So far so good and everyone including managing agents agreed the principle of what was proposed was right. Well, five years later the requirement for annual statements of account has still not been implemented. The devil has appeared in the detail yet again.

The government has issued recently a consultation paper on how it proposes to introduce regular statements of account. This article summarises what is in the paper and comments on whether it will work or not.

Different accounts

The first point to stress is that the government wants to introduce different accounts for leaseholders dependent upon the type of landlord: private sector, local authority or housing association. Summary of proposals for private sector leaseholders include:
* An income and expenditure statement;
* A balancing statement (balance sheet);
* A report on the accounts by an accountant independent from the agent; and
* a separate bank account for each block or estate managed.

The proposals for private sector leaseholders generally reflect best practice at present. There are some problems however. The accountant’s report will be costly and does not seem to provide any real additional assurance to leaseholders. It is a lesser standard than an audit or certification and the proposed wording for the report is full of disclaimers.

Setting up separate bank accounts for every block or estate will involve many agents in heavy expenditure. Most agents keep service charge monies in a separate client account but do not hold lots of bank accounts. Some agents do not supply balancing statements. To do so will require investment in new accounts software and inputting of data to set up the new systems.

Withold payments

The accountant’s report does not require the accountant to state that the accounts do comply with what the government wants. Remember, if they do not comply, the leaseholder can withhold payment of service charges. This seems to be a recipe for more disputes. The government must surely be able to describe what it wants in a clear enough fashion for the accountant to give his or her opinion whether the accounts for a block comply. If not, then the government needs to make things much clearer.

So what about leaseholders of local authorities and housing associations? Well the government is proposing that those landlords can send a simple statement of expenditure and an accountant’s report. There would be no requirement for an income statement, a balance sheet or separate bank accounts for each estate. So once again these leaseholders are to be treated in a different, second-class way to the private sector. The government seems willing to listen to local authorities who say they cannot afford the cost of new accounting software or separate bank accounts, but is quite happy for private sector landlords (and so their leaseholders) to bear these costs.

The timing of these different proposals for different types of landlord is also strange. The government is strongly pushing mixed-tenure developments where housing association and private leaseholders live side by side. Private developers can now bid for grants to build social housing including for shared ownership leaseholders. Barriers are being broken down between private and social housing but a big backward step is being proposed in leasehold management. So overall I would give the consultation paper 5 out of 10. The private sector proposals are workable but will inevitably mean that management fees will increase and the cost of the accountant’s report will be a shock to many leaseholders. One wonders if they will think the extra costs worth the bother. Private sector leaseholder management has improved a lot since the government first proposed these ideas in 1998.

The local authority and housing association proposals are flawed and need a lot more refinement. Otherwise, it seems standards for leaseholders in social housing will go down.

Many housing associations already comply in large part with the standards suggested for the private sector, so why not make quite clear that this is what is expected and so drive up standards across the whole sector?