Case law on service charges/sinking funds which are not in a trust account

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    Case law on service charges/sinking funds which are not in a trust account

    Hi All, I am trying to understand my rights so that I can assert them. I thought service charges/a sinking fund which to me seems like a long term savings account needs to be kept in some sort of separate trust account....I have asked for proof of the account being separate and is it a trust account. the two directors are refusing to set up a trust account and they just closed the company bank account and declared dormant accounts.

    How best to get them to see that is is in all our best interests to have the monies accountable for in a trust account? The lease is silent on this matter.

    #2
    They are held in trust, but the legislation that would require them to be in a separate bank account was never "commenced".

    Mixing trust and non-trust money is never good thing to do, and having separate account which you tell the bank is the service charge money, not the company's is certainly best practice, and what you would expect a professional managing agent to do, but it is not a legal necessity.

    It only makes a real difference if the company goes bankrupt, or is otherwise liquidated, as it will be more difficult to use it to pay off the company's creditors, although, as a dormant company, it probably has no creditors.

    A sinking fund is a pot of money. A long term savings account is one way of achieving that.

    Technically, at the moment, any investment vehicle considered suitable for trusts which don't specifically allow for more risky investments, can be used, atlhough there was legislation, proposed, and possibly implemented, but not commenced, that would have restricted it to certain types of bank account. (Unit trusts were examples of trusts specifically allowing risky investments.)

    Comment


      #3
      If you look at section 7.6 of the RICS Service charge residential management Code, which is available online, and you really should have if you are getting into the details of flat management, you will see it uses the word "should", which means it is best practice, not a legal requirement. (I think they sometimes get things wrong, but this is not one of them.)

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        #4
        Exactly....so there is NO LAW or obligation just a should so basically people are being asked to put their money in the hands of unknown unchecked and non legalised accounts! I find this worrying as open to abuse. Where is the accountability?

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          #5
          Message for leaseholder 64....should is what it is open to interpretation....best practice I agree however me thinks another ragenda..so how to enforce and ensure monies are on trust.

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            #6
            They are in trust. That is the law.

            To tell whether they have been accounted for correctly as being in trust, look at the company balance sheet. If they appear on the main balance sheet, they are not being accounted for properly. They should only be accounted for in the balance sheet you get when you as for summary accounts for the service charge.

            Note that interest on them is taxed under the rules for discretionary trusts, not as corporation tax.

            Comment


              #7
              Originally posted by Milly26 View Post
              Exactly....so there is NO LAW or obligation just a should so basically people are being asked to put their money in the hands of unknown unchecked and non legalised accounts! I find this worrying as open to abuse. Where is the accountability?
              There is a law that says that, if you request a summary of that account, before the end of the next financial year, it must be provided within the later of six months from the end of the financial year to which it relates, or one month of the request, and once you have seen that, you can request to inspect the support documents. The summary must be certified (but not audited) by a qualified accountant, if it relates to more than four flats (or is that to four or more) This law creates criminal offences.

              Unfortunately, the people that can prosecute these offences are the council housing authority, and they don't because it costs them money.

              You can also challenge the reasonableness of the service charge with the FTT. They will insist on seeing those accounts, and failure to provide them will be seen in a bad light.

              A very recent law requires managing agents to belong to redress schemes, and the council will "prosecute" for that, as they get to keep the fines. All the redress schemes insist on a complaints procedure. There are only about three schemes, and if you get thrown out of one, you will not be able to legally trade as a managing agent, as the others would be expected to refuse you.

              Comment


                #8
                Thank you however they wont allow me access to information so how can I check the company balance sheet?

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                  #9
                  I assume you are a member of the company. As such, the company and its directors would be committing a criminal offence if they did not send you a copy of the balance sheet within 9 months of the end of the company's last financial year.

                  They would also have had to submit it Companies House, where it can be found by looking up the company on https://beta.copanieshouse.gov.uk/ Failing to do that will likely result in the company ceasing to exist in just over four months from the date mentioned above. Anyone can inspect that copy. They don't have to be a member of the company.

                  Comment


                    #10
                    Thank you for your help it is appreciated....I will let you know how get on!

                    Comment


                      #11
                      Milly26,

                      You should read up section 6.2 in the RICS Management Code Ed 3 :

                      https://www.fpra.org.uk/wp-content/u...ition_2016.pdf

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                        #12
                        Thank you Gordon....I have read up on RICS code as the agent is RICS registered and ICAEW and they still refuse to put the monies on trust in a separate interest bearing account. I am not sure LVT will handle this.

                        Comment


                          #13
                          LVT won't handle it, as they no longer exist.

                          I can't see FTT doing anything about it except take it into consideration when deciding whether enough of the code has been breached to justify appointing a manager.

                          Although I would think it better, I believe that one regular here who regularly responds on threads about broken RMCs, says he doesn't do this.

                          Comment


                            #14
                            I suggest you forget about the separate bank account, and concentrate on their failure to respond to your section 21 request for accounts. Use their complaints procedure and escalate to their redress scheme.

                            Comment


                              #15
                              I think you can apply to the Magistrates Court for an order on the MA to keep the service charge money in separate bank account. Ask the Court Manager what is the cost of making such application for court order.

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