© 2025 News On The Block. All rights reserved.
News on the Block is a trading name of Premier Property Media Ltd.
© 2025 News On The Block. All rights reserved.
News on the Block is a trading name of Premier Property Media Ltd.
The Commonhold and Leasehold Reform Act 2002 was expected to have a major impact on a number of areas of leasehold management. Whilst many of the new regulations anticipated have come into law, those most directly affecting accounting were never enacted. In 2010 the new government let it be known that it was unlikely that it would enact the regulations previously anticipated. As a result, expected regulations regarding the form and content of service charge accounts, independent accountants’ reports and designated bank accounts are now no longer expected.
In the absence of the expected legislation, a joint working party comprising representatives of the Association of Chartered Certified Accountants, Institute of Chartered Accountants in England and Wales, the Institute of Chartered Accountants of Scotland, the Association of Residential Managing Agents and the Royal Institution of Chartered Surveyors was formed to provide guidance on this area. An initial consultation document was issued in October 2010. Following that a range of issues were debated and because of the difficulty in resolving some issues Counsel’s opinion was sought on certain matters, such as the legal status of service charge monies held by a company or its agent. The final publication is now available and is entitled “Residential service charge accounts - Guidance on accounting and reporting in relation to service charge accounts for residential properties on which variable service charges are paid in accordance with a lease or tenancy agreement”
Key Points Made By the Guidance Include:
• Service charge monies should generally be held in ring fenced designated bank accounts.
• There is a distinction to be made between service charge accounts and the statutory accounts of the company that makes the service charges. Separate accounts should be produced for leaseholders and shareholders. Service charge accounts should contain an income and expenditure account and ordinarily be drawn up on an accruals basis with a balance sheet. Statutory accounts should follow the requirements of the law for the company concerned.
• The group was unable to resolve satisfactorily whether service charges should be accounted for as revenue within the accounts of the company owning the freehold to the relevant property. The issue is likely to go to an accounting body call the Urgent Issues Task Force.
• A form of audit report is recommended to deal with leases that require an audit of service charges.
• Also suggested, where appropriate, are agreed upon procedures leading to a report of factual findings where an audit as it not required. Model service charges accounts and reports are contained within the new guidance and are likely to become standard for the private sector residential managers.