When we started specialising in service charge audits they were frequently undertaken as part of the property owner’s general annual audit. This was not a satisfactory situation because specialist knowledge is needed for accurate service charge accounting assessment.
- Landlords and tenants have transparent financial relationships
- Tenants trust that the service charge is correct and fair at no added cost to the landlord
- A reduction in investigations by tenants into service charges, saving time and money for landlords
- Specialist advice on current techniques for the internal accounts team
- Almost all general practice accountants and auditors unfortunately do not have the specialist knowledge and experience to fully understand your needs
Since that time many large landlords in the UK have moved to providing independent audited accounts for their service charges thus removing one cause of landlord : tenant conflict
Eversheds has reported that, whilst there is no hard rule that use of general words in a service charge clause prevents recovery of related legal costs, in order to be certain, an obligation to pay solicitors’ costs under the service charge provision should be clearly spelt out. If those solicitors’ costs are to include litigation costs then that should equally be made clear.
Remember that, even where the lease makes provision for recovery of costs as part of the service charge, this can be overridden by the provisions of s20C of the Landlord and Tenant Act 1985.
This was clarified in the recent case Sinclair Gardens Investments (Kensington) LTD v Avon Estates (London) LTD.
Read the full article here
A recent article in Property Week written by Christopher Hedley, a director of IPD, about Occupiers and Management highlighted the general dissatisfaction of tenants with how their managing agents and landlords deal with service charges.
The majority felt that the large increases in service charge costs could not be justified and that control and communication of costs by managing agents was poor – so much so that fewer than 10% of occupiers felt they were getting value for money.
The tenants also expressed major concerns over exceptional expenditure and improvement costs. At best these create unpredictable variations in service charges year on year and at worst may be outside the scope of recoverable service charge expenditure.
Over the weekend we read an interesting article in The Times in which asks the question
There is no evidence that the annual service charges on our flat have been audited. What are our rights?
The answer, by expert Mark Loveday, states correctly that there are no legal requirements to have audits.
Most properly presented annual service charge accounts are signed by a managing agent or an accountant to certify their accuracy.
He makes passing reference to this becoming a legal requirement in future. Naturally, we think that audited accounts are the best possible security for all parties, landlord, tenant and managing agent.
When this does become law, the need for a common format for presentation of the annual service charge statement for residential properties will necessitate changes for many sites.