Current Requirements of the LTA

Residential service charges are covered by statutory provisions and Landlords are required to account for these to lessees.

The majority of residential property blocks are managed by agents and these agents are governed by various professional bodies which have requirements for their members in accounting for service charges. The principal professional bodies are:

  •    Association of Residential Managing Agent (ARMA)
  •    Royal Institution of Chartered Surveyors
  •    National Association of Estate Agents

The current legislation relating to lessees' money is primarily S.42 of the Landlord & Tenant Act 1987 (the holding of funds) and s.21 of the Landlord & Tenant Act 1985 as amended by (S.41 and Schedule 2) of the Landlord & Tenant Act 1987 (the provision of a summary of relevant costs of service charge expenditure).

S42 requires that any service charge monies collected from lessees must be held 'on trust' and the law has created statutory trusts if the relevant leases do not create express ones.

With regard to the provision of regular statements of account for service charges, S21 gives any lessee or recognised residents' associations the right to request a summary of relevant costs incurred during the last accounting year. Where the summary is for a block of more than four dwellings this summary must be certified by an independent accountant who is a registered auditor as a fair summary.

Currently Managing agents must only comply with the relevant covenants in leases and S.21 and there is no prescribed format for the production of service charge accounts and no statutory requirement for a Balance Sheet to be produced for property blocks. Therefore there are a number of different formats in circulation which creates confusion for all parties when reviewing the service charge accounts.

New guidance is being developed to change the format of service charges moving forward and this should be available later in the year. The accounts that we produce for our clients clearly set out the service charge expenditure for each period and also include Balance sheets at each year end.

We are always happy to discuss the accounts in detail with clients to ensure clarity. Please contact us today.

Plummer Parsons

Plummer Parsons