Question: For the past 10 years the residents of a block of 29 flats have been running a residents management company. Time and age has caught up with us and last December we passed over the running of the building to a property management company with whom we are very satisfied. We need to transfer our large sinking fund money to this Company and this poses three questions, which I hope you can answer. The money will be put into a trust account titled Customer account.
1. What would happen to our money if the company went into liquidation?
2. What could happen to our money if the company was taken over?
3. Can we take out an insurance against theft of our money or similar?
Answer: The bank account in which your sinking fund money is placed should be particular for your block and should have in its title the word “Trust” or “Client”. That is sometimes abbreviated on the cheque book to CPA (Clients Premium Account) and it is a copy of the bank mandate you should look at to establish that the account has been properly named.
If the management company then went into liquidation, your sinking fund monies would not be part of the assets with which the liquidator or other insolvency practitioner can use to satisfy the debts of the company.
The Sinking Fund monies would have been effectively ring fenced. Incidentally, the same applies to your ordinary service charge monies providing they are placed in a Trust or Client Account. If the management company is taken over then, subject to any contrary agreements you reach with the new management company, your monies are protected and ring fenced in the same way.
Recovery after a theft has occurred is problematic, it very rarely happens, your managing agent should be covered by professional indemnity insurance cover against which you would claim, and you should expect to see the terms of his cover shortly after each year’s renewal. Your managing agent ought not to object to provide you with a copy. If your management company belongs to a reputable body (ARMA or RICS) they insist on checking the professional indemnity insurance cover of each of their members every year.
The RICS has a bonding scheme but with a financial limit. Far better to protect yourselves before any theft occurs: if for any reason, you are asking these questions because of particular concerns you have, then I question whether you should be with that managing agent in the first place.
