Service charge accounts - does the lease override the law re timescale?

Collapse
X
  • Filter
  • Time
  • Show
Clear All
new posts

    Service charge accounts - does the lease override the law re timescale?

    I’m troubled by the late/delayed provision of annual service charge accounts by my managing agents.

    They usually only arrive around 5½ months after the end of the service charge financial year (23rd June).

    Inspecting selected invoices in, say, January for an accounting year that started around 18 months previously is less than satisfactory, especially when queries on what the agents might regard as ‘ancient history’ arise.

    And it's too late to receive a credit for the last year's under-spend in the half-year service charge on-account demand.

    When in, say, July I make a request to see the accounts, they effectively fob me off with s.21 L&TA 1985 (which only requires a ‘written summary of costs’ to be provided on the later of one month after a request or six months after 23rd June).

    But I’ve recently had a closer look at the lease and one of the clauses requires the ‘fair summary of annual costs’ to be provided “as soon as practicable after the end of each accounting period”.

    Given that the accounts are maintained efficiently throughout the year by the managing agents’ centralised finance team [annual spend for 36 flats = c.£55k] and their accountants are nearby, I’d have thought that it would be perfectly practicable for the accounts to be prepared, signed off and delivered some time in July or August.

    What I’m not sure about, though, is whether this provision of the lease actually supersedes/overrides the less onerous one of the statute.

    And, if it does, how could I actually see that it was enforced if the managing agents (and their accountants) decided to simply continue to drag their feet as they have always done?

    Going to the FTT would seem to be a heavy-handed and expensive last-resort option.

    Any guidance would be much appreciated.

    Thank you.



    #2
    If there was anything to the contrary contained within the lease, the lease would take precedence. Otherwise, the landlord must inform leaseholders of expenditure within 18 months of it being incurred therefore the service charge accounts should be issued within 6 months of the year end.

    Comment


      #3
      Hi,

      If you are receiving Service Charge accounts within 6 months of the yearend then best practice is being observed.

      https://www.icaew.com/-/media/corpor...-accounts.ashx

      Comment


        #4
        Paragraph 2.5 is the relevant section of Tech03/11

        Comment


          #5
          The problem with the lease is that it doesn't specify a concrete figure and six months may well be as soon as practicable. I presume the legislation chose six months because they thought that it might be too onerous to specify a shorter time.

          I don't know why, but most small businesses don't submit accounts until almost the 9 month deadline, however, I don't think that is primarily to hide information.

          Because the guidelines call for accruals accounts, some of the information needed to do them accurately may not be in until the next quarterly bills arrive.

          Comment


            #6
            Most service charge accounts are small and straight forward and there is no reason why they could not be completed within one month after the year end. There are advantages of finalising a service charge year as soon as possible rather than having two years open at the same time.

            Comment


              #7
              I believe some agents actually operate online portals allowing scans of invoices to be seen almost on the day that they arrive.

              I guess the reason the law is the way it is is that it is pre-WWW, so providing actual invoices was relatively onerous, and the assumption was that most people would be satisfied by the summary. producing which would be best practice, anyway.

              However, in practice, failing to provide accounts soon after the year end is only going to be useful as something to also be taken into consideration when appointing a manager. Even the criminal sanctions after six months are never enforced.

              Comment


                #8
                I agree that MA’s should post invoices online. The summary of the accounts is better than nothing but only slightly. The accountant’s report is meaningless, it effectively says we check a small sample, the chances are we are not going to spot any errors, we agreed the bank balance at the year end but it could be incorrect for the remaining 364 days.

                Comment


                  #9
                  Originally posted by eagle2 View Post
                  Paragraph 2.5 is the relevant section of Tech03/11
                  Thanks, yes.

                  Looking at the guidance in that paragraph, do you think it would be better not to request a summary of costs "in accordance with s21, LTA 1985" but rather to forget about the Act and specifically request the summary/accounts "in accordance with clause [x(x)] of the lease" so that they can't rely on the longer, statutory allowance of six months?

                  It does sound like the lease is actually effectively requiring them to go beyond the six-month 'best practice' and provide the accounts much sooner - as long as that's 'practicable', which in this more digital day and age, it surely is.

                  Is that a fair reading, do you think?

                  Thanks

                  Comment


                    #10
                    The s21 summary of relevant costs is not worth requesting, so I would definitely ask for the accounts in accordance with the lease and I would ask to inspect the supporting documents. I would agree that "as soon as practicable" should mean earlier than 6 months and it is certainly possible, If the MA wishes to be difficult, he can say that 6 months is "as soon as practicable" and the last thing that you want is to argue the point in front of the FTT.

                    Comment


                      #11
                      Unfortunately, I think that you are going to have to accept service charge accounts being produced within sixth months of the end of the service charge year.
                      Although it should perhaps be possible for the accounts to be produced quicker, I think that it would be very easy for the freeholder/managing agent to convince a court or tribunal that they were complying with the clause in the lease. The fact that six months is allowed for "best practice" suggests that it is considered reasonable for it to take that long to finalise the accounts.

