RICS Code of Practice 2016

Code of Practice
Service charge residential management Code

and additional advice to landlords, leaseholders and
agents
3rd edition
1
Important note
The following parts of this document are approved by the Secretary of State under the Approval of
Code of Management Practice (Residential Management) (Service Charges) (England) Order 2016.
(S.I. 2016/518)
All parts except ‘RICS guidance notes’.
This Code has an effective date of 1st June 2016
Contains public sector information licensed under the Open Government License v2.0.
Published by the Royal Institution of Chartered Surveyors (RICS)

Parliament Square
London
SW1P 3AD
www.rics.org
No responsibility for loss or damage caused to any person acting or refraining from action as a result
of the material included in this publication can be accepted by the authors or RICS.
Produced by the Residential Property Professional Group of the Royal Institution of Chartered
Surveyors.
ISBN 978 1 78321 141 8
© Royal Institution of Chartered Surveyors (RICS) 2016. Copyright in all or part of this publication
rests with RICS. No part of this work may be reproduced or used in any form or by any means
including graphic, electronic, or mechanical, including photocopying, recording, taping or
Web distribution, without the written permission of the Royal Institution of Chartered Surveyors or in
line with the rules of an existing licence.
Typeset in Great Britain by Columns Design XML Ltd, Reading, Berks.
2
Acknowledgments
RICS would like to acknowledge the following people for their assistance in the research
and writing of this Code:
Technical author
Janie Strange, FRICS, FIRPM (Institute of Residential Property Management)
Working group
Gerry Fox FRICS FIRPM (RICS)
Martin Green (CIH)
Nicholas Kissen (Leasehold Advisory Service)
Martin Perry MIRPM (ARMA)
Guy Pewter FRICS (RICS)
Shula Rich (FPRA)
Mary Louise Wedderburn FCA (ICAEW)
Richard Wheeldon (ARHM)
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Contents
Contents 4
Special note 10
Glossary 11
Foreword and application of the Code 15
RICS guidance notes Error! Bookmark not defined.
Part 1 Definitions applicable in this Code 20
1.1 Must/should 20
1.2 You 20
Part 2 Ethics 21
2.1 Introduction to ethics and professionalism 21
2.2 Core principles 21
2.3 Dealing with conflicts of interest 22
2.4 Understanding discrimination 22
2.5 Equality Act 2010 22
2.6 Vulnerable customers 22
2.7 Responsibility for others 23
Part 3 Appointment of a managing agent: securing instructions 24
3.1 Introduction 24
3.2 Contract (management contract/management agreement/terms of engagement) 24
3.3 Fees and charges 25
3.4 Annual fee 25
3.5 Menu of charges 26
3.6 Other income 27
3.7 Company secretarial services 27
Part 4 Duties/conduct of a managing agent 28
4.1 Introduction 28
4.2 General property management activities 28
4.3 Data protection 28
4.4 Applications for consent 29
4.5 Withholding services 29
4.6 Contact 30
4.7 Inspection 30
4.8 Forcible entry 30
4.9 Personal safety 31
4.10 General 31
4
4.11 Consultation 31
4.12 Income tax 32
4.13 Money laundering 33
4.14 Bribery 33
4.15 On-site staff 33
Part 5 Complaints and disputes 35
5.1 Introduction 35
5.2 Disputes between occupiers 35
5.3 Disputes between landlord and leaseholder 35
5.4 Complaints 36
5.5 Alternative dispute resolution and mediation 37
5.6 First-Tier Tribunal – Property Chamber 38
5.7 Redress (Ombudsman) schemes 38
Part 6 Accounting for other people's money (client money) 39
6.1 Introduction 39
6.2 Bank accounts 39
6.3 Records 41
6.4 Ending the instructions and handover process 41
6.5 Written confirmation of termination 41
6.6 Handover of documentation 42
6.7 Accounting for client monies and service charge funds upon termination 42
Part 7 Service charges, ground rent and administration charges 43
7.1 Introduction 43
7.2 Variable service charges 43
7.3 Budgeting/estimating service charges 44
7.4 Applications to the FTT 45
7.5 Reserve funds (sinking funds) 45
7.6 Holding service charge funds in trust 46
7.7 Demanding service charges 48
7.8 Service charge arrears 49
7.9 Forfeiture 49
7.10 Accounting for service charges 50
7.11 Tax 51
7.12 Summary of costs 52
7.13 External examination of service charge accounts 54
7.14 Ground rent 54
7.15 Administration charges 55
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7.16 Surpluses and deficits 55
7.17 Appointment of a surveyor or manager 56
Part 8 Health and safety: risk management 57
8.1 Introduction 57
8.2 Employers/employees 57
8.3 Risk assessments 57
8.4 Fire risk assessments 58
8.5 Control of asbestos 59
8.6 Gas safety 59
8.7 Electrical equipment 60
8.8 Furniture and furnishings 60
8.9 Hazardous substances 60
8.10 Working at height 60
8.11 Manual handling 61
8.12 Water risk assessments 61
8.13 Construction 61
8.14 Signs and signals 62
8.15 Lifting equipment 62
8.16 Personal protective equipment 62
8.17 Environmental protection 63
8.18 Pressure systems 63
Part 9 Repairs and other services 64
9.1 Introduction 64
9.2 Repairs 64
9.3 Planned and cyclical works 65
9.4 Services 65
9.5 Bulk buying 66
9.6 Central utility supplies 66
9.7 Access 66
9.8 Forced entry 67
9.9 Consultation 67
9.10 Section 20 consultation 68
9.11 Qualifying long-term agreements 68
9.12 Qualifying works 69
9.13 Emergencies and escalation of works 69
Part 10 Contractors and suppliers 71
10.1 Introduction 71
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10.2 Selection, approval and tendering 71
10.3 Health and safety method statements 72
10.4 Monitoring 72
Part 11 Works to extend or develop an existing block or new phase 73
Part 12 Insurance 74
12.2 Obligations 74
12.3 Financial Conduct Authority 75
12.4 Reinstatement valuations 75
12.5 Placing insurance 75
12.6 Remuneration including Commissions 76
12.7 Claims 76
12.8 Excess 77
12.9 Other insurance 77
Part 13 Provision of information 78
13.2 Landlord’s name and address 78
13.3 Management policy 79
13.4 Landlord’s change of address 79
13.5 New landlord 79
13.6 Change of occupier or correspondence address 80
13.7 Change of managing agents/managers 80
13.8 Demands for service or administration charges or ground rent 80
13.9 Sales of individual dwellings 80
13.10 Pre-contract enquiries 81
Part 14 Residents'/tenants' associations 82
14.2 Recognition 82
14.3 Appointment of managing agents 82
14.4 Accounts, receipts and other documents 83
14.5 Management audit 83
14.6 Insurance 83
14.7 Nomination of contractors 83
Part 15 Right to Manage 84
15.2 Rights 84
15.3 Right to Manage on part only of a development 84
7
Appendices 87
Appendix A: Lease variations 87
Appendix B: Statutory rights of leaseholders 89
Appendix C: Information leaseholders can expect to receive during the ownership of a flat 95
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9
Special note
The Code does not contain authoritative or comprehensive statements of the relevant
law. If you are in doubt about the statutory rights or are considering taking legal action
you would be well advised to consult a solicitor, qualified surveyor or other suitably
qualified professional or to seek information from a Citizens Advice Bureau,
community legal advice centre, or through the Leasehold Advisory Service (LEASE). You
should also consider mediation.
The existence of this document, and where it can be seen and/or purchased, should be
brought to the attention of all leaseholders of relevant private sector dwellings.
This Code only applies to properties in England. Except where indicated in the text, all
the requirements are upon the managing agent (who may be the landlord, a manager,
or another) who is therefore addressed as ‘you’. In this connection it is therefore
important to read the definitions and glossary before studying the Code itself.
Some paragraphs in the Code are deliberately repeated in different sections for clarity.
(Note: For convenience this Code has been written as though the manager is not the same
person as the landlord. Where the manager is the landlord, they are responsible for
complying with the Code). See Part 1, Definitions applicable to this Code.
The Code does not apply where the landlord is a public authority (or an arm’s length
management company contracted by the public authority) or a non-profit registered
provider of social housing, unless in cases where it acts as an agent managing private
sector accommodation. The exclusion from the Code of such landlords occurs because
of fundamental differences which apply to the legal provisions relating to the service
charges which they apply, their accounting rules and the overall nature of their
finances. The Chartered Institute of Housing Practice Briefs: Managing Home
Ownership and Promoting Home Ownership (available at www.cih.org) offer best
practice guidance relevant to public sector authorities and registered providers and the
Association of Retirement Housing Managers (ARHM) for retirement leasehold
properties (www.arhm.org).
Members of any professional bodies continue to be bound by the rules of those bodies,
subject to there being any statutory requirements that conflict with those rules. This
Code does not override any statutory requirement, and you should be aware of all
the applicable legislation concerning the management of residential premises and
service charges. This Code also gives guidance on best practice.
To ensure that this document maintains its effectiveness readers are invited to make
comments in writing to RICS so that its contents can be kept under review. Please send
your comments to:
Residential Professional Group

