Section 42A (Service Charge Contributions to be Held in a Designated Account)

Summary (NB: Section 42A is Not in Force)

1. The current wording of Section 42A was introduced by Section 156 of the Commonhold and Leasehold Reform Act 2002, and subsequently amended by Schedule 12 of the Housing and Regeneration Act 2008.

2. Section 42A of the Landlord and Tenant Act 1987 has never been brought into force, except in so far as the wording of the Act confers rights upon the Government to make regulations, which to date they have not done.

3. In respect of Section 156 of the Commonhold and Leasehold Reform Act 2002 the relevant commencement order is  The Commonhold and Leasehold Reform Act 2002 (Commencement No. 1, Savings and Transitional Provisions) (England) Order 2002. See Article 2(c).

4. In respect of Schedule 12 of the Housing and Regeneration Act 2008 the relevant commencement order is The Housing and Regeneration Act 2008 (Commencement No. 2 and Transitional, Saving and Transitory Provisions) Order 2008. See Article 4 (6).

5. Leaseholders cannot therefore rely on Section 42A in respect of withholding their Service Charges and they cannot demand that their Landlord comply with these requirements.

6. Were Section 42A to be brought into law it would require that Service Charge contributions held under a trust fund (see Section 42 of the Landlord and Tenant Act 1987) must be deposited in a designated account of a relevant financial institution.

What does a ‘designated account’ mean under Section 42A?

1. It means two things:

i. That the financial institution holding the money must have been notified in writing that the purpose of the account relates to a trust fund for service charge contributions.

ii. The account must only hold monies relating to the trust fund.

Rights to Information about designated accounts.

1. Under Section 42A any leaseholder contributing to the trust fund, or (with their consent) the secretary of a recognised resident’s association of which they are member, has the right to request in writing to inspect documents which prove that relevant service charge contributions are held in a designated account, and be allowed to take copies of these documents, or have copies made for them to collect.

2. Writing notice is considered to have been ‘served’ on the Landlord if it is sent to the person or organisation to whom the service charge is paid, or person or organisation the Leaseholder is directed to pay, such as an agent of the Landlord. Once the notice is served. If this person or organisation is someone other than the Landlord they must forward the written notice to the Landlord ‘as soon as may be’. Once the Landlord receives the notice they have 21 days to comply.

3. Access to such documents, and copies if requested, must be provided free of charge although the Landlord may include the cost of doing this with in the management element of the Service Charge.

Withholding Service Charges

1. Section 42A states that if a Leaseholder has ‘reasonable grounds’ for believing that their Landlord has not kept the relevant service charge contributions in a trust fund held in a designated account then they may withhold payment of their Service Charge. The Landlord may not impose penalty charges on Leaseholders who withholds payment for this reason.

2. The legislation does not give any definition of what constitutes ‘reasonable grounds’ for believing that a Landlord has not kept the money in a designated account, and were the provisions of Section 42A ever to be brought into force it would be left up to the discretion of a court or tribunal to decide.

Relevant Case Law

See the section of our case law library on Reserve Funds

Click on the link to read more about The Landlord and Tenant Act 1987