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

  • 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.

    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.



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


        Paragraph 2.5 is the relevant section of Tech03/11


          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.


            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.


              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.


                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.


                  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?



                    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.


                      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.



                        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.


                        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



                          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.


                            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.


                              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.


                              Latest Activity


                              • Freeholders and Sub-tenants
                                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
                                I am not aware of any ruling which says that a covenant to pay rent is excluded from a requirement for an undertenant to observe the head lease covenants.The fact that the covenant to pay rent is often excluded suggests, but does not confirm, that it would be included.

                                Under the law of...
                                17-06-2019, 00:51 AM
                              • Reply to Freeholders and Sub-tenants
                                Hi Lawcruncher,

                                Thank you greatly for your constructive comments, you have given me a lot to think about.

                                In your view, does the sub-letting clause in our lease indeed give us the right to ask the sub-tenant to be liable for observing even the covenants to pay rent and service...
                                16-06-2019, 22:54 PM
                              • Reply to Freeholders and Sub-tenants
                                The wording of any clause allowing inspection cannot be taken literally, It is implicit that the right must be exercised reasonably. I think the point probably comes when the course of action would be regarded as wholly unreasonable and certainly when it amounts to what would be harassment or some other...
                                16-06-2019, 20:24 PM
                              • Freeholders breach of the lease
                                We had a surveyor in last year in April 2018 which said that the outside render was now porous and needed to be repaired as a matter of urgency and should be a priority. At a meeting they voted to wait for a year until people had saved up the money and also they needed to have an asbestos test done....
                                16-06-2019, 09:39 AM
                              • Reply to Freeholders breach of the lease
                                No freeholder can get £20k from all the normal leaseholders. I imagine 10-20% would be in financial crisis for just a £500 excess. I don't think there is any reasonable hope of getting the funds together by next year either, unless leaseholders are put in a position where several have to sell up...
                                16-06-2019, 20:16 PM
                              • Reply to Freeholders and Sub-tenants
                                Concentrating on underletting:

                                The requirement to obtain a deed in the case of long residential leases is comparatively recent. It was always much more prevalent in commercial leases, the requirement usually being to enter into the covenant in the licence to underlet. The reason is because...
                                16-06-2019, 20:03 PM
                              • Sinking fund breach of covennat?
                                The level of the sinking fund has never been agreed by the managing agent or the Directors at any AGM in respect of the accounting years ending December 2016 2017 2018 and 2019 as required by the Deeds of Covenant.
                                THE FIFTH SCHEDULE
                                10. To set aside(which setting aside shall be for...
                                16-06-2019, 19:27 PM
                              • Reply to Sinking fund breach of covennat?
                                Directors should be making such decisions at board meetings, not at AGMs!

                                The clause appears to an enabling one, not a mandating one.

                                Given current interest rates the leaseholders are probably in a better financial position not having a trust fund. I happen to think that enough...
                                16-06-2019, 20:01 PM
                              • Reply to Freeholders breach of the lease
                                I agree with your sentiments. Unfortunately what is legal sometimes is conflict with commonsense and justice.
                                Are you required to have approval before starting work ?
                                Unless you can tick the boxes you may well have problems.
                                16-06-2019, 19:55 PM