The Royal Institution of Chartered Surveyors
Parliament Square
London
SW1P 3AD
[email protected]
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Glossary
This glossary provides the definitions of terms, most of which are based on those used in
the RICS UK Residential property standards. These definitions may differ from strict legal
definitions.
Client A person or organisation who has instructed you or your

organisation to act on its behalf. For example, this may
include the freeholder, superior leaseholder, residents'
management company or right to manage company.
Client money The term used to describe all money held or received by
a managing agent over which they have control but
which does not belong to the agent or their
organisation. It is not restricted to money held on behalf
of a client. It can include rents, service charges, reserve
funds, deposits and retentions in respect of taxation
obligations. It is a statutory requirement to hold service
charge contributions in trust.
All client money that is service charge money should

therefore be held in a separate bank account that
includes words in its title to clearly indicate that it is
'client money'.
The term used in this Code for such a separate bank

account is 'service charge bank account'.
Conflict of interest Circumstances in which an agent has an interest that

could appear, or potentially appear, to influence the
objective exercise of their professional duties.
Contingency A future expense which is possible but cannot be

predicted with certainty at the moment. Contingencies
are usually for excess unforeseen day-to-day expenses.
(see Reserve/sinking fund)
Contract The contract between the landlord and managing agent

setting out the terms of appointment. Also known as
Management Agreement, Management Contract or
Terms of Engagement (the term ‘Contract’ is used in
this Code)
Customer Any person who, either directly or indirectly, receives

the services of a managing agent.
Fidelity insurance An insurance to protect organisations from loss of

money etc. resulting from crime, including employee
dishonesty.
First-tier Tribunal Formerly called the Leasehold Valuation Tribunal (LVT).

