettings agency set out in their Terms of Business with the Complainant that they would guarantee the rent payments to the Leaseholder. This was the basis upon which the Leaseholder complaint instructed the agent.

The leaseholder confirmed that he contacted the agent about outstanding assured rent owed to him, but he did not receive a satisfactory response.

MULTIPLE COMPLAINTS

The Property Ombudsman (TPO) has received a large number of complaints from leaseholders regarding this particular lettings agency having defaulted on making the assured rent quarterly payments in 2017 – payments that they were clearly contractually obliged to make.

Katrine Sporle image

Katrine Sporle

Most of the complaints about this lettings agency that have come to TPO have been made by investors from Asia buying directly from the developer to let to students prior to the development being completed.

Throughout 2017, the agent had communicated with a number of leaseholders indicating that they expected the agency to be in a position to pay at least some of the rental monies owed to the leaseholders, but they also went on to say that they were currently unable to make any payments.

The Leaseholder was entitled to the rent owed for both properties which totalled £10,225.

The lettings agency attempted to step away from the commitments they had previously given in the lettings management agreement, when they wrote to the complainant in March 2017 to explain they had been forced to revert to a traditional lettings’ management format. This would mean that they would only be able to distribute real income actually received for each of the units, taking into account all their operating costs.

Neither The Complainant, or indeed any of the other leaseholders whose complaints were considered, did not accept this fundamental change to their agreed arrangements under the management agreement.

The Ombudsman’s review of this case focused only on the agent’s obligations and responsibilities regarding the payment and non-payment of assured rent.

INVESTIGATION

The leaseholder confirmed that he had received the last expected quarterly payment of rent in November 2016. He was then notified of his 2017 payment schedule and the plan was that he would receive payments in March, June, September and December.

Aside from a minimal payment in March, it was apparent that he did not receive rent from and including December 2016 through to the end of 2017.

In accordance with a clause within the agreement, the leaseholder expected the agent to pay him the assured rent of £4,950, less the ground rent of £250, for each property for each year. Payments were to be made quarterly in arrears.

OUTCOME

The agent had failed to meet their obligations under the agreement and the TPO Code of Practice, including Paragraph 1e: the obligation to provide a service in accordance with best practice. Therefore, the Ombudsman supported this complaint.

Having agreed, within their Management Agreement, to make guaranteed rental payments, the agent was committed to paying this sum.

The leaseholder was entitled to receive the rent that was owed to him for both properties for December 2016 and for 2017 (less the ground rent) which totalled £10,225.

There was a small payment made in March 2017 (£425.56) to be deducted. This left a balance of £9,799.34 which was still outstanding.

The letting agency was directed to pay the outstanding rent owed and an additional award was made to the complainant for aggravation, distress and inconvenience. The total award was therefore £9,900.

As a member of The Property Ombudsman the agency was obliged to comply with the award made by the Ombudsman. The agent did not pay the outstanding rent or the compensatory award to the leaseholder, which meant they were then referred to the scheme’s independent Compliance Committee who recommended the firm should be expelled from TPO and registration for redress.

There have been over 100 complaints made to TPO about this agent. Many have been referred to the Compliance Committee as the awards were unpaid in them all.

This lettings agency appears to have ceased trading and has been referred to the National Trading Standards Estate Agency Team (NTSEAT) for investigation.

October 23, 2018

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