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Property Management Company

Property Management Company

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Hi

We live in a 'gated community' of 6 houses, we all pay a service charge each year for uptake of the communal areas.

At present a couple of the residents have formed a Property Management Company, incorporated at Companies House and deal with the receipts / payments through this.

My question is - does there need to be a Property Management Company in place or can it just be done less formally?

Cheers

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By eastangliantaxadvisor
03rd Sep 2012 19:21

There is a good article on this on this site.

 

See

 

https://www.accountingweb.co.uk/article/flat-management-companies-get-de...

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By forza
03rd Sep 2012 22:00

there doesn't need to be a company! they are incurring unnecessary fees and wasting their own time.

 

you should form a committee, with minutes kept for all meetings. all receipts and payments should be recorded appropriately. everything must be transparent.

 

regarding surplus income and taxation upon that - give hmrc a call.

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Euan's picture
By Euan MacLennan
04th Sep 2012 11:38

Residents' Association

This could be handled through an unincorporated association comprised of all 6 house owners.  It would still need to produce annual accounts, but not file them at Companies House, and it would still need to register for Corporation Tax, although HMRC would probably treat it as dormant, which means that they would not expect you to complete a tax return each year.

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By GRIFF1980
04th Sep 2012 15:57

Thanks for the responses - at present there is a dormant company setup limited by guarantee, dormant annual accounts are filed at companies house each year.

There is a business account, money goes in from the 6 residents and used to fund communal expenses, there is no surplus as such.

There isn't much time taken in regards to admin or any saved I assume by doing it through an unincorporated association as the recordings of the receipts / payments would still need to be taken.

 

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By GRIFF1980
04th Sep 2012 16:07

Also, only two of the houseowners are down as directors of the company, it is limited by guarantee - would it be expected that all houseowners were directors and why have they limited by guarantee?

 

Thanks

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By Chris Smail
04th Sep 2012 16:51

Best this way

Do you have a lease? If so read it and see what it says you are required to do.

Co Ltd by Guarantee holds liability, but funds held in trust for residents, so not in company accounts. Accounts would still need to be done if not incorporated to keep HMRC quiet.

Ltd by Gtee as easy to admit and expel members, just make residency a condition of membership, shares would have to be transferred to new owners.

Read the company articles, but usually all houses will have the first named leaseholders as members and they will appoint directors to mange the maintenance.

 

In short, read your lease, read your articles.

 

Chris Smail  

www.langer.co.uk

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By carnmores
04th Sep 2012 18:56

read the article

mentioned in the link - its fairly straight forward after that 

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By Hollyhurst
05th Sep 2012 11:51

The legals

On what bais is the service charge made? Mention has been made of checking the lease but the properties are houses. I suspect that these may be freehold. The transfer documents need to be checked to see if the freeholder has an obligation to pay service charges.

If you use an unicorporated "association" it becomes a little informal and at some stage could be hijacked by a small number of residents therefore any form of structured organistation is preferable (either ltd or to keep admin easier Co by Guarantee). All owners should be members, and at least one meeting a year should be held.

The problem can arise if there is no mention of any service charge in any form as some members can elect not to make any payments.

Griff: check your documents and let us know what the structure is?

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By GRIFF1980
05th Sep 2012 16:45

Brilliant thanks, will do and yes they are freehold.

 

 

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By JohnBanfield
05th Sep 2012 21:41

UTIF 92 and Residential Management Companies

Are you aware of the Landlord & Tenant Act 1987 ?

It may be the case that under S42 the monies held from the Service Charges cannot be the asset of the Ltd Company, but held on behalf of the Tenant.

Have a read of UTIF 92 to assist you with this.

I’m a Director of a Resident Management Company that looks after the Tenants interests and we are just considering the impact of UTIF 92, because we previously recorded all transactions through the Ltd co (including the cash balance as an asset). Now we are considering recording the transactions through the Service Charge accounts (in accordance with the Landlord & Tenant Act 1987), and filing dormant accounts with Companies House.

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By frauke
05th Sep 2012 22:49

Dormant accounts?

I prepare a few Resident Managment Company Accounts.  I believe they follow the Landlord & Tenant Act 1987.  The accounts show cash balances, but the moneys are held in client accounts (and therefore in trust) and not in the name of the RMC, even though they are shown on the balance sheet.. Each year there is no profit,  no turnover (only service charge receipts) and the excess receipts against expenditure is returned to the leasees, but because there are transactions/movement on the balance sheet the accounts are not dormant.  They are very simular to non-profit accounts, just in the name of a Ltd Company.