(Property Chamber) The First-tier Tribunal – Property Chamber (Residential
(FTT) Property) provides impartial adjudication in England for
settling disputes involving leasehold and private rented
property.
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www.justice.gov.uk/tribunals/property-chamber
Flat Covers any dwelling unit separated from others

horizontally (and possibly vertically as well), or from
commercial premises. However, the 'flat' could be a
maisonette or duplex on more than one floor and can be
in purpose-built blocks as well as conversions and
mixed-use buildings or estates.
Ground rent A rent payable to the landlord by the leaseholder on a
specified date as required by the lease, subject to a
statutory demand served by or on behalf of the
landlord.
House Any dwelling for the purposes of this Code which is not
a 'flat' is referred to as a 'house'. (This definition is not
the same as the definition of 'house' contained in the
Leasehold Reform Act 1967).
Interest in land A form of legal title in land, for example freehold,

leasehold or commonhold interests. (For definitions of
these terms, you should consult your legal adviser.)
In writing, or written Typed or handwritten letters/notes, emails, faxes and

Braille.
Landlord The person or company which owns and rents or leases

a flat or house. This person may also own the freehold
or may have a superior leasehold interest in the
property themselves but is not the manager.
(Note: For convenience this Code has been written as

though the managing agent is not the same person as
the landlord. Where the managing agent is the landlord,
they are responsible for complying with this Code.)
Lease/tenancy agreement The legal contract between the landlord and the
leaseholder/tenant by which the leaseholder is allowed
to occupy the subject property (flat or house) setting
out the terms and conditions that both parties must
comply with.
Leasehold Advisory Service The Leasehold Advisory Service is a non-departmental

(LEASE) public body (NDPB) funded by the government to
provide free advice on the law affecting residential
leasehold property in England and Wales. See
www.lease-advice.org
Leaseholder/lessee/tenant The person who, or company which, owns the leasehold

interest and is liable to pay the service charge and
ground rent under the terms of the lease. Throughout
this Code the term 'leaseholder' has been used for
consistency but this also includes the term lessee and
tenant. The term 'tenant' is used in most statutory
legislation.
Live/Work Units A property specifically designed for dual use, combining

both residential and business use. It usually has a
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formal division between the residential and business
areas. Specific planning consent falling within the
General Use Classes. The unit may be covered by some
areas of residential leasehold legislation and the lease
will have specific obligations for both the landlord and
leaseholder.
Long leasehold Lease originally granted for a period in excess of 21

years.
LPE1 and LPE2 The Leasehold Property Enquiries forms (LPE1 and
LPE2) for leasehold property enquiries. Their aim is to
standardise the collection of information required for the
conveyancing process. They have been approved by
The Law Society and trade bodies
www.lawsociety.org.uk
Manager/managing An agent who typically manages, within terms of

agent/block reference and/or instructions, whole blocks of flats or
manager/property estates with communal areas. The managing agent will
manager be engaged by the freeholder, superior landlord, the
residents’ management company or right to manage
company. Service charges will normally be paid to this
agent. (The term 'managing agent' has been used in
this Code.)
Money laundering The ways of converting a source of money that has been
gained by illegal means.
Plurals Words in the plural also usually include the singular.
Professional indemnity Insurance to cover you against a compensation claim if

insurance (PII) you have made a mistake or are negligent.
Reasonable A particular standard which is judged on the standard of

conduct expected of a professional, experienced person
dealing with the same situation or in assessing whether
the costs of services are appropriate and proportionate.
Reserve/sinking fund A provision for future major expenditure. These terms

have become interchangeable over recent years. This
Code uses the term reserve fund. (see Contingency)
Residential property Property used as living accommodation.
Residents' management An organisation which may be referred to in the lease,

company (RMC) which is responsible for the provision of services and
manages and arranges for maintenance of the property
to be carried out, but which does not necessarily have
any legal interest in the property. An RMC may instruct
a managing agent to carry out these duties on its
behalf.
Residents'/tenants' A group of leaseholders with or without a formal

association constitution or corporate status is called a residents
association. It is also possible to have a residents'
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Recognised tenants' association 'recognised' (recognised tenants'
association (RTA) association) by law with a formal constitution.
Right to manage company A specific company created by the Commonhold and

(RTM) Leasehold Reform Act 2002 enabling qualifying
leaseholders of the building to take on the management
without proving their existing manager is at fault. RTM
is restricted to leasehold flats and maisonettes, but is
not available to individual leasehold houses or estates.
RICS Royal Institution of Chartered Surveyors.
Service charge Where an amount is payable by a leaseholder as part of

or in addition to rent in respect of services, repairs,
maintenance, insurance, improvements or costs of
management (and the amount may vary according to
the costs incurred or to be incurred) this is called
service charge. Details are usually set out in the lease.
SI Statutory Instrument (Regulations or Order) that has

been made by the Secretary of State to supplement the
primary legislation and which must be complied with as
it is the law.
TECH 03/11 Residential Residential service charge accounting guidance issued

