FINANCE Advice


Areour RESERVE FUNDS SAFe?


The banking crisis has leftmany people wary of putting toomany of their personal savings


in one bank. So what is the situation with reserve funds for blocks of flats?


“compensation”;thenon“UKbanking brands and FSCS cover”. If,for example,ablock has 40 flats,the


FSCS protectionamounts to £85,000 x40= £3.4 million for each and every bank (or building society) group inwhich theRMC has invested its reserve funds. Clearly, this is themaximumprotectionfor an individual bank/building societygroup becausesome flatowners mayalready have their ownpersonal


savings with the


samefinancial organisation.


Accordingto the FSCS, in the event of the failure of an FSA authorised bank or


CanRMCs trust the banks?


If you are a leaseholder in ablock of flats, large orsmall, as well as paying your servicechargeonaregular basis, thebuilding up of reservefunds is vitalinorder tomake provisionformajormaintenanceworks such as external/internaldecorations,roofrepairs or a newlift. The external redecoration of amedium-


sizedresidential blockwith, say, 40 flatsmay well exceed £200,000.Thisisnot asumof money thatmany residentswould wantto be askedtopay in oneinstalmentand it is considered best practice forblockstobuild up reservefunds,which should be held in a trust account in one or other of the high street banksorbuilding societies. Followingthe 2008 financial crisis,in


January2011the government increasedthe amount ofmoney covered by the Financial Services Compensation Scheme(FSCS) from £50,000 to £85,000 foreachindividual account holder.Thisalsoapplies tomoniesheldin ResidentialManagementCompany (RMC)or agent-managedreserve funds. Accordingtoguidancefrom theFSCS, each


of theflatsinablock has FSCS protectionup to £85K foreachand everyUKregisteredbank


Flat Living Issue 13, Winter


or building society group minus any personal holdingswhichindividual lesseesmay already have in that bank or building society. Note the word ‘group’–thisisimportant.For example, the Lloyds Banking Group covers HBOS and Lloyds TSB. However, asHBOS andLloyds TSBhavedifferentfirm referencenumbers (FRNs) you get protection up to £85K for the ‘banking brand’HBOS in additionto£85K protectionfor the‘banking brand’ Lloyds TSB. In contrast,the Nationwide (which is the umbrellaBuilding Societyfor theCheshire, Derbyshire andDunfermlineBuilding Societieshas only oneFRN,sothemaximum protectionoverthe four societiesislimited to £85K.The FSAwebsite givesbrand names andFRNsfromwhichone cansee thelevel of FSCS protection. To do this, go towww.fsa. gov.uk.Click on “consumerinfo”;thenclick on


reservefunds is vital in ordertomake


provisionformajor maintenanceworks


Thebuildingupof building societyatwhich reservefunds or


service chargemonies are held the landlord, RMC ormanaging agent should: nwritetothe residents(andlandlordwhere amanagingagent isemployed)and tell them that aclaim to theFSCSmay be possible. Askwhether they wish tomake aclaim for compensation to theFSCS(assuming they wouldqualify) ntell theFSCSthatitisaservice chargeclient accountinaccordance with theLandlord andTenantAct 1987 andprovide details (onceauthorisedtodosobythe residentsin question) of the identities of the claimants andtheamounts, remindingthose concerned that thereisnoguarantee as to thesuccessor amount of anyclaim TheFSCSmay contactthe landlord,


managing agent or individual tenants accordingly. It will be importanttocomply with anyrequirementsofthe FSCS to enable eligibility to be established andaclaim to be successfullymade. ManyRMCs will have beenopening up new


bank accountswhenever theirsavings in a particular bank groupapproached £85,000. This is no longer necessary.Instead anRMC cannow feel safe in theknowledge that it can concentrateits savingsinthose banksthat offer the highest interest rates.●


PleasenoteFlat Livingaimstoofferaccurateadviceto readers.However,beforetakingfinancialdecisionsaffecting individualormanagementcompanyaccountsitisimportant alwaystoseekindependent financialadvicefromaspecialist ordedicatedleasehold organisation.


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