It works well, and everyone is happy,, including the solicitors dealing with the sales/purchases..

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By uktaxpal
06th Sep 2012 00:51

 

 

The most important issue is that the communal areas have not been adopted by the local authority and if the CAs include roads or other infrastructure which are  or could be expensive to maintain there could be substantial liabilities.

Check the covenants in the freehold title.

The benefit of the limited company is that it provides limited liability and imposes on the directors fiduciary duties.

Although the houses are freehold the communal areas are not.Check with your solicitor the ownership arrangements re:the CAs.

It could be the company owns the freehold of the communal areas and related communal asssets.

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By JohnBanfield
06th Sep 2012 21:16

Dormant Accounts

Very interesting Accounting treatment avoiding the P&L, but the Landlord & Tenant Act 1987 doesn't require a Balance sheet.

Regardless of the statutory accounting, the Tenants will need to have management accounts in terms of P&L to see where they are going.

If the transactions go through the ltd co, but it can't show the cash balance, then surely it has to show a debtor equal to the cash balance ?

 

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By Andrew1946
07th Sep 2012 01:36

Property Management Companys

When reading various posts of the topics inwhich I have a direct interest/involement I often become confused by the advice and comments which are given as they often seem to diifer  to what the best/correct course of action one should take.

I am currently the Treasurer/Director of a Management Ltd Co set up purely for the purpose of collecting Management Fees and Ground Rent for 51 houses of which there are 49 shareholder members.The Man Fees cover the cost ot maintaning the communal areas/property,Insurance,  the upkeep of the Gardens, and admin and professional fees. Each house in the developement is freehold, but the company does own some land in the grounds which was gifted by past owners/members. We have a Board of Directors (6) inc a Company Secretary,the directors meet formally four times a year and hold an annual AGM with all members being given a copy of the prepared Financial Statements prepared by a firm Accountants who submit the necessary annual Returns to HMRC and Companies House. Management Fees are set  and collected in advance resulting some years in a small surplus others in a deficit

I would appreciate some clear advice on whether to advise the my fellow Directors to keep the present Co. set up the same, convert it to a Residents Association, or One Ltd by Guarantee,  Does the mentioned Landlord and Tenent Act 1987  have any effect/beariing on our present set up

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By uktaxpal
08th Sep 2012 01:17

Were the houses ever leaseholds?

Do the L&T Acts and CLR apply?

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By Robert Clubb
07th Sep 2012 11:38

Keep the money outside the company

Well done John Banfield, you have hit the nail on the head.

One of our business operations is Communal Property Manangement. We got into this by chance becuase clients we acted for was so dissatisfied with, so called property management companies.

Anyway, whilst I beleive that a limited by guarantee company is advisable, eitherway, you must keep the owners money seperate. So, if the property is call XYZ House Management Company Limited, the fund  should be held in a bank account called, say XYZ House Owners Service Charge Account. Were the Ltd Co to go belly up, then the owners money is protected.

In essence, the only transactions through the company's account are likely to be accountancy and Co Hse fees. These are recoverable from the Servicve Charge account.

When the limited company's accounts are prepared, you ad a P&L and BS to those for the Service Charge transactions and state that these do not form part of the company's account.

Another important point is that, any expenditure in excess of £250 per unit in the block, must be notified, IN ADVANCE to the owners. If not settlement may not be recoverable from the owners.

 

 

 

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By Andrew1946
11th Sep 2012 13:46

Property Management

Thanks uktaxpal,

No the houses have never been leasehold

Some of the Communal Areas have been adopted i.e. the Gardens & lawns, but we cuurently plant and maintain them except for the pruning/management of mature trees ( this service is provided by the local council when budgets allow) The roads to the estate have been adopted. Another parcel of Communal Garden has not been adopted ( purchased from funds gifted by past member). 

Am I correct in my understanding that any monies held in the name of the Management Co'c various Bank A/cs should now be changed to XYZ House Owners Service Charge Account as suggested by  Robert Clubb.

I am still unsure of the advice RC suggests regarding " When the limited company's accounts are prepared, you add a P&L and BS to those for the Service Charge transactions and state that these do not form part of the company's account."   Is it likely our Chartered Accountant practice will be completely familiar with this procedure, or like myself it is somewhat breaking new ground  

the limited company's accounts are prepared, you ad a P&L and BS to those for the Service Charge transactions and state that these do not form part of the company's account. When the limited company's accounts are prepared, you ad a P&L and BS to those for the Service Charge transactions and state that these do not form part of the company's account.  

