Recoverability of corporate costs through the service charge (including flat front door checks!)

In fact this approach is not necessarily correct for every RMC. The Property Institute has provided guidance for some time which confirms that these costs can only be recovered through the service charge if the lease specifically allows. Otherwise costs for the company sit with the corporate entity. In the last couple of years there have been two FTT rulings which reinforce this position.

Collingwood v Carillion (2022) clearly set out that company costs fall to the corporate entity and not the service charge. This was covered in greater detail in the case of McGuinnes v Oyster Quay (2024) where costs such as the company AGM hall hire and the directors and officers liability insurance were expressly found to be unreasonable and fall outside of the scope of the service charge. Perhaps of even greater significance in this case was the fact that the Tribunal found that whilst the RMC had a duty to check fire doors (including flat front doors) under the building safety Fire Safety (England) Regs, the RMC could not recover the costs of those checks through the service charge because the doors themselves were demised to the flat owners

In effect the FTT ruled that just as no works to such doors are service charge liability therefore it follows that the cost of the annual inspection could not be recovered through the service charge. Therefore these costs fall to the company that has the obligation: the RMC as a corporate body.

This creates a considerable problem for any RMC that does not have a separate source of income away from the service charge and where the leases do not expressly allow for the recoverability of company costs. 

In such situations the companies need to establish if they can raise a levy from their members (the same leaseholders in the block). In effect a separate budget for company costs needs to be created, some of those costs previously having been within a service charge budget. The levy is then raised by equal proportion as a shareholder or member when payment of service charge may well be by proportion of area. The monies collected will need to be held in company bank accounts and at the year end a profit and loss generated and accounts filed. 

Even where the costs of the company administration can be recovered through the service charge, the case noted above raises the issue of recoverability of inspections of flat front doors. These will need to be accounted for outside of the service charge budget and funded through company levy of its shareholders. The associated administration, banking and accountancy costs are then generated all as part of corporate expenses. 

How many budgets are being prepared for year starts on 1^st January 2026 with fire door inspections as a line item and they are wrong? And the solution is difficult to address. Most managing agents’ systems are set up for service charge demands, linked to client bank accounts covered by section 42. Technically an RMC will need two sets of demands generated, one for service charge and one as a levy to the members; with potentially different apportionments of liability from the same people who are contributing. Additional company bank accounts will need to be created and so many of those companies will cease to be dormant. Managing agents who are acting as company secretary for their RMC clients will have to consider how this is addressed very carefully.

Nick Faulkner, Charlecote Estates Ltd