Service Charge Accounts jointly by RICS, Association of Residential Managing
Agents (ARMA) and the professional accountancy bodies
comprising the Association of Chartered Certified
Accountants (ACCA), the Institute of Chartered
Accountants in England and Wales (IUCAEW) and the
Institute of Chartered Accountants in Scotland (ICAS)
Available from www.icaew.com
Vulnerable customers Customers who may require special treatment as a

result of physical, mental, or emotional impairment, or
for any other reason.
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Foreword and application of the Code
Foreword
Whilst the Secretary of State has approved this Code under Section 87(7) of the
Leasehold Reform, Housing and Urban Development Act 1993 (excluding the section ‘RICS
Guidance Notes’ on page 18), approval of the Code does not have the effect of making a
breach of the Code a criminal offence or create civil liability. (See section 24 of the
Landlord and Tenant Act 1987, as amended by section 85 of the Housing Act 1996.)
In this Code the word 'must' is used to indicate a legal obligation. Breaches could lead
to either civil and/or criminal action. The word 'should' is used to indicate best
practice. There is often a very close correlation between a statutory requirement and
best practice. It should be understood that non-compliance with best practice is a
serious matter and practitioners would need to justify the reasons for not following
best practice. This Code, having been approved by the Secretary of State, can be
used for evidential purposes before courts and tribunals as well as disciplinary
measures by RICS against regulated firms and members.
This Code has been prepared to promote desirable practices in respect of the management
of residential leasehold property. Successful management can only be achieved through
cooperation and a mutual understanding of the procedures necessary for the effective
management of property as well as of the problems that can arise. The Code is
therefore intended to be read by landlords, leaseholders, managing agents, managers
and occupiers of leasehold property. Although most of the Code is aimed directly at
managing agents of residential leasehold property, parts are specifically intended for
other parties such as owners and professional advisers. Whilst there are cost implications
of managing residential properties to the standard specified by this Code, the benefits
in terms of improved service and the level of satisfaction should make any additional
cost worthwhile in the long run. A managing agent should provide a compliant,
transparent and value for money service.
Aims and objectives: the core principles
• To improve general standards and promote best practice, uniformity,

reasonableness and transparency in the management and administration of long
leasehold residential property.
• To ensure the timely issue of all documentation including budgets and year end
accounts.
• To reduce the causes of disputes and to give guidance to resolving disputes
where these do occur.
Best practice requires services to be procured on an appropriate value for money basis
and that competitive quotations are obtained or costs are benchmarked. All costs should
be transparent so that all parties, owners, leaseholders and managing agents are aware
of how the costs are made up.
Depending on the terms of the lease, the basis and method of apportionment, where
possible, should be demonstrably fair and reasonable to ensure that individual occupiers
bear an appropriate proportion of the total service charge expenditure that reflects the
availability, benefit and use of services.
15
Managing agents should communicate with all parties to ensure services are delivered
effectively for the benefit of all and to ensure that everyone understands what services
they can expect to receive and how much they are required to pay.
In incurring costs in the provision of services, the managing agent is spending other
people's money and must demonstrate competence, objectivity and transparency in
dealing with client money including service charge monies.
Communication and consultation between managing agents and leaseholders should be

timely and regular to encourage and promote good working relationships and
understanding with regard to the provision, relevance, cost and quality of services
Transparency is essential to achieving good communication. By being transparent in the

accounts, the explanatory notes, policies and day-to-day management, the managing
agent will prevent disputes. Prompt notification of material variances to plans or
forecasts ensures better relationships between landlord, managing agent and
leaseholder.
Service quality should be appropriate to the location, use and character of the property.
The managing agent should procure quality service standards to ensure that value for
money is achieved at all times. The aim is to achieve value for money and effective
service rather than the lowest price.
The Code cannot override the lease but, if read in conjunction with it, will enable users
to identify the best way forward in interpreting the lease terms to ensure effective
management of services are provided.
Application of the Code
The Code applies only to residential leasehold properties in England but it deals with flats,
houses and all other dwellings whether in towns or in the country, on estates, in groups
or on their own. It covers all lengths of leases and statutory tenancies where variable
service charges are payable. The Code does not apply where the landlord is a public
sector authority, or a registered social landlord, but it does apply where a public sector
authority or registered social landlord is an agent managing for a private sector owner.
In this Code, whenever a statutory reference is given, there is a legal obligation to act in
accordance with the statute (see 1.1). Where appropriate, statutory references are
provided at the end of each section or paragraph.
The references to a statute or statutory instrument are to be taken as being a reference

to it as amended by any subsequent Act or instrument.
In considering the guidance given, factors such as the age and location of the property,
the terms of occupation, the level of payment for services and the management fee need
to be taken into account. Fundamentally, the following should be considered when taking
management decisions to reflect this Code. This is not an exhaustive list.
• statutory requirements
• terms of the lease or tenancy agreement
• cost effectiveness
• transparency
• efficiency
16
• reasonableness; and
• the quality of service.
Whilst compliance with the best practice guidance given is not mandatory, managing
agents should be able to justify departures from it.
17
RICS guidance notes
This Code of practice has the status of a guidance note. Where recommendations are made for
specific professional tasks, these are intended to represent ‘best practice’, i.e. recommendations that
in the opinion of RICS meet a high standard of professional competence.
Although members are not required to follow the recommendations contained in the guidance note,
they should take into account the following points.
When an allegation of professional negligence is made against a surveyor, a court or tribunal may
take account of the contents of any relevant guidance notes published by RICS in deciding whether or
not the member acted with reasonable competence.
In the opinion of RICS, a member conforming to the practices recommended in this guidance note
should have at least a partial defence to an allegation of negligence if they have followed those
practices. However, members have the responsibility of deciding when it is inappropriate to follow the
guidance.
It is for each member to decide on the appropriate procedure to follow in any professional task.
However, where members do not comply with the practice recommended in this guidance note, they
should do so only for good reason. In the event of a legal dispute, a court or tribunal may require them
to explain why they decided not to adopt the recommended practice.
Also, if members have not followed this guidance, and their actions are questioned in an RICS
disciplinary case, they will be asked to explain the actions they did take and this may be taken into
account by the Panel.
In some cases there may be existing national standards which may take precedence over this
guidance note. National standards can be defined as professional standards that are either prescribed
in law or federal/local legislation, or developed in collaboration with other relevant bodies.
In addition, guidance notes are relevant to professional competence in that each member should be
up to date and should have knowledge of guidance notes within a reasonable time of their coming into
effect.
This guidance note is believed to reflect case law and legislation applicable at its date of publication. It
is the member's responsibility to establish if any changes in case law or legislation after the
publication date have an impact on the guidance or information in this document.
Document status defined

