As with all things related to service charge accounting, the primary document which governs the accounting practices is, of course, the lease. When it comes to accounting for a lessee’s monies, Section 42 of the Landlord and Tenant Act 1987 requires all funds held by managing agents or RMCs of variable service charges to be held in trust on behalf of the lessees.
The RICS Code of Practice says monies should be ring-fenced in designated bank accounts with the words ‘trust’ or ‘client’ or the name of the property in the title. However, there is no legal requirement for landlords or agents to open separate bank accounts for each property, as long as the funds are clearly identifiable, and not mixed together with other business funds of the managing agent/landlord. We would advise that you should always consult the lease to see if this is a specified requirement.
Many agents and landlords would consider it to be best practice to hold separate bank accounts for each managed property as this provides transparency for the lessees. Some may also choose to hold reserves funds separately from service charge monies, but again, unless the lease actually requires this treatment, it is not a legal requirement, nor is this a condition within the RICS Code of Practice. However it is worth noting that the RICS code of practice does require for reserves to be held in an interest earning account.
If you’d like further information on how funds held by managing agents or RMCs should be held for lessees, please give us a call on 01462 813355 or email us at firstname.lastname@example.org.
For advice, information or simply a quick chat about your service charge needs, please get in touch using our contact form