Leasehold law relating to service charge accounting

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By Alan Draper | May 2020
Landlord and Tenants Act 1985

Section 21: Summary of the service charge costs. Leaseholders have the right to request a summary of service charge expenditures

Section 21A: If section 21 is breached, the tenant might withhold the payment of the service charge.

Section 21B:  Service charge information, summary of the rights and obligation of the tenant. This is a standard notice which must be included with any service charge demand.

Section 22: The right to inspect supporting accounts. If a leaseholder is not satisfied with the summary of financial information pursuant the section 21 of this act then they have the right to request access to the supporting documentation used to create the accounts.

Section 23: Request relating to information held by superior landlord. This is the requirement for a superior landlord to provide information relating to requests under section 21 and 22. If the superior landlord do not held this information then he must apply to the immediate landlord.

Section 28: Defines the meaning of qualified accountant. Service charge accounts should be produced by a “qualified accountant”,  an individual who has the necessary qualification and is not disqualified from acting.

The following are disqualified from acting—

– An officer, employee or partner of the landlord or, where the landlord is a company, of an associated company;
– A person who is a partner or employee of any such officer or employee.
– An agent of the landlord who is a managing agent for any premises to which any of the costs covered by the summary in question relate;
– An employee or partner of any such agent.

Leasehold Reform, Housing and Urban Development Act 1993

Section 76 (Right to a Management Audit)

This section says leaseholders have a right to have a management audit carried out on their behalf if it is requested by two or more ‘qualifying tenants’, or by a single leaseholder if there are no other ‘qualifying tenants’ building.

Section 77 (Tenants Qualifying for Right to a Management Audit)

This section defines who counts as a ‘qualifying tenant’.

Section 78 (Purpose of a Management Audit)

This section sets out who can act an ‘auditor’ in a management audit, and what types of things the auditor can investigate.

Section 79 (Rights of the Auditor in a Management Audit)

This section describes the rights of access to the property and related documentation which are given to the person carrying out the management audit.

Section 80 (Exercise of the Right to a Management Audit)

This section sets outs the steps which must be taken before commencing a management audit.

Section 81 (Procedure After Giving Notice of a Management Audit)

This section states what a landlord must do, and how quickly they must do it, after being given written notice that a leaseholder or leaseholders intends to exercise their right to have a management audit carried out on their behalf.

Section 82 (Management Audits and Superior Landlords)

This section sets out what must happen if a leaseholder or leaseholders wish to exercise their right to a management audit when their landlord is not the person or organisation which manages the building and provides the services. This situation occurs where their landlord (the person or organisation to whom they pay the service charge) is themselves a leasehold of the flat in question. This situation commonly occurs where leaseholders have purchased from a housing association through a shared ownership scheme.

Section 87 (Codes of Management Practice)

This section gives the relevant Secretary of State (Government minister) the power to approve a code of practice for the management of property. Any such code of practice, once approved, may be used as evidence in a court or tribunal.


Commonhold and Leasehold Reform Act 2002

Section 152: Amendments to landlord and tenant act 1985 section 21and 21A requiring leaseholders to be given:

  • Annual income and expenditure accounts/statements.
  • Balance sheet/balancing statements.
  • provided within six months of year end.
  • accompanied by a qualified accountant report.

Under 21A tenants can withhold service charges if the summary of tenants’ rights and obligation is not included.

Section 153: notice to accompany demands for service charges. After section 21A of the 1985 Act 9 inserted by section 152). Introducing section 21b of landlord & tenant act 1985 . All service charge demands include summary of tenants’ rights and obligation of a statutory right to withhold payment if the notice is not included with a service charge

Section 154: Inspection of documents.  Expands on the provision required under Section 22 of the 1985 Act

Section 155: Liability to pay service charges: jurisdiction. Expands on section 27 of the 1985 Act which determines whether the service charge is payable and which court has jurisdiction.

Section 156: Service charge contribution to be held in separate account. After section 42 of the 1987 Landlord & Tenants Act, section 42A and 42B was added which is summarised as follows:

  • 42A
  • Service charges must be held in a designated account.
  • Leaseholders have the right to assess compliance
  • Withhold payments if they believe a non-compliance has occurred.
  • 42B
  • Failure to comply with section 42A can result in a fine as an offence will have been committed.

Section 158: Administration charges. Schedule 11 (which makes provision about administration charges payable by tenants of dwellings) has effect.

Section 166: Requirement to notify long leaseholders that rent is due. Defines what needs to be included in the rent notice and the procedure for collecting rent.

Section 167: Forfeiture to pay small amount for short period.  Landlord cannot apply for forfeiture unless the debt is more than £350 or if less than £350 must be more than 3 years old applies to service charge, rent and administration charges.

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