Here are just a few of the things that leaseholders can find out from the Service Charge Accounts:
The surplus or deficit for the year
Leaseholders will be interested in whether they need to find more money for the service charge than originally demanded or whether they are due a refund:
The income and expenditure page in the accounts will show whether there is a surplus for the year or a deficit for the year.
A surplus for the year arises where the service charge demanded exceeds the costs for the year. Most leases specify that a surplus should be credited to the leaseholder, however some specify that any surplus can be transferred into the reserve funds. The credit to the leaseholder might be applied so that you pay less service charge the next time or you may receive a refund cheque.
A deficit for the year arises where the costs for the year exceed the service charges demanded. Virtually all leases will state that the deficit for the year should be collected from the leaseholders.
The RICS residential service charge code advises that “Unless the lease states otherwise, you should not use any reserve fund as a float for the credit of surpluses and the debit of any deficits.”
There should be a line at the bottom of the page stating the surplus or deficit for the year.
What caused the surplus or deficit for the year?
Leaseholders will want to know why the service charge is different to budget, particularly when they need to contribute towards a deficit.
It is best practice for service charge accounts to include the budgeted expenditure for the year. This means you will be able to see which expenditure types were higher than budget.
For example you can see here that repairs were £100 higher than budget and this has caused the £100 deficit for the year:
Are all the costs of the service charge being contributed to by everyone in the block?
Leaseholders will want to know whether all their fellow residents are contributing to all the same services as them.
It is important to remember that it is the individual leases which set out the legal responsibility for leaseholders to contribute to various shared expenses.
If all the leaseholders are contributing to the same shared costs then there will normally be one income and expenditure account with one surplus or deficit.
For example, if the leases state that ground floor residents do not contribute towards the lift but that first floor residents do then there will normally be two income and expenditure accounts:
One for any service charge and expenditure relating solely to the lift and one for all other service charge and expenditure.
The Accountant’s Report
This is an important section of the service charge accounts. The report gives confidence to all interested parties that the service charge accounts have been checked by an independent firm of accountants. The report will detail the type of work carried out by the accountant. The confidence in the report will be enhanced if the accountants are experienced in service charge accounting.
Written by Haines Watts.
