Question 1

Service Charge Trust Account

Accepted Answer

I am endeavouring to set up a Service Charge Trust Account and should be grateful for advice. It is proving difficult as our Bank does not seem to understand the concept in relation to Leasehold property. I recall many articles I have read on this subject, however, I cannot seem to track down the latest requirements and how to go about implementing them. It appears to me that the problem is the Banks are not familiar with the Legal requirements. Your views, comments and suggestions would be welcomed. The FPRA replied: This is a difficult area to advise on and it is not uncommon for banks to be unsure of the issues. Under section 42 of the Landlord and Tenant Act 1987, service charge funds are funds held in trust for the lessees. Service charge funds are not company funds and therefore best practise is to the hold the funds separately from company funds in a separate “ring fenced” bank account. Options available to you are as follows,

Ask the bank to open a second bank account and to use this bank account for service charge transactions only. Inform the bank in writing that the account is to be used for service charge funds only and therefore the funds are held in trust on behalf of the lessees and there is no right of set off with the other Company bank account.
Set up a new bank account outside of the of the company account (e.g. in the name of the residents association) and only put service charge income and expenditure through this account.

However, if the company does not have any income (it does not collect ground rents and has no other income of its own) and the lessees and shareholders/directors are one and the same then the distinction between company funds and trust funds becomes academic. In these circumstances the company account can be set up as normal and operated as a normal company bank account. The legal position has not changed and the funds held by the company are still held in trust even if the name on the bank account is in the name of the company.

Question 2

Service Charge Trust Account

Accepted Answer

I am endeavouring to set up a Service Charge Trust Account and should be grateful for advice. It is proving difficult as our Bank does not seem to understand the concept in relation to Leasehold property. I recall many articles I have read on this subject, however, I cannot seem to track down the latest requirements and how to go about implementing them. It appears to me that the problem is the Banks are not familiar with the Legal requirements. Your views, comments and suggestions would be welcomed. The FPRA replied: This is a difficult area to advise on and it is not uncommon for banks to be unsure of the issues. Under section 42 of the Landlord and Tenant Act 1987, service charge funds are funds held in trust for the lessees. Service charge funds are not company funds and therefore best practise is to the hold the funds separately from company funds in a separate “ring fenced” bank account. Options available to you are as follows,

Ask the bank to open a second bank account and to use this bank account for service charge transactions only. Inform the bank in writing that the account is to be used for service charge funds only and therefore the funds are held in trust on behalf of the lessees and there is no right of set off with the other Company bank account.
Set up a new bank account outside of the of the company account (e.g. in the name of the residents association) and only put service charge income and expenditure through this account.

However, if the company does not have any income (it does not collect ground rents and has no other income of its own) and the lessees and shareholders/directors are one and the same then the distinction between company funds and trust funds becomes academic. In these circumstances the company account can be set up as normal and operated as a normal company bank account. The legal position has not changed and the funds held by the company are still held in trust even if the name on the bank account is in the name of the company.

Service Charge Trust Account

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