CompaniesHouse -thenthese costsshould be paid for by theRMCo fromfunds it has as acompany,not fromservicecharges paid by lessees.


CONSULTATIONON MAJORWORKSANDLONG


Thesetwo creatures are separate and distinct from each other, even though theymay be thesame person


TERMAGREEMENTS The fact that lessees aremembers of the companyandmaywellhaveagreed to various proposed schemesatthe company’sAGMdoes not exempt theRMCo fromcomplying fully with the statutory consultation requirements in S.20 of the Landlord&Tenant Act 1985 (as amendedbythe 2002 Act).Neither canitbe said that theRMCoequates to arecognised tenants’ association for the purposes of S.20,orthatany individual lessee canbe prevented fromexercising their rights under theLandlord&TenantActsbyhavingvoted in favour of proposed expenditure at the AGM. Failure to comply with the consultation regimeis likelytorendersubstantial expenditureirrecoverable andmaymake the directorspersonallyliablefor thecosts.


over twoseparatefunds:the service chargeand thecompany’s ownmoney. Thecompany’s fundsderivefrom its


sharecapital andsubscriptions or levies frommembers. If it owns thefreehold theRMComay also chargegroundrents or receive incomefromthe sale of lease extensions. The service charge fund ismade up


of contributionsfrom lesseesinaccordance with thetermsof theirleases.TheRMCo is astatutory trusteefor thesecontributions (S.42, Landlord&Tenant Act 1987)and the beneficiaries underthe trustare thelessees. Oneofthe trustee’sfundamental dutiesisto accountfor allfunds received anddisbursed. Service chargemonies are not ‘owned’ by theRMCoand should notbeaccountedas assetsofthe companyassuch. Theleases will (hopefully)set outclearly howservice charge moniesmay be spent. Both contractually andbystatute,service chargemoniescan only be spentonitemsauthorised underthe leases and further such expendituremust be reasonable.Itisgood practice to keep the companyand servicechargemoniesseparate.


PREPARATION


OFANNUAL ACCOUNTS Therequirement foranannualstatement of accountfor servicecharges will be set outin the lease. This is not the annual account of theRMCowhich is required by Companies House. Best practice forthe servicecharge accountisset outinguidanceissued by theInstitute of CharteredAccountantsin EnglandandWales(ICAEW) andARMA, downloadable fromtheARMAwebsite (see further information below).The approval of


Flat Living Summer 2012


theservice chargeaccount is not something for the


shareholders ormembersof anRMCo. The leasemay require the statement to be certified or auditedor otherwisebut it should be issued to alllessees -not just


thosewho are shareholders or members - without approval of


the shareholders of theRMCo. TheannualaccountoftheRMCo for


CompaniesHouse purposes is arequirement of companylaw.Thisstatementmayneed an auditornot -thisdepends notonleases but on theArticlesofAssociation of thecompany. Theapproval of theannualaccounts foran RMCo is somethingthatmustbedoneby thedirectors of that company. Again it is not amatterthatrequiresthe approval of the shareholders of thecompany at an AGM. The requirementfor thedirectors to approveisset out in theCompanies Act 2006.


ADMINISTRATIONCOSTS


OF RUNNINGTHERMCO It is rare that alease will allowfor the administration costsofthe companytobe recoveredfrom theservice charge. If the RMCo isaRight toManage Companythen it will certainly notallow forthis.Many RMCo companysecretaries (and indeed some managing agents)havefailedtoappreciate thesignificance of this.Ifthe leasedoesnot expressly allowfor the costs of running the RMCo to be recoveredasaservice chargecost -examplesare thedirectors&officersliability insurance, annual returnstoCompanies Houseand preparationofannualaccounts for


Lessees


FURTHERINFORMATION Residential Service Charge Accounts Guidance is downloadable fromwww.arma.org.uk●


Formoredetailsandlinkstospecialist information, goto theARMAwebsite at


www.arma.org.uk


AssociationofResidentialManagingAgents Limited(ARMA) Tel02079782607 Fax02074986153 Email info@arma.org.uk Websitewww.arma.org.uk


39


TAXATION Taxation of any interest earned fromservice charges received is taxableastrust income- thecurrent rate is 20%. Servicechargemonies paid toRMCosare deemed by statutetobeheld in trust as explained above. Anymonies held by the company that are not service charges, includinggroundrents,are taxableatthe rate forcorporation tax.


HOWITALLWORKS Shareholders OWN


The


Management Company


APPOINT


Boardof Directors


APPOINT


Managing Agents


RUNTHE MANAGEMENT


AREALSO THELEGALRELATIONSHIP


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