ArmAguiDance forservicechArges
Advisory noTe
The GovernmenT decided in summer 2010
that it wouldnot introduceregulations on accounting forlessees’service chargemonies. To fillthe void,guidanceonaccounting forservice charges wasissued in October, produced jointlybyARMA, theInstitute of Chartered Accountants for England and Wales(ICAEW),the AssociationofChartered Certified Accountants(ACCA)and theRoyal InstitutionofChartered Surveyors(RICS). ARMAhas summarised best practice for accounting forlessees’moniesbased on the jointguidanceand theRICSService Charge ResidentialManagementCodeinLessee Advisory Note LAN08. This andthe joint guidance can both be downloaded fromthe ARMAwebsite. Readers should note that allreferences
toRMCs include
RTMCos.References to landlordsincludeRMCswheretheyare responsible forthe collection of service charges.
Summaryof
beSt practice Thejoint guidance summarises best practice
as follows.. nIf the lease/tenancy agreement sets out theway inwhichservice charges aretobe accountedfor,who shallcertify or approvethe accounts,the coststhatcan be recoveredand theperiods of timeforwhich accounts should be prepared,thenthe requirements of the
leasemust be followed. nServicechargemoniespaidbylessees are trustmoniesand should be held in ring fenced designatedbankaccounts (s42,Landlord and
Tenant Act 1987). nAlandlord ormanaging agentneed nothave a separate bank account for each property/ schemeunless thelease requires one. But thefunds foreachpropertyorschememust be separately identifiableasitisabreachof trusttouse servicechargemoniesfrom one property/schemetopay thebills of another, or
of the landlord. nAll lessees paying variable service charges should receiveanannualservice charge
46
statementfrom theirlandlord or Residents’ Management Company(RMC) including RighttoManageCompanies (RTMCos) within sixmonthsofthe endofthe
accounting year. nTheannualstatement should include an incomeandexpenditure accountand a balancesheet andbepreparedonanaccruals basis. Theguidanceincludesanillustrative
example of a service charge statement. nAllannualstatementsofaccountshouldbe subjecttoanexamination by an independent accountant before issuing to lessees.
references to landlords includermcswhere
they areresponsible... for servicecharges
nTheTechnical Releaseprovidesguidance on thetwo alternativetypes of examination thatmaybeundertakenbythe independent accountant dependinguponthe termsof the lease. The type of engagement,which should be agreed betweenthe accountant and theclientlandlord,RMCortheir agent, will depend on thetermsof thelease andshould be proportionatetothe size andnatureofthe
property/scheme. nIf the service charge statement is prepared on behalf of anRMC or RTMCo then it should be aseparatestatement to theannual accounts for the company required to be filed at Companies House.
bankaccountS for
ServicechargemonieS Section 42 of theLandlord andTenantAct 1985 appliesand best practice is in chapters four andten of theRICSCode. Servicecharge monies are held in trust and theRMC directors are in the position of trustees. Aself-managingRMCshouldopenabank
Accounting 08
ARMA’s newLesseeAdvisory Note LAN08gives flat ownersa full understanding of the newbest practice guidance on accounting for service charges issued in October
accountfor servicechargemonieswithatitle say ‘ XYZ CourtRMC Ltd Trust Account’. Managing agents acting forRMCsshould
open oneormoredesignatedbankaccounts forservice chargemoniescollected on behalf ofRMCs with thewordstrust or client or thenameofthe property in
thetitle.The RICS Code requiresmanaging agents that open such accounts to writetothe bank and getanoticeinwriting fromthebankthat acknowledges thering–fenced status of these designated accounts. Thereisnostatutory legalrequirement
onmanaging agents to open separate bank accounts foreachscheme, butthatmay be a requirementofthe lease. There is no requirement to put reserve funds
into separate bank accounts unless that is a requirementofthe leases of aschemebut the RICS Code requires that reserves be placed in an interest-earning account. Becauseservice chargemoniesare held in
trust, theRMCdirectorsand theiragentsare underadutytoinvest themonies. Further they have to invest in accordance with the TrusteeInvestmentsAct 1961(asamended by the Trustee Act 2000) or an Ordermade by Parliament specificallyabout servicecharge monies. That Orderisthe ServiceCharge
Contributions (Authorised Investments) Order 1988 asamendedand it enablesservice charge moniestobeinvested in adeposit account with certain banksorinashare or deposit account with building societies.
DeficitS,loanS
anDoverDraftS Arequirement to actasatrustee or agent for a trusteemeans that the account for service charges should not be run in deficit. It is abreachoftrust byamanagingagent to use the funds fromone schemeto fund anotheroverdrawnschemewherethe fundsofmorethanone schemearekept in thesamedesignatedbankaccount. It is also abreachoftrust forthe directorsofan RMCo or an agenttocommitservice charge
Winter 2011 Flat Living
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68