Midweek Money: Accountants who cheat leaseholders

If service charges are not properly submitted, complain. The law is on your side.

THE INSTITUTE of Chartered Accountants (ICA) is clamping down on members who fail to produce service charge accounts that comply with landlord and tenant legislation and has recently launched a number of investigations. The ICA is using its powers to fine members and is prepared, in the most serious cases, to strip them of the ability to work as "chartered" accountants.

Victor Boorman & Co, Sussex-based accountants, have just been fined pounds 1,000 plus costs following the investigation of a complaint to the ICA. It was found that the summaries of service charge costs produced over three years for eight blocks of leasehold flats along the south coast did not comply with Section 21(5) of the Landlord and Tenant Act 1985.

This is a serious breach of the law; leaseholders must be given a clear breakdown of the service charges, so that they can see how their money is spent. The flats in question are owned by Anthony John Scrivens, a landlord who has inadvertently motivated hundreds of leaseholders to unite along the south coast.

Danny McEvoy, a leaseholder living in Sillwood Gate, one of the blocks involved in the investigation, comments: "The Institute of Chartered Accountants decision to fine Boorman & Co is good news. Failure to comply with Section 21(5) is just one more thing we have found some accountants, managers and freeholders are doing to mislead leaseholders. The present system has to go."

Many leaseholders are in a similar predicament. If you are one of them, then it is worth reading Section 21 of the Landlord & Tenant Act to see exactly what your rights are and how the service charge accounts should be presented. The tenancy relations department of local authorities are good starting-points, as are the Coalition for the Abolition of Residential Leaseholds, and the Leasehold Advisory Service.

You have the right to receive a written summary of the costs relevant to the service charges payable. Flat-owners represented by a recognised tenants' association can ask the secretary to request this. The landlord must then comply with your request within one month, or six months of the end of the accounting period covered by the summary.

The details provided must state whether any of the costs relate to works in respect of which a grant has been or is to be paid under Section 523 of the Housing Act 1985. It must also show how the costs are reflected in demands for service charges. There are other requirements too, for which some accountants are currently been investigated.

Summaries must be provided of costs for which:

No demand for payment was received by the landlord within the period in question.

A demand for payment was received but no payment was made by the landlord within the period.

A demand for payment was received and payment was made within this period.

These items are crucial to making service charge accounts transparent, so that leaseholders can form a true picture of how their money is being spent.

If there are more than four flat-owners in the block then the summary must be certified by a qualified accountant who is wholly independent and therefore must not be a leaseholder on the premises or an officer, partner, agent or employee of the landlord. He or she must be a member of the Institute of Chartered Accounts, the Association of Certified Accounts or another body recognised by the Secretary of State.

If your service charge accounts do not comply with the legislation, write a short letter of complaint giving clear points of actual data to the ICA and they will carry out an investigation. If the accountant is not a member of the ICA, he or she may belong to the Scottish equivalent or another accountancy body and the ICA should be able to point you in the right direction.

The future looks promising. The possibility of introducing a regulator for accountants, managing agents, freeholders and anyone else involved in property management is currently being explored by the Government. This could be brought under the wing of the personal investment authority along with financial advisers; after all, property is one of the biggest investments, yet to date it has escaped the might of a Government regulator.

You are welcome to write to Karen Woolfson, Homebattles, c/o Nick Cicutti, `The Independent, One Canada Square, Canary Wharf, London E14 5DL. Karen regrets she is unable to reply personally to all letters.

ICA: 01908 248100. Carl: PO Box 3076, Littlehampton, West Sussex BN17 5BT. Leas: 0171-493 3116 for details of your local council's Tenancy Relations Officer