FAQ Service Charges And Bank Accounts

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    FAQ Service Charges And Bank Accounts

    This is written with one off freeholders and residents companies, without an agent, in mind. Freeholders with multiple blocks or agents should know already or go back to selling cars or estate agency. "Banks" herein includes all banking institutions.

    1 The Law

    All service charge money* (inc insurance rent and reserve or sinking funds etc) has to be held in trust in
    - a banking institution in England and Wales
    - be capable of earning interest
    (subject of course to how much you have)

    under section 42 Landlord and Tenant Act 1987 the subsequent Statutory Instruments and the Trustees Investment Act 1961
    * Exceptions are where there is specific trust or a maintenance trustee

    n.b. leases can make specific provisos and if they do, specific advice must taken as to whether the contract, the lease, or the law, takes precedence.


    2 What Type Of Account?

    The account holding service charges must be recognised as holding monies on trust. This ring fences it from the landlords funds and affairs.
    Many banks glaze over at that request so a letter as follows “This account holds service charge monies from the leaseholders for “our” block. Would you please confirm in writing that you recognise that these monies are held in trust by “us” under section 42 Landlord and Tenant Act 1987”


    3 You must keep company money separate.

    This ring fences SC money from company money and should be separate
    • Unless you intend to credit any company income to the service charge fund, e.g. notice fees are put in the kitty
    ( why you stuff a cat with money I have yet to understand –they generally prefer Whiskas)
    • Consider if it is worth collecting those funds
    • The formal advice is that this must be a separate account
    • The informal advice is that if this is only a few £ here and there keeping it in one account might pass muster as long as you keep track
    You might use a spreadsheet and reconcile to the bank statement on a weekly or monthly basis.

    4 Reserve Funds- Do We Need a Separate Account?

    The strict answer is no unless
    • Your lease requires one or collects it separate to service charge
    • If the amount is large, then how do you justify only earning a lower rate of interest? You have a duty to invest as above(1)

    5 To Note

    Don’t forget – especially with older leases and enfranchised blocks and right to manage, the leases rarely allow all expenses, especially company ones like accounting company secretarial and other fees, to be recovered and therefore the company will have to have separate accounts and income to pay these.

    Depending on the bank, it may mean a commercial account or a community one, or both where the company transactions are significant and you need a company account, and the service charge held in a community account.

    Some offer linked accounts so that the company has the current account and the deposit account is the service charge account held on trust.

    The point is to be clear on what you need before meeting the bank, as on-line or over the phone. its unlikely that you will succeed as they don't have the above as a box to tick

    6 Dormant Companies

    Unless the company genuinely has a few token transactions such as a filing fee and the cost of preparing a dormant account, it is unlikely to be able to justify that exemption.
    Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

    #2
    Thanks LHA.
    I won't recommend a certain bank for SC account.... I'm still far from having our account resolved!

    Comment


      #3
      You are not alone it seems random as your bank have not had a problem in other cases. As the penalty has not been commenced, its the exposure to self managers if it goes wrong that's the concern as as trustees you face unlimited liability.

      rics arma irpm aren't interested as with an agent there is no issue, banks will write what you want in return for money in the client account.

      residents lobby groups aren't interested as they are wobbly eyed over commonhold.

      Fred carneys circus legislation...
      Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

      Comment

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