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By Andrew1946
11th Sep 2012 14:08

Property Management
Please ignore the last paragraph huge delay in the "copy and paste" function - got carried away! What is the, UTIF 92 JB, mentions one should read

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By Robert Clubb
11th Sep 2012 14:14

As Recommended by the ICAEW

The points that I raised earlier are part of recomendations by the ICAEW, following the Daejan Investments Ltd, Court of Appeal ruling.

The original ICAEW Technical Release was 01/10 and there have been various comentaries from them since.

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By uktaxpal
11th Sep 2012 20:56

What document or agreement

@A 1946

 

What document or agreement imposes an obligation on the freeholders to pay service charges in respect of the unadopted land and areas which are the responsibility of the council?Is it purely a volunary arrangement among freeholders?

 

 

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By Andrew1946
12th Sep 2012 15:16

Property Management

@uktaxpal

I think this is getting a little out of my initial depth of knowledge without delving back into the orginal Puchase of the freehold. The companys Memorandum and Articles of Association give the company a fairly broad spectrum of things it can do and perform including

"To provide service of every description in relation to the Estate and to mintain, repair, renew, redcorate,repaint, clean, landscaping and planting of any land, gardens,and grounds comprised in the Estate etc " 

When the Company purchased the freehold from the pervious owners extracts from the Original Transfer in respect of the houses within the estate reference to Schedule 4 & 5  was made and the conditions to these were likewise transferred and accepted by any subsequent Purchasers and included in the house purchase deeds/convenants . I am lead to believe that each member/householder has agreed formally  upon the orginal purchase, or subsequent purhase of a property, to pay a Ground Rent and Service Charge. Hope this is of help! 

 

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By uktaxpal
13th Sep 2012 13:53

@A 1946 OK!  It seems the

@A 1946 OK!  It seems the residents have a liability to pay service charges/ground rent and this is within the Landlord and Tenants Acts.

I think at some stage you will need to retrieve all the documents re:house purchase,covenants and company documentation.

The confusion arises because there is no clarification of what are service charge accounts and service charge accounts are to be prepared by any entity receiving service charges ie. individuals,partnerships and limited companies.

I presume there is a covenant in the freehold title to retain the limited company.

If the limited company has a bank account in its own name the Directors owe a fiduciary duty and I hold that is adequate.

The concept of a trust account by virtue of sction 42 L&T 1985 is a red herring.If you read the L&T a trust account is defined as a pool of money and not a trust.A trust could not in any case exist as it is a mixed fund as distinct from defined sums of money which are attributable to service charge payers e.g.£500 deposited by each service charge payer and unspent in its entireity in which case a court may impose a constructive trust.

I think a Trust Account is more applicable to agents.

It is important to include in service charges only items that have been agreed with the freeholders and that in any cases service charges are reasonable.On the basis of what you say only repair and maintenance expenditure is permisable.I do not understand why insurance on land is payable.Capital items should not be included in service charges.

The limited company also gives the freeholders limited liability.

I would recommend keeping the Limited Company.

 

 

 

 

 

 

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By Andrew1946
13th Sep 2012 15:28

Property Management

@uktaxpal 

Many thanks for all your advice, it is reassuring to know that at it appears we seem to be set up/operating along  on the correct  lines

Your response queried why Property Insurance, we ave two policies, one for Directors Liability and the other for Property, covering communal areas i.e. stairways, ramps ,boundary walls TV Aerials, also it includes Property owners liability cover, for the occassion should the postman meterman, delivery driiver, fall down on the  steps/ramps/walkways!

I abbreviated to some extent what the company can perform under the rules of the M&A of association, they are fairly far reaching,and as such any arising costs  within reason could be said to be recoverable from the members through the Service/Management charge. In practice however these charges only relate to general upkeep of the gardens, general maintenace, Insurance,professional fees, and honoraria payments.

You indicate capital expenditure should not be included in the Service/Management Charge, how should therefore the funding of any new equipment ie a new tractor lawn mower  be financed, if not by the members, for whose collective benifit the purchase may be made

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By uktaxpal
13th Sep 2012 17:24

@A1946 I understand the insurance issue.

Only costs specifically mentioned can be included in service charges.

Anything else can be paid from ground rents.

 

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By Hollyhurst
13th Sep 2012 22:55

Landlord & Tenant Acts

I am farly sue that the L&T Act do not apply. The properties are freehold so there is no landlord or tenant. The charge is called a rent charge

As this is the case it is important that there is

(1) a means of recovery of expenditure from all the freeholders i.e a clause in the freehold transfer document

(2) there is a proper system of management.

