At Bankside Lofts a finance sub-committee of the board, made up of three directors, oversees money matters on a day-to-day business, including the safe-keeping of these funds. When bringing the management in-house in October 2004, they had to consider the following banking issues:

• Setting up the bank account
• Moving money
• Collecting money
• Deposit Accounts

Setting up the bank account

The first task is to select a bank and open an account. These days, banks are required to have anti-money laundering procedures in place for all accounts they open to help combat financial crime, including tax evasion. For the bank, this means they are required to understand who operates the account, have systems in place to detect any unusual payments and be particularly sensitive to large cash pay-ins. 

What did this mean in practice for Bankside Lofts as customer? Each director who is a signatory on the bank account had to personally identify themselves at an HSBC branch and provide evidence of their residential address. 

When opening and operating the account:

• Try to find a bank which knows you and/or understands your business;
• Make arrangements to open a bank account well in advance of taking on the management;
• Consider whether you really need all directors to be signatories to the bank account;
• Provide each director with a memo which he/she can take to their nearest branch when they go to identify themselves. List the paperwork they need to take with them and a note for the branch with the details of the account for which the identification is required; and
• Insist that leaseholders pay their service charges only by credit transfer or cheque drawn on a UK bank – and avoid cash.

We were also faced with the question of how to style the account. Bankside Lofts Management Limited is already quite a long name for leaseholders to write on a cheque – let alone two or three. The proposed regulations under the Commonhold and Leasehold Reform Act 2002 would require such accounts to include the letters s42A in the account name. This is to ensure that the bank is aware that the money in the account is held in trust for individual leaseholders and may not be used, for example, as security against any borrowing or other liability of the company itself to the bank.  

Recently, we adopted BLML as a trading name for the account and are in the process of amending the full account name to include the s42A suffix.

• If you are self-managing consider:
• Include s42A in the name of the account;
• Write to the bank reminding them that this is a trust account; and then
• Adopting a shorter trading name to save leaseholders’ time and ink.

There was also the important question of how many bank accounts to open.   Bankside Lofts has 2 sets of leases (apartments and car park spaces), 5 buildings, each with a service charge account and a building reserve as well as estate service charge and building reserve accounts. Oh yes, and recoverable expenses accounts. On a strict interpretation of the planned regulations, we would have needed a large number of accounts. 

In practice we opened a single main business account which is the only account from which money can be paid away to third parties. Alongside this we run a number of interest-bearing call accounts. I return to this topic later in this article.

Moving money

The protection of the professional indemnity policy carried by a third-party manager is not available to a self-manager. The controls on how payments are made from the bank account are therefore particularly important. At the same time sufficient discretion needs to be given to the manager to make urgent payments – a business credit card is useful for the emergency plumber called out on Christmas Eve or hiring the dehumidifier. 

At Bankside Lofts the control framework comprises three main principles:

• All payments are approved in advance;
• All cheques above £250 require two signatures; and
• duplicate bank statements are sent by HSBC direct to one of the directors.

The requirement for all payments to be approved in advance operates at two levels. A budget is set and agreed by the directors for the year and invoiced out to leaseholders. The manager must refer back to incur expenditure which was not budgeted and which will exceed £500.   Over and above that, the manager submits by e-mail at the end of each month a schedule of invoices for payment to the members of the Finance Committee.

Cheques are signed by the manager and countersigned by one of the Finance Committee directors who can recognise the items from the schedule. 

The final control is after-the-event. HSBC send a duplicate statement to one of the directors. He is able to monitor the overall cash inflow and outflow and query any payments he does not recognise. 

Collecting money

We have taken a number of practical steps to speed up the collection of service charges, for which our target is 60% within 1 month of due date and 90% within 2 months. This may not be the best in the market but is a considerable improvement on what our property managers had achieved. 

The first step was simple. Enclosing an addressed envelope to be handed in at the reception desk saved leaseholders from hunting down and handwriting the envelope. Some larger managers use a Freepost address but this is probably not practicable for a single block.

We encouraged leaseholders to pay by credit transfer over the telephone or internet by including our bank details on invoices.

The third step was to adopt the trading name BLML for the bank account. This made writing the cheque quicker – if not less painful.

The fourth step took longer. It became obvious at an early stage of taking on the management that leaseholders often paid the large invoice for service charges but overlooked the smaller invoice for ground rent, car park spaces or water charges. A disproportionate amount of time and money was spent chasing small amounts of money from perfectly credit-worthy leaseholders. 

Although we continue to issue separate invoices for smaller amounts, such as ground rents and water charges, we time the invoicing so that they are all sent to leaseholders together at the half yearly payment dates. We also issue a summary schedule on which the total amount to be paid is clearly marked. A second copy of this summary is enclosed to act as a remittance advice. Leaseholders are delighted that the amounts owing have been added up to give a single total. And we are delighted to receive one cheque in settlement.

These moves to get leaseholders to meet all their charges with one payment run counter to the principle which government intended to carry into legislation and regulation. This appeared to envisage that leaseholders would draw separate cheques for each invoice and that these would each be paid into separately named and numbered bank accounts for each schedule – ground rent, car park service charge, water charge, building reserve etc.   

Perhaps I have misunderstood, in which case no doubt a reader will write in to News on the Block to correct me. But I fail to see how insisting on a process which is more onerous for both leaseholder and manager, more likely to lead to errors by either party over relatively small amounts of money and thereby lead to more time and annoyance can contribute to a harmonious relationship between leaseholder and property manager which the legislation presumably wishes to promote.

As a small company, there are some practical limitations on the methods our leaseholders can pay their service charges.  

• Bankside Lofts is not in a position to collect by direct debit. There are fraud risks for the bank so they will only provide this to larger companies and utilities.
• It has not proved practicable to receive payment of service charges by credit or debit card as leaseholders occasionally request. The bank’s enchanting charges are high and would – presumably – not be an allowable charge against the service charge accounts.
• In theory we permit service charge payments to be made in monthly instalments. However this can only be as a prepayment of the next service charges, not as finance of service charges already due and invoiced under the lease. Since this means that the leaseholder has to pay not one but two instalments in advance, we only have one leaseholder on this scheme!

Large third-party managers may be able to offer more flexibility in the way they accept payment of service charges than a self-managed block.

• In summary, to help speed up your service charge receipts consider:
• Enclosing addressed envelopes with service charge demands;
• Adopting a trading name on the bank account to make cheque writing easier;
• Including a summary of invoices;
• Including fullk bank account details on service charge invoices.

Deposit Accounts

Although the balances held are significant and growing, at Bankside Lofts we manage the funds in a fairly simple way. Alongside the main current account, we run a number of deposit accounts. Money can be moved freely between these accounts by internet banking. Financial control is maintained because receipts into and payments away from the accounts to a third party can only be made through the current account..   

In theory this provides a mechanism for separating out ground rents, for example, from an overall payment received from a leaseholder, and then accruing the interest payable in due course to the freeholder. In practice, the need to monitor the accounts and move money daily is not really practicable. We therefore calculate interest manually from our own ledger balances.

We also explored with HSBC their Managed Clients Deposit Account designed for professional firms with client accounts and used by our previous managers. The bank runs a single deposit account but provides a PC and software to the account-holder enabling him to “run” individual bank accounts for each of his clients or in our case service charge schedules. However, the status of these systems in meeting client accounting guidelines is questionable and the cost at present too high for a self-managed block. 

This is an area of the banking and treasury function at Bankside Lofts which we may return to with any tips in a future article.

James Thomson is property manager at Bankside Lofts. Formerly a banker in the city he was a director of the management company before taking on the day-to-day management.

james.thomson@banksidelofts.com