Do service charge accounts need to be ‘signed off’ by an accountant? And does the commencement date of a Right to Buy Lease need to be the same as the start date?

By | 07.10.2018

Reader’s E-mail:

I live in a block of 6 local authority flats: 2 leaseholders 4 tenants. Do the council have to audit the annual service charges or have a verified accountant sign them off? There is nothing in the lease that says so but I heard that councils have to do this if there are more than 4 flats in a block.
Also, the commencement date of my lease is 125 years from date of lease and not of when the first flat was sold in the block. Is this right?

Reply from Service Charge Dispute Guide

For ease of comprehension, we would like to reply to your enquiry under two sub-headings:

1. Do the annual service charge accounts need to certified by an accountant?

i. At the present time there is no legal requirement for an accountant, independent or otherwise,to certify or audit a service charge account unless a requirement to do so is stated in your Lease.

ii. There is lot of confusion over this point, and understandably so. The reason for the confusion is Section 152 of the Commonhold and Leasehold Reform Act 2002 stated that new wording would be introduced under Section 21 of the Landlord and Tenant Act 1985. Section 152 included a provision for all annual statements of account to be certified by an accountant.

iii. In the end, and this is where the confusion comes from, Section 152 was never brought into force. The provisions of an Act of Parliament do not normally become law until there is a further Order (in this case a Commencement Order) saying that the new rules and regulations are in effect. In respect of Section 152 this Order never materialised, and new proposals to amend section 21 were included in Schedule 12 of the Housing and Regeneration Act 2008.

2. Can the Commencement Date and the Lease Start Date be the same?

i. In respect of Leases sold under the Right to Buy, Landlords have the option of making the commencement date (this means the date when the term of the lease starts) either 1) the date which given as the commencement date for the first property sold in the same building or 2) another date after the date when the term of the lease began for the first property sold in the same building.

ii. If the commencement date and the start date are the same in your Lease then it is not a problem. Either the Council made an administrative error or they chose not to make the term of your lease coincide with the expiry of the other leases sold in the same building.

iii. For the technically minded of our readers, please refer to Schedule 6 of the Housing Act 1985, the relevant subsection is 12 (3) in Part II of the Schedule:

“If the dwelling-house is a flat contained in a building, which also contains one or more other flats and the landlord has, since 8th August 1980, granted a lease of one or more of them for the appropriate term, the lease of the dwelling-house may be for a term expiring at the end of the term for which the other lease (or one of the other leases) was granted.”

iv. Please note the use of the word ‘may’ in this passage above indicating that a Landlord may choose to opt of the requirements under points (1) and (2) of Subsection 12 of Schedule 6, and thereby effectively shorten the period of time for which the property current be used by the original Leaseholder and any subsequent assignees. The use of the term ‘may’ does not suggest that it is a legal requirement for a Right to Buy Landlord to shorten the period of use in that way, but rather that they option of doing do.

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