Written by Gordon Whelan is National Head of Service Charge Accounting at Haines Watts.
Give Lessees a statutory right to demand a TECH03/11 Accountant’s report
Our response to the recent government consultation, “Tackling unfair practices in the leasehold market” focused on one fundamental issue that we believe in at Haines Watts Service Charge. Everyone who contributes towards estate or service charge expenditure should have an equal and statutory right to demand an Accountant’s report prepared under TECH03/11.
Benefits of a TECH03/11 report
A common complaint by leaseholders is the quality of financial information that they receive. The service charge information can lack transparency, be difficult to understand and poorly presented. For many of the cases brought before the FTT the root cause of the problem is poor, unreliable or absent service charge accounting information.
Accounts prepared under TECH03/11 addresses all these issues. TECH03/11 also requires service charge accounts to be reported on and signed off by an independent qualified accountant. This gives assurance to the reader that the accounts have been checked and verified by an independent and qualified accountant. TECH03/11 is now recognised best practice and is included within the 3RD RICS Residential Code, The Private Retirement Housing (ARHM) Code of Practice and ARMA Q.
How would a statutory right work?
The statutory entitlement to receive a TECH03/11 report could be in line with the legislation detailed under section 21 of Landlord and Tenant Act 1985. This legislation includes the following important terms;
- The right for a leaseholder to demand a Section 21 Accountant’s report on service charge expenditure.
- On receipt of the demand the Landlord must meet the demand within 1 month of the demand or 6 months after the accounting year end whichever is later.
- Failure to meet the demand without reasonable excuse is a criminal offence and can result in a fine on the Landlord of up to £2,500 (Level 4 on the Standard Scale).
However, the section 21 report is a hopeless report, conceptually flawed and difficult to understand. A statutory right for lessees to demand a TECH03/11 report would be far more beneficial to the lessee. If the legislation could be backed up by a tougher penalty regime and the term “reasonable excuse” defined then the instances of poor or missing service charge accounts could be significantly reduced.
Conclusion
If new legislation does come out of the DCLG consultation then giving lessees a statutory right to demand service charge accounts prepared under TECH03/11 should be part of the package. Some of the arguments for this include,
- The measure should be relatively easy to introduce and involve little additional cost as it only would be enforcing what is already accepted best practice.
- Lessees would have some assurance that they have a statutory right to demand service charge accounts prepared in accordance with best practice.
- It would raise the standards of service charge reporting and result in greater consistency and transparency in service charge reporting across the sector.
