Q&A - Accounts 

Have just received a set of audited accounts relating to 2013 and a bill for settlement after paying  subsequent bills for 2014  and 2015, this seems a really long time after to request this, also what happens to the payments requested  for people that have moved away.......since 2013. Have not received any further audited accounts yet for 2014 so how have they got their budget figures for this year etc.

ANSWER 

Without having seen the service charge provisions in lease in question, it is difficult to provide detailed advice in relation to your landlord’s contractual obligations.

However, the requirements for providing accounts and demanding any balancing charges will be determined both by the terms of your lease and by the statutory framework set out in the Landlord and Tenant Act 1985.

Service charge provisions in leases generally require a leaseholder to pay either a fixed percentage of the total landlord’s costs incurred, or a reasonable proportion of those costs incurred. Generally, leases provide for a payment on account followed by a balancing payment or credit which falls due following the preparation by the landlord of the accounts.

In the absence of clear words to the contrary, a landlord can only charge costs and expenses which have been paid or which become liable to be paid during a particular accounting period. “Incurred” does not mean the mere provisions of services to the landlord but the presentation of an invoice or actual payment by the landlord.

If your lease provides that your landlord must provide year-end accounts, often required within a specified period of time or “as soon as reasonably practicable”, you can apply to the Court to force the landlord to comply with this obligation.

Alternatively, section 21 of the Landlord and Tenant Act 1985 provides that you can ask your landlord to give you with a written summary of those costs incurred in the previous accounting year. A landlord must comply with the request within one month of the request or within 6 months of the end of the accounting year. In terms of how the management company have calculated their budget for the current year, I suggest that you raise this with them, but unless there is a significant difference to previous years, it is likely that they have based the on account payment on previous years’ calculations.

The most important statutory requirement to be aware of is section 20B(1) of the Landlord and Tenant Act 1985 which provides that costs are not recoverable if they were incurred more than 18 months before they were demanded. Leaseholders are not liable to pay a balancing charge in respect of any costs incurred more than 18 months before the demand, but any service charge paid in advance on account is payable and unaffected. 

Therefore, it is possible that costs incurred in 2013 will not longer be recoverable from the leaseholders if they were not properly demanded in time. This bar to recovery will not apply if leaseholders were informed within 18 months that costs had been incurred and would be recoverable from the leaseholders.

Lauren Fraser  Associate,  Charles Russell Speechlys LLP