Management of client account closure

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    Management of client account closure

    I suppose this belongs in this forum but is more general.

    Let's suppose a managing agent for a RTM holds client accounts a) service charge b) reserve fund. They are held in trust but the account manager is the agent.

    Manager's contract comes to an end and is not renewed. Can someone enlighten me as to what the usual procedure would be and if there is any legislation or RICS guidance or anything at all that would say what a trust account actually means.

    In this case the manager
    a) Failed to produce any closing statements or report
    b) Emptied both accounts into his own accounts and closed them

    I would have thought the appropriate procedure is to keep the accounts open until the client is satisfied and ledgers are produced - and only then should they be closed.

    Any pointers to anything useful would be appreciated (and what exactly is the point of holding an account in Trust if this is allowed?).
    This is going to be part of an FTT application because the manager reported to the FTT (the police are involved).

    See page 26 in RICS Management Code : Section 7.6 :

    The "unspent service charge money" belongs to the leaseholders and should be handed over to the next manager or returned to the leaseholders.

    It is theft if the service charge money is transferred to the managers own account.

    Section 7.6 states :

    "You must hold service charge monies, and any interest accruing, by way of statutory trusts in accounts established in accordance with section 42 of the Landlord and Tenant Act 1987. Service charge payments must be kept separate from the landlord and managing agent’s own money and must only be used to meet the expenses for which they have been collected."


      It depends on the terms set out within the management agreement.
      Paragraph 6.7 of the RICS code deals with client account monies on the termination of the contract and paragraph 6.2 explains what the agent is authorised to withdraw from the client bank account.
      The monies do not belong to the leaseholders and would not be repaid to them unless the reserve fund was a voluntary fund held outside the scope of the lease.


        I would have thought the out-going managing agent would still be obligated to produce annual accounts which would tally with unspent client monies in an indirect way


          ARMA has produced an advice note which states that agents are required to ensure that the handover is as smooth as possible. It states that they must deal with handovers in a professional competent and efficient manner. It states that any funds which aren’t needed to manage the block must be passed on. The remaining balance must then be handed over at an agreed date (no later than 3 months after the handover, unless otherwise agreed) along with the statement of accounts. The agent must prepare reconciled accounts which should be passed on no later than 3 months after the handover date, unless otherwise agreed.


            The RICS code paragraph 6,1 states that an agent holds client money in trust and if it fails to account for that money properly, it is open to legal action for breach of that trust and criminal liability could arise.



              ARMA seem to produce guidance that is friendly to their members - 3 months is a hell of a long time for a reserve fund to be held hostage....


                The Arma guide is here :



                  3 months does seem to be extreme, they seem to be taking the worst case scenario of a large complicated block with a financial year end which involves certification by external accountants. If none of those apply, you should have grounds for arguing that all funds should be reconciled and transferred earlier.

                  The message is clear though that all monies which are unlikely to be required should be released as soon as possible, unhelpfully they do not set a date, in order for the new agent to manage without disruption. It is clear that the new agent cannot manage without any monies.

                  The management agreement should be studied carefully in case the agent has slipped in other terms.


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