Increase Electricity Rates caused by Freeholder unpaid Past Bills

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    #16
    I am sorry but it does not make any sense. If you have been charged and paid £40k a year and the previous freeholder has not paid the electricity bills, there would not be a deficit of £84k relating to electricity in 2020.

    You need a full and proper explanation from the new freeholder and I agree that you need to see the actual bills,

    The 18 month rule should be considered if you are being charged now for invoices dating back to 2016.

    If you can let us have a summary of the balance sheet in the accounts for 2019 and 2020, it would enable us to understand better.

    Comment


      #17
      There should be a separate bank account for holding the service charge contributions collecteded from leaseholders.

      Comment


        #18
        The bank statements and the accounting records should have been passed to the new freeholder. You may ask to inspect them,

        Have the 2020 service charge accounts been completed and have they been reviewed by an external accountant?

        Comment


          #19
          Originally posted by eagle2 View Post
          The bank statements and the accounting records should have been passed to the new freeholder. You may ask to inspect them,
          Is there any statutory right to inspect bank statements? Off hand I can't think of any legislation that allows for that. It would be considered 'best practice' for leaseholders to at least be told what the balance held in any accounts is.



          Originally posted by eagle2 View Post
          Have the 2020 service charge accounts been completed and have they been reviewed by an external accountant?
          In this case I would expect the 2020 accounts to be 'signed off' by any accountant including the full amount being demanded for past electricity as 'correct'. The accountant would have been provided with the invoices that the electricity suppliers provided in the name of the current freeholder and, as these would have been provided recently, they will likely show a date that is well within the 18 month limit.
          This is a perfect example of how the cost of 'review' by an external accountant is (more often than not, in my opinion) an expense that provides absolutely no benefit to the leaseholders.

          If this was to go to a court/tribunal for determination, the freeholder, if advised by a lawyer who is at least semi competent, would almost certainly produce these recent invoices and argue that the costs hadn't been incurred by the freeholder until these were sent (citing OM Properties Ltd v Burr).
          It will likely be up to the leaseholders to 'prove' that they had already paid for the electricity in these invoices and that the money hadn't been used for other reasonable expenditure if it had been collected in advance (service charge account summaries for previous years will be important here).

          Comment


            #20
            The Articles sometimes allow members to inspect accounting records. The s21 report refers to payments and it should follow that a s22 request allows inspection of the bank statements. I accept that leaseholders are often obstructed by reasons for non production of the statements eg GDPR but references to personal information could be redacted,

            If the bills had been charged in previous years but not paid, there would be an accrual at the end of each year for any unpaid sums. There could not be a deficit in 2020 unless the actual bills exceeded the total of the amounts which had been charged within previous years.

            I think that the opposite is true, an external review would ensure that a deficit is recorded correctly.

            I agree that the leaseholders need to inspect the actual bills not least to see when they were issued. I also agree that a Tribunal may interpret the date when expenditure was incurred differently to what appears within the service charge expenditure.

            The leaseholders will only be able to prove what has been charged to them each year by scrutiny of the actual (not estimated) service charge expenditure. It would be up to the freeholder to prove what has been paid and link the statement with the actual service charge accounts.

            Comment


              #21
              Originally posted by eagle2 View Post
              If the bills had been charged in previous years but not paid, there would be an accrual at the end of each year for any unpaid sums. There could not be a deficit in 2020 unless the actual bills exceeded the total of the amounts which had been charged within previous years.
              I disagree, although without having access to the end of year accounts for the block (including years prior to the new freeholder taking over), and the various invoices that supported those accounts, it is impossible to know what has happened.

              If everything that has occurred has been described reasonable accurately by the OP, I would suspect that the accounts for the previous years will show the amounts invoiced for electricity in each of those years, and will show that the leaseholders have been charged an amount in service charges that covers both that cost and the other costs incurred. These accounts are likely to be more or less balanced (although a reserve fund may also have been collected).
              The 2020 accounts will then show the amounts on the invoices that were sent to the new freeholder in their name. The difficulty for the OP will be that they will need to be able to show that the invoices sent to the new freeholder are for the same electricity that was included in the accounts for previous years (which is likely to have been shown as if it had been paid).

