Flat-Living.co.uk Service Charges
about service charges
Protecting service charge monies
The Federation of Private Residents’ Associations which is
of individuals and the bank
the national non-profit making organisation that represents
acknowledges this, then
the interests of leaseholders in England and Wales, has been
each of those individuals
campaigning for many years for the protection of lessees money
is protected up to a
from misappropriation and loss as a result of inept, or indeed
maximum of £50,000.”
dishonest managing agents or freeholders.
In 2009 accountancy
Since the start of the “credit crunch” and the failing of a number of
regulations are being
financial institutions we have been made aware that many Residents’
reviewed to line up with
Management Companies (RMC’s) are concerned about the safety
Section 42 of the Commonhold and Leasehold Reform Act 2002.
of service charge monies and reserve funds if their bank or building
It is expected that the outcome will be that all service charge
society goes into administration.
monies will be required to be held in new accounts holding service
charge monies alone. Indeed, as this magazine goes to press the
Newsletter 87 from the Federation of Private Residents’ Associations
Department of Communities and Local Government is in the process
(FPRA) advised that the Financial Services Authority (FSA) have
of publishing the new regulations.
confirmed:
It is recommended that you obtain confirmation in writing from
“small businesses, (and most RMC’s would qualify) have the same
your bank, building society, managing agent or freeholder that The
protection as individuals”
Financial Services Compensation Scheme (FSCS) applies to all
monies deposited with them.
The definition of a small business is any business that meets any two
of the following criteria:
Robert Levene – Chief Executive of
• Turnover of not more than £6,500,000
The Federation of Private Residents Associations Ltd.
• Balance sheet total of not more than £3,260,000
FPRA, T: 0871 200 3324 www.fpra.org.uk
• Total employees numbering not more than 50
Membership of the FPRA is available from
In addition the FPRA have been told by the FSA, that where monies
£65.00 per annum
are held in trust, but held by a larger organisation (which does not
qualify as a small business above) such as a freeholder or managing
agent, then PROVIDED that for each account held, the holder of the
account writes to the bank advising that monies are held on behalf
Take notice
recoverable from the flat owners is restricted to the amount set out
In this article, we take a brief look in the applicable regulations.
at the different types of information
and notices which a flat owner The exact type of consultation varies but generally the views of the
with a residential long lease can flat owners or a recognised tenants’ association must be sought
expect to receive about their before committing to any contract.
service charges.
Service charge summary
From the landlord’s and property If the flat owner writes in and requests a summary of the expenditure
managers’ perspective these on their service charge account then the landlord must provide this.
represent a compliance burden, with This must be provided either within one month of the request or six
the risk of irrecoverable expenditure if months of the end of the accounting period to which the service
things go wrong. charge relates if the accounts have not yet been finalised.
Service Charge demands Information requests
All service charge demands must be Often overlooked are Sections 21 and 22 of the Landlord and Tenant
in writing and must contain details Act 1987 which allow the flat owner to ask to inspect receipts and
of an address for the landlord in vouchers relating to the service charge expenditure for a period of
England and Wales. 6 months of receipt of a service charge summary. Failure to provide
a summary is an offence.
Any demand must also contain specific information setting out a
summary of the flat owner’s rights and obligations which must be in Ground rent
a prescribed form. If this information is not provided to the flat owner Where ground rent is payable the demand must comply with the
payment can be withheld until it is provided. A copy can be obtained notice provisions set out in section 166 of the Commonhold and
at www.flat-living.co.uk/pdf/summary_of_rights_and_obligations.pdf Leasehold Reform Act 2002. Ground rent is not payable until the
appropriate notices have been served.
Demands must also be served within strict time limits. If a demand
is served more than 18 months after expenditure has been incurred, Insurance
(and no prior demand was issued) the sums will not be payable. If a flat owner requests written information relating to the insurance
of the building it is an offence for the landlord not to provide a
Major works and qualifying contracts - consultation summary of the key terms of the insurance policy, they must also
The most familiar kind of notification received by flat owners are provide reasonable access for inspection of the policy’s key terms.
‘Section 20 notices,’ required by the Landlord and Tenant Act 1985
(as amended). Mark Chick is a partner at Bishop &
Sewell LLP, a committee member of
These need to be served before a landlord commits to major works ALEP and is a solicitor specialising in
or enters into certain types of qualifying long term agreement. landlord and tenant matters.
If the consultation requirements are not followed then the amount www.bishopandsewell.co.uk
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