RICS produces a range of professional guidance and standards documents. These have been
defined in the table below. This document is a guidance note.
Type of document Definition Status

Standard
International standard An international high-level principle-based Mandatory
standard developed in collaboration with
other relevant bodies.
Professional
statement
RICS professional A document that provides members with Mandatory
statement mandatory requirements or a rule that a
member or firm is expected to adhere to.
This term encompasses practice

statements, Red Book professional
standards, global valuation practice
statements, regulatory rules, RICS Rules
18
of Conduct and government codes of
practice.
Guidance
RICS code of practice Document approved by RICS, and Mandatory or
endorsed by another professional recommended good
body/stakeholder, that provides users with practice (will be
recommendations for accepted good confirmed in the
practice as followed by conscientious document itself).
practitioners.
RICS guidance note Document that provides users with Recommended best
(GN) recommendations or approach for practice.
accepted good practice as followed by
competent and conscientious Usual principles apply
practitioners. in cases of negligence
if best practice is not
followed.
RICS information Practice-based document that provides Information and/or
paper (IP) users with the latest technical information, recommended good
knowledge or common findings from practice.
regulatory reviews.
Usual principles apply
in cases of negligence
if technical information
is known in the market.
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Part 1 Definitions applicable in this Code
1.1 Must/should
In this Code the word 'must' is used to indicate a legal obligation. Breaches could lead to
either civil and/or criminal action. The word 'should' is used to indicate best practice.
There is often a very close correlation between a statutory requirement and best
practice. It should be understood that non-compliance with best practice is a serious
matter and practitioners would need to justify the reasons for not following best practice.
This Code, having been approved by the Secretary of State, can be used for evidential
purposes before courts and tribunals apart from disciplinary measures by the RICS
against regulated firms and members.
1.2 You
This Code considers property management from the perspective of managing agents
(sometimes referred to as property managers or block managers) that typically manage
whole blocks of flats or estates with communal areas. Except where indicated in the text,
all requirements are for the managing agent, acting on behalf of a client, who is
addressed as 'you' or referred to as the 'managing agent'.
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Part 2 Ethics
2.1 Introduction to ethics and professionalism
The managing agent has both legal and ethical responsibilities. The legal responsibilities
are governed by both the rules established in legislation and the rights and liabilities
arising out of relationships with individuals set out in civil law.
Ethical obligations impose a higher level of responsibility and may have not only legal
but also moral obligations. The resolution of issues often involves a subjective decision
based on your own personal ethical values and those ethical rules set out in professional
codes of conduct. Laws may also set out the legal responsibilities regarding your
conduct.
Professional ethics are the standards of performance and service that the general public
can expect to receive from a professional managing agent and ensure that you act
professionally at all times.
You should always ensure that you carry out all services with reasonable care and skill.
What is 'reasonable' is measured by the standards of a reasonably competent and
experienced managing agent. The duty of care and skill applies to every aspect of your
services.
2.2 Core principles
The following core principles are based on those from the RICS Global Practice statement
and Guidance Note: Real estate management guidance (2nd edition).
1 To conduct business in an honest, fair, transparent and professional manner.

2 To carry out work with due skill, care and diligence, and ensure that any staff
employed have the necessary skills to carry out their tasks.
3 To ensure that clients are provided with terms of engagement which are fair and
clear. These should meet all legal requirements and relevant codes of practice,
including reference to complaints-handling procedures and, where it exists, an
appropriate redress scheme.
4 To do the utmost to avoid conflicts of interest and, where they do arise, to deal
with them openly, fairly and promptly.
5 Not to discriminate unfairly in any dealings.
6 In all dealings with clients, to ensure that all communications (both financial and
non-financial subject matters) are fair, clear, timely and transparent.
7 To ensure that all advertising and marketing material is honest, decent and
truthful.
8 To ensure that all client money is held separately from other monies in
appropriately designated accounts and is covered by adequate insurance.
9 To have adequate and appropriate professional indemnity insurance, or
equivalent, in place that complies with RICS Rules of Conduct. Having proper
cover is a key part of managing your risk.
10 To ensure that it is made clear, to all parties with whom you are dealing, the
scope of your obligations to each party.
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11 Where provided as part of the service, to give a realistic assessment of the likely
selling, buying or rental price, associated cost of occupancy or the likely financial
outcome of any issues, using best professional judgment.
12 To ensure that all meetings, inspections and viewings are carried out in
accordance with the client’s lawful and reasonable wishes, having due regard for
the security and personal safety of all parties.
2.3 Dealing with conflicts of interest

A conflict of interest is anything that impedes your ability to focus on the best interests
of the client. This is a matter for your judgment – not the client's. You must make every
attempt to avoid a conflict of interest. In the interests of best practice you should
disclose all interests but in all cases you should consult your client, take the client's
instructions and keep full notes of the discussion and instructions in the file.
2.4 Understanding discrimination

You must not:
• Discriminate on the basis of gender reassignment, age, religion or belief,

disability, sexual orientation, gender, marriage and civil partnerships, pregnancy
or race.
Equality Act 2010
You should not:
• Where in a position of authority you should not favour any party because they are
likely to instruct you on other property matters or use services offered by you or
your related parties.
2.5 Equality Act 2010

