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Section 78 (Purpose of a Management Audit)

Summary

1. This section states:

i. The purpose of a management audit.

ii. Who is allowed to carry one out.

What is the purposes of a management audit?

1. Section 78 states that a management audit has two objectives:

i. To determine the extent to which a Landlord has fulfilled their obligation under the terms of the relevant leases, and the law, in respect of the dwellings concerned, the building and any other associated facilities and parts of an estate for which a Service Charge is payable.

ii. To determine whether the sums collected as a Service Charge are being used in an ‘efficient and effective manner’.

2. The legislation does not give a precise definition of what it means to use Service Charge contributions in an efficient and effective manner. This will be left up to the Court or Tribunal to decide if a claim against the Landlord, or an Application to a Tribunal, is made.

3. It should also be noted that Section 78 specifically states that ‘regard’ should be given to any code of practice approved under Section 87 of the Leasehold Reform, Housing and Urban Development Act 1993 in determining both types of issues listed above. Currently approved codes of practice (as of August 2014) include the RICS Service Charge Residential Management Code 2nd Edition.

Who can carry out a management audit?

1. Section 78 states that the types of professional are eligible to carry out a management audit are:

i. A ‘qualified surveyor’. To be a qualified surveyor a person must be a fellow or professional associate of the Royal Institution of Chartered Surveyors or of the Incorporated Society of Valuers and Auctioneers. The person also cannot be a tenant of the relevant premises, or have been previously disqualified from acting for Leaseholders in a management audit.

ii. A ‘qualified accountant’. For more information who counts as a qualified accountant see our guide to Section 28 of the Landlord and Tenant Act 1985 as the same rules apply

2. The person doing the management audit may then appoint any person they see fit to assist them. For instance, an accountant may call on the assistance of someone they believe to be qualified to assess the condition of the building. In the event of claim or Application being made against the Landlord it will be up to the discretion of a Court or Tribunal to decide whether the person chosen to assist the auditor is suitably qualified.

Click on the link to read more about the Leasehold Reform, Housing and Urban Development Act 1993