The guidance available to Managing Agents on handover procedures is quite clear and comprehensive. ARMA Guidance Note, “F07 Management Handovers” is enshrined within ARMA Q and the previous ARMA Guidance Note (GN20) was equally well written. With such clear guidance, what could be possibly go wrong in a handover situation?
We all know that handovers can throw up some difficult problems and there is one area where the guidance is silent and yet there is a huge risk for the incoming Managing Agent. This concerns unreconciled accounting differences usually arising from poor bookkeeping or a breakdown in the accounting systems of the outgoing Managing Agent. The guidance talks about the provision of reconciled accounts but the matters I am referring to are more difficult to spot as they usually lie hidden somewhere in the Balancing Statement. Examples we have come across include items such as unallocated cash on the creditor’s ledger and even negative reserves!
The Property Manager handling the new instruction already has a massive task on their hands without having to delve into technical accounting issues and so it is understandable if these matters go unnoticed.
However, there is a real problem here that can’t be ignored. I have yet to see a lease that allows accounting differences to be recovered as part of the service charge and these differences cannot be just written off through the Income and Expenditure account. They are nearly always the potential liability of the Landlord and it can be a difficult conversation for a Property Manager to bring the problem to the Landlord’s attention or to go back to the former agent when a period of time has elapsed after the handover date.
Calling in a service charge accounting specialist at the time of handover would solve the problem and also prevent additional time being spent on the preparation of the annual service charge accounts at a later date.
As for the ARMA guidance note, a short statement along the following lines would focus the attention of the outgoing Agent !
“Any unreconciled accounting differences will be the responsibility of the outgoing Agent. The outgoing Agent will be required to contribute to the Service Charge funds the amount of any accounting differences that materialise after the handover date and cannot be fully explained.”
For advice, information or simply a quick chat about your service charge needs, please get in touch using our contact form