Who determines what a Leaseholder has to pay?

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    Who determines what a Leaseholder has to pay?

    Hi all

    I like many on here am in dispute with the Managing Agent at my flat. My Managing Agent is RICS registered.
    My flat is in a reasonably large development of 250 units.

    I believe there should be transparency in service charges, I hope my Lease which was written in 1990’s offers the same.

    I remember reading about a court case where the Certificate was to be signed by the Accountant, instead the Managing Agent signed it & the Certificate was deemed invalid. We are meant to receive Certificates, but don't.

    My Lease stipulates the following:
    THE FOURTH SCHEDULE – PART I
    THE SERVICE CHARGES
    1. In this schedule the following expressions have the following meanings respectively:
    1.1 “Total Expenditure” means all costs and expenses whatsoever incurred by the company in any Accounting Period min carrying out its obligations under the clause 5 of this Lease including (without prejudice to the generality of the foregoing):
    1.1.1 The cost of employing managing agents (if employed)
    1.1.2 The cost of any accountant or surveyor employed to determine the Total Expenditure and the amount payable by the Lessee hereunder.

    Does my Lease make a sufficient definitive distinction between Managing Agent & Surveyor, so that the Managing Agent can’t successfully argue he is the Surveyor?
    Our Managing Agent has a fictional accountant, his secretary, who is not listed at any of the governing bodies, she signs off the Accounts.

    Who determines the amount demanded from a Tenant?

    I look forward to your considered thoughts.


    #2
    There should be other relevant clauses in the lease eg it may say that the freeholder or RMC calculates the service charges, there may be a budget to be prepared by the freeholder or RMC, it should explain how the costs are allocated to each property.and how surpluses and deficits are to be dealt with.

    The clause you refer to only states that the cost of using an accountant or surveyor to determine the actual expenditure is allowable service charge expenditure, it does not say that an accountant or a surveyor should be used.

    The RICS management code 7.13 states that an independent accountant should be used unless the cost cannot be recovered. The accountant should be a member of a recognised governing body and an employee of the managing agent would not be regarded as independent.

    Comment


      #3
      I agree with eagle2, nothing in the part of the lease you have posted means that a managing agent can't decide what expenditure is necessary.

      They do need to make sure that all costs are for things that the lease allows them to include in the service charges (costs for anything else should be removed if challenged).

      If you have been sent annual statements of account, it is quite possible that you will still be liable for the costs even if all requirements in the lease haven't been fully complied with, as the freeholder might still be able to correct errors at a later date. This will depend on exactly what the lease requires though.

      Comment


        #4
        If you insist on an independent accountant certificate it will add at least £1000 to your bills and not sure you will achieve much. They will only inspect the bills provided by the agent.

        Comment


          #5
          The argument for is that it is better to have an independent review than allow the freeholder and managing agent to do as they please.

          You should inspect the supporting documents anyway in order to obtain a better understanding of the costs and if you disagree with the charges, you should dispute them and if you are unable to agree, you can apply to the FTT, who will determine the amount which you need to pay.

          Comment


            #6
            RICS members who manage a block of flats are required to follow the RICS "Residential Management Code" , which you can buy from RICS Bookshop Online for around £25.

            Leaseholders in your estate ( of 250 flats) are each entitle to receive the audited annual service charge accounts, issued by a chartered accountant, which should be made available after 6 months from end of service charge year .

            After you received the audited accounts, you have the right within 2 months to make an appointment to view the bills, receipts and bank statements etc at the managing agents office.

            Comment


              #7
              Annual service charge accounts are never audited, there is only ever an external review and a limited report by an independent accountant, who does not need to be chartered,

              Accounts should be made available within 6 months of the end of the service charge year.

              Strictly a s21 request should be made followed by a s22 request in order to inspect documents but most management companies allow inspection without the formalities.

              The RICS residential management code is available online and it is only if you require a printed version that you need apply to RICS.

              Comment


                #8
                Originally posted by eagle2 View Post
                The argument for is that it is better to have an independent review than allow the freeholder and managing agent to do as they please.
                Usually I would argue against this because the work that independent accountants are required to do when checking service charge accounts actually gives very little value for most blocks (none at all if the leaseholders are willing to check invoices themselves), and is just an additional expense that leaseholders have to pay.
                However, if there are 250 flats involved, the accounts may well be more complicated than most leaseholders will want to try to understand, and each leaseholders share of the cost might be relatively small.


                Originally posted by eagle2 View Post
                You should inspect the supporting documents anyway in order to obtain a better understanding of the costs and if you disagree with the charges, you should dispute them and if you are unable to agree, you can apply to the FTT, who will determine the amount which you need to pay.
                This I definitely agree with.
                You should always ask the managing agents to let you inspect invoices (after first making sure that you know what your lease allows to be charged to the service charge account, and what you are required to contribute towards), and you should ask the managing agents to explain any costs that you can't immediately identify as reasonable.

                Comment


                  #9
                  Macromia,

                  The reporting accountant is required to carry out a minimum of 17 procedures when reviewing the accounts as set out in Appendix F of Tech 03/11. He/she is required to concentrate on the higher value items of income, expenditure and balance sheet headings so the smaller value items escape the review, The balance sheet is prepared on one day of the year, therefore the other 364 days escape the review. So there are limitations which should be understood by leaseholders.

                  I agree that the expense is more cost effective the more leaseholders within the block and also if leaseholders checked the accounts themselves, it would avoid the need for an independent review.

                  Comment


                    #10
                    Originally posted by eagle2 View Post
                    Macromia,

                    The reporting accountant is required to carry out a minimum of 17 procedures when reviewing the accounts as set out in Appendix F of Tech 03/11. He/she is required to concentrate on the higher value items of income, expenditure and balance sheet headings so the smaller value items escape the review, The balance sheet is prepared on one day of the year, therefore the other 364 days escape the review. So there are limitations which should be understood by leaseholders.
                    It really doesn't matter how many procedures the accountant is 'required' to carry out when the resulting 'certified' accounts can still end up including sums that are not payable according to the terms of the lease and other inaccuracies.

                    I DO understand the limitations, and would say that it is rare for reviews by accountants to add any real value whatsoever (they are just an additional expense that leaseholders end up having to pay, and any leaseholder who wants to be sure that they are not being overcharged still needs to go through the accounts themselves).
                    Tech 03/11 was written largely to benefit accountants rather than for the benefit of leaseholders.

                    Comment

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