Who engages Accountant for Service Charge Accounts

Is it the Man Co/ The Landlord or the Management Agent who engages the Accountant for Report?

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I work of a Managing agent and we currently have all reports on factual findings on our Service Charge Accounts addressed to us, on the basis that we have engaged the Accountants. However as we are agents for the Management Company / Landlords in all cases, my FD wants to have separate letters of Engagement for each Landlord or Man Co, on the basis that we are not engaging the accountants to produce the report, they are.

This makes sense to me however I am reluctant to do this if not necessary due to the large amount of admin this will cause and the potential delays. While I cannot see any logical basis the we would be engaging the Accountants two factors make me think this isnt an issue.

1. The fact that there are numerous Accountants that have accepted the engagemnet being from us and yet invoiced the Management Company or Landlord.

2. The Technical Guidance suggests there are senarios where the engagement will be made by the Managing agent.

However i cant see the justification. Is anyone able to assist?

Replies (7)

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RLI
By lionofludesch
06th Mar 2017 16:57

Unless the articles or some other document says otherwise, the company, through its directors, appoints the accountants.

It's just like any other company.

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By johngroganjga
06th Mar 2017 17:00

I am sure that in 99.9% of cases the managing agents deal with accountants as agents for their clients - the landlords.

I am not sure what you are saying about engagement letters. If you agree with my analysis that the contractual relationship is between the accountant and the landlord, why does the managing agent need an engagement letter?

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paddle steamer
By DJKL
06th Mar 2017 17:11

And in Scotland, where there is likely no company say holding freehold etc ( as we have very different laws re land tenure, the sort of equivalent to freeehold is generally indivisible from the individual flats and held in common pro indiviso amongst the flat owners), the right to appoint a Managing Agent, and the power of the Managing Agent to instruct and remunerate other professionals, has more recently usually been embodied within a Deed of Condition, which will invariably be a recorded Deed embodied within the property title/ registry entry for each individual flat/similar within the development- each being bound by its terms.

Older properties up here can though be a nightmare re enforcement.

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Euan's picture
By Euan MacLennan
06th Mar 2017 18:51

I think that the Lion and John may not fully appreciate the law set out in the Landlord and Tenants Acts on preparing service charge accounts.

We do hundreds of resident management companies where we prepare service charge accounts (and dormant statutory accounts), in accordance with the ARMA accounting standard, under which we report to the tenants (not their residents management company) on the managing agent's handling of the service charges paid by them (the individual residents/tenants). The legal obligation to prepare service charge accounts rests with the entity (the managing agent) which receives the variable service charges. We are instructed by the agents, we invoice the agents and we are paid by the agents. Apart from preparing dormant company accounts, we do not act for the resident management company in any way.

We have a separate engagment letter for each resident management company's service charge accounts, which is addressed to and signed by the agent.

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Replying to Euan MacLennan:
By johngroganjga
06th Mar 2017 18:58

If the service charge accounts are prepared for the managing agent, not the landlord, I stand corrected. As you say, when the landlord is a company, and an accountant prepares that company's accounts (dormant or otherwise) the accountant is undoubtedly acting for the company not its managing agent. That is the situation I had in mind.

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Replying to johngroganjga:
Euan's picture
By Euan MacLennan
07th Mar 2017 14:05

In many cases, there is no actual landlord involved as the residents management company does not own the freehold. The problem is that the Landlord & Tenant legislation was intended to provide some protection to tenants where the landlord received and disbursed the service charges, but does not properly address the issue where the landlord is not involved. In these circumstances, whoever receives the tenants' variable service charges is deemed to be the "landlord" with the responsibility for producing service charge accounts for the tenants/residents.

That said, I concede that the preparation of dormant statutory accounts for a residents management company which does not own the freehold should, strictly speaking, be the subject of a separate letter of engagement with the company. However, we take the view that two engagement letters for every residents management company is overkill when the statutory accounts contain no figures (most of them are limited by guarantee), so we just include a paragraph in the agent's leter of engagement for the service charge accounts.

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By bajones
07th Mar 2017 09:04

I don't agree that it's that simple.

In the absence of any meaningful legislation, the service charge accounts are merely the schedule of costs of under S21 L&TA 1985, which the landlord is obliged to provide to the tenants within 6 months of the year end stated in the lease.

By default, collection of the service charges (and the preparation of the schedule of costs) is the legal responsibility of the landlord or their agent.

Clearly, where the RMC owns the freehold, they are the landlord so they (or their agent) are responsible for it.

However, where a group of tenants have exercised their right to manage, or the landlord has recognised them as a tenants association and has handed over the management to them, or they have been granted the management by a tribunal after proving mismanagement by the landlord, they are the principals, and the engagement letter should be addressed to them (or their agents).

In any event, where instructed by a managing agent, the agent is signing the LOE in their capacity as agent. They are never the principals. ARMA still work from Tech 03/11, and this states several times that the service charge accounts are to be prepared by the landlord or managing agent on the landlord’s behalf".

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