              If the account statements from previous years don't show any sums for electricity, or show electricity costs as a debt that has not been paid, the leaseholders probably don't have much chance of arguing the costs and are likely to have to pay them.


              Originally posted by eagle2 View Post
              I think that the opposite is true, an external review would ensure that a deficit is recorded correctly.
              I know that you think this way. I can only assume that this is either because:
              (a) The freeholders/managing agents for any properties you have leasehold flats in, and the accountants that they use, always do a great job, or...
              (b) You always assume that accounts that have been signed off must be OK and never actually check whether you should be paying all of the costs that have been included.

              Pretty much all that most accountants will do is check that the costs tally up, and perhaps that they have been split according to the proportions that the freeholder/managing agents tell them should be used.


              Originally posted by eagle2 View Post
              I agree that the leaseholders need to inspect the actual bills not least to see when they were issued. I also agree that a Tribunal may interpret the date when expenditure was incurred differently to what appears within the service charge expenditure.

              The leaseholders will only be able to prove what has been charged to them each year by scrutiny of the actual (not estimated) service charge expenditure. It would be up to the freeholder to prove what has been paid and link the statement with the actual service charge accounts.
              The difficulty here will be that the freeholder has changed.

              If the leaseholders cannot show that the electricity charges for previous years were sent to the freeholder/managing agent at that time, they might find it very difficult to show that they have already paid for any electricity that these invoices refer to.

              Comment


                #22
                Originally posted by Macromia View Post
                I disagree, although without having access to the end of year accounts for the block (including years prior to the new freeholder taking over), and the various invoices that supported those accounts, it is impossible to know what has happened.

                If everything that has occurred has been described reasonable accurately by the OP, I would suspect that the accounts for the previous years will show the amounts invoiced for electricity in each of those years, and will show that the leaseholders have been charged an amount in service charges that covers both that cost and the other costs incurred. These accounts are likely to be more or less balanced (although a reserve fund may also have been collected).
                The 2020 accounts will then show the amounts on the invoices that were sent to the new freeholder in their name. The difficulty for the OP will be that they will need to be able to show that the invoices sent to the new freeholder are for the same electricity that was included in the accounts for previous years (which is likely to have been shown as if it had been paid).

                If the account statements from previous years don't show any sums for electricity, or show electricity costs as a debt that has not been paid, the leaseholders probably don't have much chance of arguing the costs and are likely to have to pay them.

                I think that actually we are in agreement, it is impossible to know what has happened. A better understanding is required and that will come from scrutiny of the actual service charge accounts and inspection of the documents. If the leaseholders have been charged £40k each year and then an additional £84k in 2020, that amounts to enormous electricity bills. There may be some confusion between estimated and actual charges, we do not know. We have not been supplied with the balance sheet information which would have enabled us to understand better.

                Comment


                  #23
                  Originally posted by Macromia View Post

                  I know that you think this way. I can only assume that this is either because:
                  (a) The freeholders/managing agents for any properties you have leasehold flats in, and the accountants that they use, always do a great job, or...
                  (b) You always assume that accounts that have been signed off must be OK and never actually check whether you should be paying all of the costs that have been included.

                  Pretty much all that most accountants will do is check that the costs tally up, and perhaps that they have been split according to the proportions that the freeholder/managing agents tell them should be used.
                  No, I think that an external review is important, I cannot imagine what the accounts would look like if there was none at all. I agree however that there is room for improvement.

                  The accountant is unable to consider the reasonableness of the charges, so leaseholders should still inspect the documents and understand the charges.