A victim of discrimination that is unlawful under any of the statutory provisions in the
Equality Act is entitled to bring an action for damages in respect of any loss suffered,
including injury to feelings.
Equality Act 2010
2.6 Vulnerable customers

Vulnerability can include anything that may have an impact on a person's ability to make
a sound and reasoned decision.
You must ensure that you do not discriminate against vulnerable customers – either
explicitly or implicitly – by your actions.
22
Customers have the ultimate responsibility for their decisions but you should ensure that
each individual is given all the relevant information necessary to make as informed a
decision as possible in the circumstances.
2.7 Responsibility for others

If you employ staff you may be responsible for their actions as well as your own. You
should:
a) train staff initially and on a continuous basis, and keep records of that training
and who received it
b) maintain awareness of the legislation and relevant codes of practice
c) supervise staff adequately
d) be aware of who your related parties are and satisfy yourself they are aware of
any legal and ethical requirements and can be relied up to comply with them; and
e) ensure that there is documentary evidence showing that all staff have been given
proper instructions and training about complying with relevant laws and best
practice.
Equality Act 2010

Employment Acts 2002 and 2008
23
Part 3 Appointment of a managing agent: securing
instructions
3.1 Introduction
Prior to accepting an instruction (commencing work), you should clarify for whom you
will be working and how you will be paid, thereby spelling out unequivocally whose
interests you will be representing. There may be a chain of leasehold interests for which
you may be managing a landlord/tenant relationship on behalf of a freeholder, head
landlord or an intermediate landlord. Section 30 of the Landlord and Tenant Act 1985
however, extends the definition of a landlord to ‘include any person who has a right to
enforce payment of a service charge’. The landlord and tenant structure is not easily
understood by many leaseholders or members of RMC/RTM companies so it is imperative
that you understand the structure to correctly advise your clients.
s.30 Landlord and Tenant Act 1985
The relationship between you and your client will be based on terms of engagement, a
management agreement or a contract, which will determine the rights and duties of both
parties. (The term 'contract' has been used in this Code.)
Money laundering is an international concern and, as general guidance, you must use
every reasonable effort to confirm the identity of your client before accepting
instructions.
Money Laundering Regulations 2007
3.2 Contract (management contract/management agreement/terms of

engagement)
You should give written confirmation to your client. This should include details of your
fees and expenses, of your business terms and the duration of your instructions. You
should give your client these details before the client is committed or has any liability
towards you. The contract should clearly state the scope of the duties you will carry out
and specify all activities for which an additional fee is chargeable. A basic summary of
your terms and duties, including all fees, should be made available to leaseholders on
request.
When submitting proposals for new business you should represent yourself and your
services in an honest and transparent manner. If you are a member of any trade or
professional bodies, you should inform your client of this and comply with any codes of
practice published by those organisations.
You must ensure that your terms are fair and the documentation is written in plain,
intelligible language. If you use a standard contract you should ensure that you give
clients an opportunity to negotiate individual terms.
Contracts between landlords and managing agents are normally governed by the Supply
of Goods and Services Act 1982 (as amended), which implies into such contracts terms
24
to the effect that services shall be provided to a reasonable standard, time and cost
(usually previously agreed).
Supply of Goods and Services Act 1982 (as amended) and

Provision of Services Regulations 2009 (SI 2009/2999)
You should understand and fulfil your obligations to clients and potential clients. These
relate to the provision of basic information and the handling of complaints. You should
make your client aware of the provisions of the Unfair Terms in Consumer Contract
Regulations 1999
Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083)
The length of your appointment should be agreed prior to commencement and clearly
detailed within the contract, together with any process for renewal, review of fees and
termination. Unless your appointment has been fully consulted under section 20 of the
Landlord and Tenant Act 1985 (as amended) (see 9.11 Qualifying Long Term
Agreements), you should ensure that your contract does not constitute a qualifying long-
term agreement. You should take legal advice on this point, if necessary.
Your contract should be signed by both you and your client. You should take all
reasonable steps to satisfy yourself that your client is entitled to instruct you. All future
changes to your contract must be agreed with your client, promptly confirmed in writing
and signed by yourself and your client.
Your entitlement to payment depends entirely on the terms of the contract between you
and your client. You may have a legal right to interest on late payment.
3.3 Fees and charges

Your charges must be reasonable for the task involved and be pre-agreed with the client
whenever possible. Where there is a service charge, basic fees are usually quoted as a
fixed fee rather than as a percentage of outgoings or income. This method is considered
to be preferable so that leaseholders can budget for their annual expenditure. However,
where the lease specifies a different form of charging, the method in the lease should be
used by managing agents.
ss.18 and 19 Landlord and Tenant Act 1985
You should give reasonable and adequate notice of any increases in charges in
accordance with the terms of your contract. If the charges are agreed to be subject to
indexation, the index to which they are linked should be agreed in advance in writing.
You should make it clear what services you are proposing to provide and at what cost, as
well as the extent and limit of any additional services available. You must not purposely
underestimate costs or provide leaseholders with misleading estimates of future service
charge contributions required.
3.4 Annual fee

