© 2025 News On The Block. All rights reserved.
News on the Block is a trading name of Premier Property Media Ltd.
© 2025 News On The Block. All rights reserved.
News on the Block is a trading name of Premier Property Media Ltd.
QUESTION:
We took over the management of a small block of five flats and two domestic garages last year, after a long battle with the landlord. She and her husband own one of the flats. They have both declined the offer to join the RTM Co.
She has exercised her right to continue as manager of the two garages, as apparently these do not fall within the remit of the RTM Co. I therefore send her the service charge invoices for the garages which she then sends to them, adding a 10% management fee of her own. Several months ago I raised the fact that this means the garage owners are now paying two sets of management fees. She has not replied, but once again has added the 10% fee to the latest demand. This seems unfair to the garage owners and I wonder if there is any way of bringing the garages under the RTM Co’s direct management. The garage owners are obviously keen for this to happen.
The landlord’s husband, who has requested that we bill him alone for their flat so that he is seen to be separate from his wife in this matter, has demanded that the RTM Co keep the service charge monies in a Trust Account.
I have informed him that we have a dedicated account “for and on behalf of the RTM Co” and the accounts are audited by a qualified accountant, but he is still maintaining that we are acting illegally. I suspect he will use this as a reason to withhold his service charge payments in future if I cannot persuade him that we are operating legally.
Do we really have to set up a Trust Account with all that this involves?
Maria Cochrane
ANSWER:
Misunderstanding the ring-fenced ‘trust’ status of leaseholder funds is alarmingly common, even among larger managing agents, which is surprising given the volume of guidance notes on the subject from ARMA, RICS and the ICAEW.
S.42 of the 1987 Landlord & Tenant Act stipulates that a manager must keep service charge monies in a trust account and separate from other monies, such as RTM Company money and failure to do so is an offence. Compliance is not difficult because the trust is statutory and automatically binding on the parties. You should instruct your bank to set up an account with the words ‘Client Account’ in the title confirming that monies in this account are leaseholder’s trust funds and ring- fenced. All service charge income and expenditure must flow through this account and not the RTM Company Account. If you hold surplus trust funds there is a statutory obligation to ensure the funds earn adequate interest.
Whether or not service charge accounts need to be ‘audited’ will depend on the lease. Certified accounts may be sufficient. Your RTM Company Accounts will need to be prepared separately. If the RTM Company has no separate income and expenditure it can file ‘dormant company’ accounts with Companies House. It may not even need a bank account of its own.
The question raises a background issue about the extent of the premises under RTM management. Statute provides that RTM can be acquired over a building ‘without appurtenant property’. The garages may be appurtenant property if they ‘belong to’ or are ‘usually enjoyed with’ the building. Domestic garages are commonly classed as appurtenant property and therefore eligible for RTM management, especially when a garage is granted under the head lease of a flat. To determine the status of the garages you will need to refer to the lease. If an RTM Company seeks to manage premises ‘with appurtenant property’ it should be stated in the Claim Notice and in the Articles of the Company. If the garages are not appurtenant property they are probably outside the RTM Company’s jurisdiction.
Dudley Joiner, The Right to Manage Federation Ltd