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

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  • 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.



  • eagle2
    replied
    Some people seem to be confusing the service charge accounts with the s21 notice for a summary of relevant costs.

    The RICS code of practice is 7.12 states that “service charge accounts should be prepared … within six months of the end of the financial period, or any shorter timescales required by the lease”.

    It also states that a ”leaseholder can request that you provide a summary of relevant costs incurred during the last accounting year … You must comply with the request within one month of the request or within six months after the end of the accounting period, whichever is later”. It goes on to set out the information which should be contained within the summary, which is not normally contained within the service charge accounts.

    Section 7.13 of the code of practice states that “service charge accounts should be subject to an annual examination by an independent accountant unless the costs cannot be recovered”

    As leaseholder64 states the difference between “should” and “must” are significant.

    Tech 03/11 para 3.3.1 states that s21 reports must be made by a registered auditor. So the s21 report may need to be completed by a different accountant to the one who certified the service charge accounts.

    In this case, we are told that the lease states that the accounts should be provided “as soon as practicable” and the leaseholder should request them on that basis. Unfortunately, the term is imprecise and whilst I think that the accounts could be supplied much earlier, I agree that a Tribunal is likely to take the view that six months is a reasonable period.

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  • leaseholder64
    replied
    Also the requirements are on the landlord, not the agent. The agent is only involved because the landlord typically delegates the responsibility to the agent.

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  • leaseholder64
    replied
    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.

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  • Gordon999
    replied
    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.

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  • leaseholder64
    replied
    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.

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  • Gordon999
    replied
    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

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  • Macromia
    replied
    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.

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  • eagle2
    replied
    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.

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  • dlp6666
    replied
    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

    Leave a comment:


  • eagle2
    replied
    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.

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  • leaseholder64
    replied
    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.

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  • eagle2
    replied
    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.

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  • leaseholder64
    replied
    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.

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  • eagle2
    replied
    Paragraph 2.5 is the relevant section of Tech03/11

    Leave a comment:

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