QUESTION

We are owner-occupiers in a development of leasehold flats. The previous owner continues to act as the development’s managing agent. There are now a number of unresolved management issues, one of which is that there is no evidence that the service charge accounts have been audited. What rights do we have to influence the auditing?

ANSWER

Most properly presented annual service charge accounts are signed by a managing agent or an accountant to certify their accuracy. Indeed, the Government is in the process of drafting regulations that will make it compulsory for annual service charge accounts to be certified by a properly qualified person. However, an audit is a much more thorough (and expensive) process than certification, because an audit involves a painstaking check of all the landlord’s expenditure by an independent accountant.

There is no general legal requirement for service charge accounts to be audited, but there are three ways that you can usually get one. First, some leases specifically require an annual audit of the service charge accounts. A landlord who fails to comply with such an obligation is breaking the terms of the lease.

Second, an annual audit is recognised as best practice by the Royal Institution of Chartered Surveyors. The RICS Residential Service Charge Management Code specifically says: “Unless the costs of an audit cannot be recovered, service charge accounts should be audited by a suitably qualified accountant who complies with the requirements laid down in Section 28 of the Landlord and Tenant Act 1985.”

Agents who are members of the RICS must comply with this code of practice. Moreover, the code effectively binds all landlords (even those who do not use an RICS managing agent) because it has been approved by the Government as official guidance for the management of property. A breach of any such code is a ground for the appointment of a statutory manager under Section 24 of the Landlord and Tenant Act 1987. Residential leaseholders who believe that their landlords have not complied with the code can ask a Leasehold Valuation Tribunal to replace the managing agents with a special manager under the tribunal’s direct control.

Third, leaseholders have the right to ask for a full management audit under the Leasehold Reform Housing and Urban Development Act 1993. Provided that two thirds of the leaseholders serve a notice on the landlord asking for an audit, the landlord must co-operate with the auditor chosen by the leaseholders. However, the cost of the audit is met by the leaseholders who serve the notice — not the landlord.

The writer is a barrister at Tanfield Chambers. Questions? E-mail:

brief.encounter@thetimes.co.uk

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