(3) The money held is in trust for the freeholders. I suspect that you will need to draw up trust documents then inform the bank that the cash held is in trust just to protect the funds.

(4) That the accounts are drawn up propely and sent to all freeholders.

(5) that a proper AGM is held as a reminder that all members are involved and do have a say in what happens. ( The AGM is restricted to the normal items. Then hold a discussion period. No votes are taken as the decusions are made by the directors, who have finacial resonsibilty for running the company).

(6) If a company is already in existance unless there is an overiding factor it is probably not worth while any change. If there is a choice the easiest is Co By Guarantee.

Note: for L&T act cases i.e. leaseholders - any cash is held BY LAW in trust by the company. The Bank should be told as it again protects the cash for the leaseholders.    

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By uktaxpal
14th Sep 2012 07:15

see section 18 L&T 1985

see section 18 L&T 1985-charges come within definition.

Company funds are already subject to fiduciary duties.

The company is the landlord and the freeholders are the tenants.Mention of freehold houses is a red herring.

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By Hollyhurst
16th Sep 2012 23:04

L & T Act 1985

Section 18 - Meaning of Service Charge & Relevant Costs

(1) In the following provisions of this Act "service charge" means an amount payable by a tenant of a dwelling as part of or in addition to the rent

In this case the landlord is the company but there is no "tenant" of a dwelling as the house is freehold. Yoiy can not have a freeholder as a tenant of the same property - it is one or the other.

Other acts may come into play e.g Leasehold reform Act 1967 or The Leasehold Reform Housing and Urban Developmet 1993.

If however in the situation quoted follows the outline given ealier they should not fall foul of any legislation.

 

If the legal situation still is unsure and you think it needs to be sorted further advice shoud be sought from a property lawyer or Lease

 

 

  

 

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By uktaxpal
17th Sep 2012 09:10

Yes,ground rent is payable by the freeholder in respect of communal land on which service charges are payable.SIMPLES!

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By TTID
24th Sep 2012 10:20

Hi Sorry to hijack this article but I have a question regarding service charge sinking funds.

Case is a limited company that built some flats and sold some but retained and rented out others.   Sold flats actually pay amount per year towards 5 yearly external decoration.  Company has not paid over any money in respect of flats owned and rented out.  Company is aware of this liability but how should this be shown in limited company accounts?

Eg Dr Service charge costs Cr Provisions / liabilities ?

Also is this allowable for corporation tax relief in the limited company?

 

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By carnmores
24th Sep 2012 10:33

well well

you would have hoped that a new build would not have repairs in its first 5 years - anyway i would ask why arent they being ringfenced from company general funds. and no i dont see why they should have a dedcuction if not actually transferred into ringfenced pot

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By Hollyhurst
24th Sep 2012 16:08

L and T Act 1985

I have checked and in the circumstance described the charges made to the freeholder do NOT come under the Act. They havd been confirmed as Estate Management Charges

Voids:

Any developer should pay for the "voids" and rented flats to  a Mamangement Company if you have set one up. If I was a leaseholder and was aware that the money was not being held by a management co I would not be happy!

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By uktaxpal
26th Sep 2012 02:56

What does the lease say about sinking funds?

@H  service charges are defined in LTA and section 159 CLRA 02 is applicable to EMS.SIMPLES!

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By Quayfold
17th Dec 2015 14:35

Service Charge Accounts

Our Lease is Tripartite Underlease. The RMC 2nd party a registered limited company limited by shares (£1. each flat) holds Superior Lease. The flats are held in trust for the Lessor a Housing Association (exempt charity) (1st party) with declaration of trust in Lease. The Estate retained under the Freehold has fixed  EMS charge not collected since 2007.

The RMC has not supplied any Annual Summary of Costs as set out in the Lease for several years.  The LVT made Decisions and Determination 2010 and breach LT (Regulations) and dismissed last application for failure by RMC to produce Annual Summaries. 

The MA appointed without consultation in 2014 is paying service charge into their Account. CH register shows Nil Returns for the RMC signed off by a Director who does not hold legal title and not entitled to act as Trustee on Trust. I believe the refusal to supply Summaries is because the RMC either has no bank account or does have one as a business account and Nil Returns to conceal large debts shown on ARs between 2007 to 2012.  I believe S.C payments into the MA account and not into RMC account may make flat owners liable for these hidden debts. I believe this is a derogation of the Lease.

Advice from anyone.  No Meetings since 2010.  No prior warnings about long term agreements and works.

No way of contacting other leaseholders.  I understand the RMC operates as a collective and there is no landlord, as such.

 

 

 

 

 

 

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