                  There is a general misunderstanding over what accountants do. They do find errors and they will present them to the freeholder and say that the errors can be corrected or they will be included within the accountants' report. Not surprisingly, freeholders choose to correct the errors and the leaseholders are then unaware of them.

                  In this particular case, there is a deficit of £100k in 2020 and I have more confidence that is correct due to the external review than I would have if the freeholder had made the statement with no external review.

                  Comment


                    #24
                    Originally posted by Macromia View Post

                    The difficulty here will be that the freeholder has changed.

                    If the leaseholders cannot show that the electricity charges for previous years were sent to the freeholder/managing agent at that time, they might find it very difficult to show that they have already paid for any electricity that these invoices refer to.
                    The leaseholders should refer to the actual expenditure from 2016 to 2020 inclusive and what they have been charged for electricity.. At present, we are told that amounts to £40k x 4 plus £84k = £244k.

                    It is then up to the freeholders to produce invoices totalling that amount to prove that the charges are reasonable,

                    Comment


                      #25
                      Originally posted by eagle2 View Post
                      No, I think that an external review is important, I cannot imagine what the accounts would look like if there was none at all.
                      The accounts that I receive would look much the same if there was no 'review'.
                      The accountant's review really is just an additional expense that provides absolutely nothing of value. I'm completely serious when I've said before that it would quite literally take me less than an hour to produce better quality accounts after receiving copies of all invoices (and that includes checking whether any of the invoices are for things that aren't payable for any reason.

                      Originally posted by eagle2 View Post
                      The accountant is unable to consider the reasonableness of the charges, so leaseholders should still inspect the documents and understand the charges.
                      So, what benefit does the accountant provide to relatively small blocks then?

                      Originally posted by eagle2 View Post
                      There is a general misunderstanding over what accountants do. They do find errors and they will present them to the freeholder and say that the errors can be corrected or they will be included within the accountants' report. Not surprisingly, freeholders choose to correct the errors and the leaseholders are then unaware of them.
                      How many errors do you think that it is reasonable for a managing agent to make in accounts that average 20-30 invoices being paid out (which usually includes monthly invoices for cleaning and quarterly invoices for both electricity and the managing agents own fees)?

                      Originally posted by eagle2 View Post
                      In this particular case, there is a deficit of £100k in 2020 and I have more confidence that is correct due to the external review than I would have if the freeholder had made the statement with no external review.
                      I would have no confidence that it was correct either way.
                      Also, in this case, the important consideration isn't whether invoices are available that properly account for the sums - the issue is whether or not the leaseholders should have been previously notified of these sums.


                      Originally posted by eagle2 View Post
                      The leaseholders should refer to the actual expenditure from 2016 to 2020 inclusive and what they have been charged for electricity.. At present, we are told that amounts to £40k x 4 plus £84k = £244k.

                      It is then up to the freeholders to produce invoices totalling that amount to prove that the charges are reasonable,
                      Yes, the leaseholders need to confirm what has actually been charged for electricity - but more importantly they need to know when the various amounts were invoiced to whoever was the freeholder at the time.

                      The freeholder will need to produce invoices that justify the total amount, but the issue for the leaseholders is still when the charges were originally invoiced.
                      We have been told that the new managing agents requested new invoices because the original invoices were in the name of the previous managing agent and not the freeholder - it is the dates on the original invoices that are likely to be important in deciding whether or not charges from previous years can still be passed on to the leaseholders.

                      Comment


                        #26
                        It will take an accountant approximately half a day just to complete the checklist contained in Tech 03/11 regardless of the size of the building,

                        Leaseholders do not see the accounts before they are presented to the accountant for examination and it is a pity that the accountant's report does not contain details of adjustments which the accountant has required to be made to the accounts.

                        Managing agents make many mistakes eg duplicating or omitting invoices, allocating invoices to the wrong property, recording the incorrect amount from the invoice. Some have a good internal system which will identify errors, others do not and some errors remain when the accountant inspects the accounts,.Large errors should be detected by the accountant's review, You mention electricity bills which are the cause of many errors because they are not the easiest documents to read and identify the new charges,

                        In this particular case, I shall reserve further comment until we receive additional information, there remain many unanswered questions.

