One of the key requirements for effective property management is pro-active and effective communication with lessees. This is particularly true when it comes to conveying service charge financial information. Well-presented, annual service charge accounts prepared under best practice guidance, TECH03/11 can go some way to achieving this. However, is this sufficient? Is there a case for something more, such as interim financial statements prepared on a quarterly or half year basis?
The benefits of an interim financial statement
On the face of it, the arguments for interim financial reports are compelling, and ongoing and meaningful communication with lessees can never be bad. Some of the more obvious benefits of interim financial reports include,
- Interim reporting gives lessees a progress report on expenditure during the year and against budgeted expenditure.
- There is an opportunity for the managing agent to be pro-active and for the information to be forward looking as well providing details on historical costs.
- There are no constraints on the format of an interim report and it does not need to follow best practice or the requirements of the lease. This gives more scope for effective communication with lessees.
- It can encourage dialogue between the managing agent and lessees and it can give directors of Residents’ Management Companies early warning signs of problems that may arise on completion of the year end accounts.
- The production of interim reports requires good internal controls and effective accounting procedures. Up to date information provided throughout the year gives lessees confidence that their money is being well managed.
Proportionality and special circumstances
One of the disadvantages of interim reporting is the cost of preparing the additional reports and lessees may be unwilling to pay for the reports. In view of this, interim reports are probably only feasible for large properties or developments where the annual service charges are significant (e.g. more than £100,000). In these circumstances, the additional cost per lessee to produce the reports can be easily supported. There are also special circumstances when a statement could also be useful. These include,
- Providing feedback on major works programmes
- Supporting an interim service charge demand
- Explaining the circumstances behind difficult cash flow situations such as slow debtor payments or unexpected significant expenditure that will arise within the service charge year.
The one page “flash” report
One of the advantages of an interim statement is that the format is not defined and this gives the managing agent the license to present the information in the most creative and effective way possible. This provides the opportunity to move away from the traditional layout of service charge accounts as defined in TECH03/11.
An alternative approach would be to produce a one page “graphical “flash” statement summarising the key information at the half year or quarter year end. At Haines Watts we have experimented with these reports within the annual service charge accounts. An example of this type of report is given below:
Conclusion
Service charge accounting information falls into two categories. The form and content of annual service charge accounts is largely defined and the accounting information must follow the lease or best practice guidance, TECH03/11.
Additional information provided on an “ad hoc” basis or at fixed interim stages throughout the accounting year has no such restrictions. The only requirement for these reports is that they are effective communication tools that add value to the leaseholder experience.
Written by Haines Watts
