Government moves to protect services charges

Thousands of flat owners can sleep somewhat easier now that the Government has taken steps to protect their service charge deposits. In Issue 43, News on the Block’s headline article (Are your service charges safe?) reported about the risk posed to service charge funds held in the deposit account of a bank or building society that fails. Now, the Government has confirmed that service charge funds are eligible for protection under the Financial Services Compensation Scheme (FSCS) up to a maximum of £50,000 per leaseholder.

There had been some ambiguity whether the £50,000 threshold was a total amount.

The clarification came after pressure from the Federation of Private Residents’ Associations (FPRA) for over a year, and the Association of Residential Managing Agents (ARMA) for the past six months. David Hewett, Chief Executive of ARMA commented “The £50,000 total limit meant many tens of thousands of lessees had part of the service charge contributions exposed to a bank failure. Now with the individual limit of £50,000 per contributor it is likely that every one of the 2 million leaseholders in England and Wales are fully covered”.


Robert Levene, Chief Executive for the FPRA, was more cautious: “The Federation would like the Government to go further in providing full protection for all leaseholders monies held by third parties. Because anyone can set up as a managing agent or be a freeholder there is no protection from the unscrupulous or inefficient manager and leaseholder’s monies that cannot be properly accounted for. Leaseholder’s monies should be protected fully with a properly regulated scheme. In  addition, where there are larger blocks and larger freeholders/agents even this limit could be exceeded, and the FPRA has recently submitted representations to the Financial Services Authority over increasing protection for leaseholders.”

Flat owners should also be aware that the £50,000 limit includes any money held by the individual leaseholder in the same institution in a personal capacity.

Managing agents should notify their leasehold customers with the FSA identity of the institution(s) in which service charge deposits are held, and for leaseholders to contact their managing agents to obtain this information if not notified in this way.

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