Subject to the terms of any written contract, for an annual fee (where the level of
service provided will normally have regard to the amount of the fee), a managing agent
should normally carry out the following work:
25
a) prepare invoices for and collect service charges from leaseholders
b) instruct, with the client’s consent, solicitors or debt recovery agents in the
collection of unpaid service charges, subject to any statutory procedures that
need to be followed. (Preparing for and attendance at courts/tribunals is not
normally covered by the annual fee.)
c) prepare and submit service charge statements and demand service charge
contributions
d) pay for general maintenance out of funds provided and ensure that service
charges and all outgoing monies are used for the purposes specified under the
lease and in accordance with legislation
e) produce annual spending estimates/budgets to calculate service charges and
reserves, as well as administering the funds
f) produce and circulate service charge accounts that comply with TECH 03/11
and supply information to leaseholders and any residents’ association, liaising
with and providing information to accountants where required
g) administer building and other insurance if instructed and authorised, subject to
Financial Conduct Authority (FCA) regulations
h) if instructed, on behalf of clients engage and supervise staff such as caretakers,
gardeners and cleaners
i) arrange and manage contracts and services in respect of, for example, lifts, boilers
and cleaning
j) arrange periodic health and safety, fire and other appropriate risk assessments
in accordance with the statutory requirements and, where necessary, in liaison
with the relevant public authorities
k) visit the property to visually check its condition and deal with minor repairs to
buildings, plant, fixtures and fittings. An appropriate frequency for visits should
be agreed with the client and set out in the contract
l) deal reasonably and as promptly as possible with enquiries from leaseholders
having regard to any requirements or constraints in the contract
m) keep records on leases having regard to the data protection legislation
n) keep clients informed of changes in legal requirements, including any statutory
notices and other requirements of public authorities, and check compliance with
lease terms; and
o) advise on day-to-day management policy.
You should provide a basic summary of the terms and duties to leaseholders upon
request.
3.5 Menu of charges

As part of the terms of engagement, you should have a 'menu' of charges for duties
outside the scope of the annual fee. Examples include (this is not an exhaustive list):
• preparing statutory notices and dealing with consultations where qualifying works
or qualifying long-term agreements are proposed
• preparing specifications, obtaining tenders and supervising substantial repairs of

works; and
• attending courts and tribunal proceedings.
Some of these additional charges may be the responsibility of individual leaseholders, for
example:
26
• considering leaseholders’ applications for alterations
• advising on and dealing with assignments of leases, subletting and change of use;
• dealing with breaches of the lease, for example, late payment of service charges
and
• giving information to prospective purchasers, vendors or their agents of the

leasehold interests in the individual dwelling including pre-contract enquiries.
All charges should be proportionate to the time and amount of work involved and any
service or provision of information should be delivered within a reasonable timeframe.
You should provide a basic summary of your charges for duties outside the scope of your
annual fee to leaseholders upon request.
3.6 Other income

All other sources of income and benefits to the managing agent arising out of the
management should be declared to the client and to the leaseholders and should only be
retained in return for a service of value. These may include insurance fees (including
commissions).The amount of the income should be declared annually with the year-end
service charge accounts.
3.7 Company secretarial services

Managing agents may also provide administration services and/or company secretarial
services to their RMC and RTM company clients. The level and extent of these services
should be set out in an agreement. The rules of the company are governed by the
memorandum and articles of the company and the Companies Act. It is important to
understand the need to differentiate the company administration from managing the
landlord company/leaseholder relationship.
Companies Act 2006
Provision of company secretarial services is a regulated activity under the Money

Laundering Regulations 2007 and you should be mindful of the need to undertake ‘know
your own client’ checks for all clients for whom you provide company secretarial services.
27
Part 4 Duties/conduct of a managing agent
4.1 Introduction
You should not act outside the scope of your authority nor outside your competence and
you should follow your client's instructions where necessary.
In undertaking a management function, you must comply with the law and observe the
terms of the lease. You should have effective and fair policies and procedures for dealing
responsibly with management matters.
You should routinely monitor the quality and cost effectiveness of all services under your
control. Any service delivery issues should be addressed in a timely manner and your
client and leaseholders should be kept informed of your actions.
You should manage the property on an open and transparent basis. So far as is
reasonably practicable and consistent with statutory and contractual obligations, you
should keep confidential and not disclose personal information about leaseholders or
landlords to other people without their consent.
4.2 General property management activities

You should respond promptly to reasonable requests from leaseholders for information
or observations relevant to the management of the property indicating a timescale by
which the request will be dealt with. Relevant information may be provided, if the
lease/tenancy agreement obliges or if it is reasonable. A reasonable charge may be
made if appropriate and first agreed with the leaseholder. If there is a conflict with your
duties to the landlord you should advise the leaseholder to seek independent advice. You
should never mislead your client or leaseholders. In all communications you should be
accurate, clear, concise and courteous.
You should send communications by whatever means are appropriate so that they reach
the intended recipients promptly and in compliance with any legislative or lease
requirements. You should be aware of the need to prove to the satisfaction of a court the
service of certain documentation.
4.3 Data protection

You should be aware of the requirements regarding the holding and handling of
information and data. As an overall guide you must ensure that any personal information
is:
• fairly and lawfully processed
• processed for limited purposes
• adequate, relevant and not excessive
• accurate and up to date
28
• not kept for longer than is necessary
• processed in line with an individual’s rights
• secure; and
• not transferred to other countries without adequate protection.
You should also bear in mind that other issues of client confidentiality may apply to
particular types of personal data, including that provided by a client. This will mean that
not everyone within your firm is entitled to access the data and it should not be made
available to others.
You may need to be registered under the Data Protection Act 1998 and must comply with
data protection law. The Act gives individuals the right to know what information is held
about them. It provides a framework to ensure that personal information is handled
properly and states that anyone who processes personal information must comply with
the Act.
Data Protection Act 1998
4.4 Applications for consent

