Flat management company - new service fee accounting?
siteadmin 31 Oct 2009 - 11:39
Did you know that residential service company fees often should not be accounted for in the flat management company but should be held in a separate trust?
This legislation is not known to many and many flat owners do not an extra layer of costs and admin
For more full details:
http://www.arma.org.uk/files/LAN08%20RMC%20Accounts.pdf
We have had several queries from accountants asking if any other practices have a practical (and legal) way of working round this problem?
Residents are not keen on the extra costs involved
If you were unaware of this legislation check..
This is very radical as
This is very radical as to take the service charge monies off the flat management company's balance sheet may mean that the flat management company is effectively dormant.
The accounting should follow the law. The service charge monies should be in a separate trust bank account. If they are, then they will not be on the flat management company's balance sheet (like client monies for a legal or accountancy practice).
Guidance I have had on this is that practitioners should first check whether their client is exempt from Section 42A of the Landlord and Tenant Act 1987. If not then this requirement will not exist. Registered Social Landlords are likely to have this exemption.
I have spoken to the agents
I have spoken to the agents we deal with on the flat management companies we act for and they have not heard of this requirement. Could you confirm what situation this legislation is aimed at and how do we know if clients are exempt. Our clients are typical in that all the owners of the flats live in the properties but the legislation refers to tenants.
Interesting point Steve. I'll
Interesting point Steve. I'll get back to you.
Steve, I've now checked this
Steve, I've now checked this out.
Whilst you would imagine that the law and the ARMA guidance would apply only when a resident management company is letting out to unrelated 3rd parties, this different service fee accounting treatment is also considered best practice for clients such as yours.
I imagine that your client's shareholders own a leasehold interest in the property and that the freehold is held by the flat management company (albeit it may have paid a nominal sum or nothing for it)?
If so then then the flat management company (as a separate legal entity) is effectively the 'landlord' and the shareholders are the 'tenants' for the purpose of the accounting treatment in respect of the service charge monies.
I appreciate that the title of the legislation and the thrust of the ARMA 08/08 guidance are confusing as they would appear not to address circumstances such as yours.
Watch this space early next year (General Election permitting) for the Housing & Regeneration Act which will clarify - but not fundamentally change - the reporting requirements.
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