Everyone who contributes towards estate or service charge expenditure should have an equal and statutory right to demand an accountant’s report prepared under TECH03/11. This was the basis of our response to the recent government consultation, “Tackling unfair practices in the leasehold market”
What is a TECH03/11 report?
A common complaint made by leaseholders is the poor quality of financial information that they receive. Service charge accounts can lack transparency, be difficult to understand and badly presented. For many of the service charge disputes that reach First Tier Tribunal the root cause of the problem is unreliable or absent service charge accounting information.
Accounts prepared under TECH03/11 address all of these issues. TECH03/11 is the best practice guidance for preparing service charge accounts. The guidance requires service charge accounts to be reported on and signed off by a qualified accountant independent of the landlord or managing agent. TECH03/11 is now recognised best practice and is included within the 3RD RICS Residential Code, The Private Retirement Housing (ARHM) Code of Practice and ARMA Q.
How would a statutory right to demand a TECH03/11 report work?
The statutory entitlement to receive a TECH03/11 report could be in line with the legislation detailed under section 21 of Landlord and Tenant Act 1985. This legislation includes the following important terms;
a. The right for a leaseholder to demand a section 21 accountant’s report on service charge expenditure.
b. On receipt of the demand the landlord must meet the demand within 1 month of the demand or 6 months after the accounting year end whichever is later.
c. Failure to meet the demand without reasonable excuse is a criminal offence and can result in a fine on the landlord of up to £2,500 (Level 4 on the Standard Scale).
However, the section 21 report is a hopeless report, conceptually flawed and difficult to understand. A statutory right for lessees to demand a TECH03/11 report would be far more beneficial to lessees. If the legislation could be backed up by a tougher penalty regime and the term “reasonable excuse” tightly defined then the instances of poor quality or missing service charge accounts would be significantly reduced.
There are some strong arguments for giving lessees a statutory right to demand service charge accounts prepared under TECH03/11 including,
a. the measure should be relatively easy to introduce and involve little additional cost as it only would be enforcing what is already accepted best practice
b. lessees would have some assurance that they have a statutory right to demand service charge accounts prepared in accordance with best practice
c. it would raise the standards of service charge reporting and result in greater consistency and transparency.
Gordon Whelan, Managing Director at Haines Watts Service Charge Limited