                        Comment


                          #27
                          Originally posted by eagle2 View Post
                          It will take an accountant approximately half a day just to complete the checklist contained in Tech 03/11 regardless of the size of the building,
                          Perhaps, although for a small block with few invoices a competent accountant should be able to complete that checklist in no more than a couple of hours.
                          Regardless, whether it is a single hour, or an entire day, it's still money leaseholders are paying for something that is almost always of absolutely no value to them.

                          In this case, whether or not an accountant 'signed off' the accounts is irrelevant because there are still questions about the accounts that are not answered.

                          Comment


                            #28
                            There is a fundamental misunderstanding regarding what the accountant is required to do. Subject to the contractual terms of the lease, he is required to follow a work programme of 17 items which are listed in Appendix F of Tech 03/11.

                            Expenditure is only part of the work programme and it consists of selecting either expense categories accounting for 10% or more of the total expenditure or the 5 highest expense categories. Variances with the previous year and with the budget are also to be considered. Importantly, it states that errors should be brought to the attention of the landlord or agent (ie not the leaseholders) so that adjustments can be made.

                            It is also important to note that an audit is not required, so taking cleaning as an example, it will not be selected at all unless it is one of the highest expense categories. If it is selected, the accountant willl only consider whether or not there are invoices for the correct amounts for the correct building. The accountant has no way of knowing if the cleaning was actually carried out and he is not required to check if another cleaner could carry out the same service at a lower cost or if the cleaner is connected to the landlord or the agent.

                            So I recommend that leaseholders inspect documents as a matter of routine.

                            In this particular case, electricity is likely to be one of the higher expense categories especially in 2020 so the accountant should have inspected the invoices and any large errors should have been corrected, so I have more confidence that the charges within the accounts are correct. I still recommend that the leaseholders inspect the documents and consider the 18 month rule.

                            Comment


                              #29
                              Originally posted by eagle2 View Post
                              There is a fundamental misunderstanding regarding what the accountant is required to do. Subject to the contractual terms of the lease, he is required to follow a work programme of 17 items which are listed in Appendix F of Tech 03/11.
                              No, there is absolutely no "misunderstanding regarding what the accountant is required to do", not for me anyway.

                              YOU do seem to be fundamentally misunderstanding what I am saying though (and that seems, at least in part, to be because you don't want to even consider the possibility that accountant certification is completely unnecessary for many, if not all, smaller blocks).

                              That "work program of 17 items" is completely unnecessary and does virtually nothing to provide assurance that service charges that leaseholders are being required to pay are correct. After getting access to an annual statement of account and the corresponding invoices, any leaseholder who is reasonable competent in maths and has taken the time to read and understand their lease really can expect to be able to very easily do a far more efficient job in (at most) a couple of hours.

                              If you have leasehold properties is small blocks, and the managing agents (or freeholder/ management company) who manages the property can't manage to provide reasonable accurate accounts without an accountant looking them over, I hate to imagine what the quality of the rest of what they do is like.

                              Tech 03/11 was, in my opinion, never written to provide anything worthwhile for leaseholders - it was written with the intention of providing an additional income stream for accountants. It is a pointless 'tick box' exercise to make it appear like accounts are being properly checked by an independent accountant, when the reality is that any leaseholder who wants to know that they are being charged correctly needs to do exactly the same checks themselves regardless of whether or not an independent accountant has already certified the accounts.

                              Comment


                                #30
                                I suspect that most accountants would disagree that their reports provide an additional income stream for them and would prefer not to undertake the service because there is little advantage to them, the net income after their costs is relatively small and the risk of criticism and legal action outweighs any benefit.

                                I am not defending accountants, I think that the standard of their service sometimes falls below an acceptable level and then they deserve to be criticised.

                                Comment

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