                      Comment


                        #12
                        dipp6666,

                        The relevant paragraph in page18 of the government approved publication " Long Leaseholders" is shown below :

                        The summary should be supplied within one month of the request or within six months of the end of the accounting period covered by the summary,whichever is the later. Where the service charge is payable by the tenants of more than four dwellings, the summary must be certified by a qualified accountant as a fair summary and sufficiently supported by accounts, receipt sand other documents produced to the accountant.

                        https://assets.publishing.service.go...32/leaflet.pdf

                        This means the certified copy of service charge acounts should be available to leaseholders from month 7 onwards.

                        The managing agent is allowed a 6 months period to get the bookeeping record to an independant accountant firm for doing the records inspection and certify the summary accounts.

                        The Managing agent has to comply to the RICS Residential Managent Code ( issue 3 ) : see page 53

                        https://assets.publishing.service.go...32/leaflet.pdf

                        Comment


                          #13
                          Managing agents don't have to comply with the code, although they have to comply with the statute law that underlies the MUST sections.

                          Failing to comply with SHOULD sections can be used to support a request to appoint a manager, but is not illegal.

                          Comment


                            #14
                            Section 7.12 ( pages 52 and 53 ) in the Management Code give your rights to access service charge account information and give references to the L & T Legislation . The Code requires RICS members as the Managing agent to be "transparent" but the same Code applies to any agent in charge of the service charge account.

                            So when you as leaseholder demand the service charge information, you can quote the relevant section of the L&T Act.

                            Comment


                              #15
                              No it doesn't. It simply summarises the rights you have under section 21 onwards of the 1985 Landlord and Tenant Act. The right you have comes from that Act, and if the RICS code differs from the relevant Act (previous versions have referenced the wrong year!) the act takes precedence.

                              It is the same principle as that the Highway Code does not create motoring offences, but simply summaries those in the Road Traffic Acts, etc.

                              Both these documents are designed to indicate good practice that should be an adequate defence against mismanagement or careless driving.

                              Comment

                              Latest Activity

                              Collapse

                              • Filing dormant accounts for RTM
                                zzhallk
                                Hi all. I'm part of a small RTM company and am just filing dormant accounts for the first time (we had an agent doing it on our behalf til recently but have decided to go it alone as they were beyond useless, but that's another story...). I'm confused about how to fill in the form, can anyone help?...
                                09-06-2019, 20:55 PM
                              • Reply to Filing dormant accounts for RTM
                                Sarah B
                                Well I did, but thank you, it seems the wording has changed so that a company can become dormant. That is useful to know, I will have to log in to my own account though as I thought the questions asked when I filed suggested that you can't...
                                17-06-2019, 18:47 PM
                              • Reply to Filing dormant accounts for RTM
                                Sarah B
                                You are correct, I was just trying to keep it simple. Those items can also be applied to service charges if the accounts are dormant - see the ARMA guidance note (it is not totally clear cut I know)...
                                17-06-2019, 18:35 PM
                              • Is luxury vinyl flooring in breach of our lease?
                                Nickyb
                                We have a top floor flat in a purpose built flat block, around 30 years old. We’ve had it 16 years and after a tenant completely ruined our whole flat 2 years ago, we gutted it and put luxury vinyl flooring down (not laminate or hard wood), and with a very expensive underlay. We rent it out on Air...
                                17-06-2019, 14:33 PM
                              • Reply to Is luxury vinyl flooring in breach of our lease?
                                Stef Cooke
                                He won't stop cmpaining, I imagine. Sometimes people aren't suited to livig in flats/apartments. Your well insulated vinyl is fine, in law, by the way. It is considered to be modern linoleum.

                                Go back to the management company and ask them to check their contract information again, point...
                                17-06-2019, 16:56 PM
                              • Freeholders and Sub-tenants
                                cday356
                                Hello all,

                                I would be grateful for some views on the following situation. We are a freeholder, and have a non-resident leaseholder who has been sub-letting his flat for more than a decade. We took over the freehold about 6 years ago. It has since come to our attention that the leaseholder...
                                16-06-2019, 04:23 AM
                              • Reply to Freeholders and Sub-tenants
                                cday356
                                Also worth pointing out that the leaseholder actually travelled down to inspect his flat in late May following our written request for access. We could have arranged for our contractor to come out on that day with the leaseholder present, but he never informed us that he would be there. So this is not...
                                17-06-2019, 15:47 PM
                              • Freeholder applying to the FTT for unpaid service charges
                                Seaes56
                                I am freeholder and leaseholder and need to take the other leaseholder to the FTT for unpaid service charges. With the help of people on this forum it has been established previously that my lease does make provisions for ‘fair and reasonable’ service charges. The leaseholders refuse to pay for...
                                15-06-2019, 05:20 AM
                              • Reply to Freeholder applying to the FTT for unpaid service charges
                                Macromia
                                Most of what you say you have done would probably be looked at favourably by a court/tribunal and, if what you say about the leaseholder's actions is accurate, their actions won't have done hem any favours.

                                You can't be expected to have arranged repair work before you had control of the...
                                17-06-2019, 15:43 PM
                              • Reply to Freeholders and Sub-tenants
                                leaseholder64
                                Giving an extension will wipe the slate clean of previous breaches!
                                17-06-2019, 15:05 PM
                              Working...
                              X