The most proactive way to deal with Section 22 of the Landlord and Tenant Act (LTA) 1985 is to be open and transparent with lessees about service charge expenditure from the outset so you as an agent voluntarily provide an alternative procedure to allow clients and lessees to scrutinize expenditure and reduce the possibility of service charge disputes.
Section 21 LTA 1985 gives leaseholder(s) or secretary of a recognised residents association a statutory right to seek a summary of the service charge account from the landlord. S.22 gives a statutory right to inspect documents relating to the service charge to provide more detail on the summary provided following a S.21 request. Failure to comply with these requirements is a summary offence and will be liable on conviction to a fine.
To promote openness and transparency, agents should deal with any S.22 requests even if a S.21 summary has not been requested once they have issued an annual statement of account for service charges in the form required by the lease. All agents should have built into their procedures enough ways to allow lessees to scrutinise expenditure without them having to resort to a S.22 request.
There is no prescribed list of S.22 documents. In Taber v MacDonald 1999 the court required the landlord make available all the documentation seen by the accountant who had certified the summary of relevant costs. Alternatively, agents could provide what a Leasehold Valuation Tribunal (LVT) may request to see as evidence if the request was to result in being disputed at LVT.
Often, the request will outline the supporting documents the lessee wishes to inspect, although this is unnecessary, and may request documents not related to the S.21 summary. However, to promote openness and transparency an agent may eliminate suspicion by providing these on a voluntary basis. In addition to providing invoices consideration should be given to providing contracts, warranties, guarantees, insurance documentation relevant to S.30A LTA 1985, and purchase orders. Employment contracts and details of site staff salaries are exempt from disclosure. Bank statements are relevant to the summary of expenditure and should be disclosed. If the agent operates pooled accounts, the bank reconciliation itemising the figure could be provided. Debtor’s information is not relevant to the summary of expenditure and agents would obviously be wary of supplying other leaseholders financial information to their neighbours.
Openness and transparency can be promoted and achieved in alternative ways including more accurate budgeting, having a long term maintenance plan in place, providing lessees with a quarterly report of all repairs and maintenance expenditure with a description of works, allowing for inspection of a file of invoices for the service charge expenditure when issuing the statement of accounts on site if practicable and continued written and online communication.
As an agent spending service charge money in accordance with the lease and client instruction, you are spending someone else’s money. They have the right to scrutinise what it has been spent on should they wish to do so.
Helen Christie is an experienced residential property management technical consultant.