You should deal with written applications for permissions and consents expeditiously and
act within the scope of your authority. When an application is refused, you should give
the landlord's reasons. Bear in mind there is a statutory duty when dealing with licences
not to withhold consent unreasonably. You and the landlord are under a duty to the
leaseholder to respond in a reasonable time to al l applications for consent. Failure to do
so is a breach of your statutory duty and may render you and the landlord open to a
claim for damages.
Landlord and Tenant Act 1988
Subject to the requirements of legislation, the landlord will nearly always have the
ultimate authority over any other manager. One exception to this would be where the
leaseholders have exercised the right to manage (see Part 15, Right to Manage.) Where
instructions from the landlord put the managing agent in contravention of this Code, this
should be brought to the attention of the landlord and if the landlord persists in those
instructions, the managing agent should consider whether to decline to act further for the
landlord.
If requested, you should assist leaseholders to understand their lease/tenancy

agreement and/or refer them to www.direct.gov.uk or www.lease-advice.org for
independent advice. You should not give advice about the leaseholder's legal rights and
avoid a conflict of interest when giving advice.
You should also consider the issues concerning discrimination set out in Part 2, Ethics.
4.5 Withholding services

You must not do any activity likely to interfere with the peace or comfort of occupiers, or
withdraw or withhold services reasonably required for the occupation of the premises
29
with the intent of causing the leaseholders to give up possession. You must not harass
leaseholders as it is a criminal offence.
You should have policies and procedures for responding to incidents of harassment from
any party.
Protection from Eviction Act 1977 (as amended by s.29(1) and (2)
Housing Act 1988)
4.6 Contact
You should be available during normal working hours to:
• be contacted by telephone and email
• meet clients and leaseholders; and
• inspect property at reasonable times and intervals.
You should also address the issue of how to deal with incidents/emergencies that
occur out of normal hours, and inform landlords and leaseholders of any arrangements.
Out of hours meetings and inspections requested by leaseholders may be subject to
an additional charge by managing agents depending upon the terms of their contract.
4.7 Inspection
You should have procedures in place to visit the building at regular intervals having
regard to the type and the nature of the occupation and the complexity of the facilities
provided. Subject to the terms of any lease or tenancy and where access is needed to an
individual flat you should always give leaseholders as much notice as possible that you
require access, giving the reasons why, and have due regard to the lease/tenancy and
any difficulties in providing access during normal working hours, and the potential costs
of out of hours working. In the event that you hold a spare key, entry by that key while
the leaseholder is out should only be with the express consent of the occupier or in the
case of a genuine emergency and you should inform the occupier that you have been
into the property. You should keep a record of your findings during your visit.
In the case of leases granted for a term of less than seven years there is an implied
covenant that the leaseholder will allow access at reasonable times of the day and on 24
hours’ notice to view the condition/state of repair.
4.8 Forcible entry
This may be necessary in conjunction with the need to undertake urgent repairs. It may
also be necessary in other extreme circumstances. You should read the lease and not
assume a power to enter and you should have a procedure for this set out. Forcible entry
should only be considered if all other avenues to entry are closed. Witnesses should be
sought, the police should be notified and immediate arrangements made to repair and
re-secure the premises you have entered. A full explanation should be given to the
30
occupier. See also Part 9.8, Forced entry.
4.9 Personal safety
a) You must ensure the safety of your staff and all others involved in management
at all times.
b) You should agree a set of procedures to cover this and when staff are out of the
office ensure these procedures are followed at all times.
c) In particular you should record the time staff leave the office and monitor their
safe return.
d) You should ensure there is a procedure to be followed where staff do not return to
the office at the end of their working day confirming they have completed their
tasks safely.
e) It is your responsibility to ensure that staff are adequately trained to guard their
personal safety.
Health and Safety at Work etc Act 1974

Management of Health and Safety at Work Regulations 1999 (SI 1999/3242)
4.10 General
You should levy all charges in accordance with the law, the terms of the lease and your
contract.
You should maintain efficient records relating to the building and keep records during
the periods of statutory limitation of action. You should seek advice from clients
and professional indemnity insurers.
You must comply with all applicable health and safety requirements. You should devise and
maintain, with specialist help if necessary, a health and safety policy and arrange regular
health and safety, fire and any other applicable risk assessments; for example, a water
risk assessment.

You should take out and maintain sufficient indemnity insurance cover or equivalent and
fidelity insurance cover to protect client money.
You may advise leaseholders to seek advice where you think they may have a right to
housing benefit and other statutory benefits.
You should consider where appropriate whether to liaise with social services but not
attempt to undertake the powers and duties of public authorities.
You should take steps to keep yourself informed as to developments in the law affecting
residential management to enable you to keep wholly within the law.
4.11 Consultation
You should consult with representative organisations where necessary and must do so
when required by law.
It is better to keep in touch with leaseholders than to remain silent and the legislative
31
requirements to consult where qualifying works and long-term agreements are concerned
(see 9.9–9.12 Consultation) should be regarded as the minimum standard required, not
the optimum. You should be aware that, by law, you must consult leaseholders about
works which are to be carried out at a cost above the statutory limits.
s.20 Landlord and Tenant Act 1985 (as amended by s.151 Commonhold and Leasehold
Reform Act 2002)
Service Charge (Consultation Requirements) (England) Regulations 2003 (SI 2003/1987)
Service Charges (Consultation Requirements) (Amendment) (No.2) (England)

Regulations 2004 (SI 2004/2939)
You must consult with leaseholders individually and with any recognised tenants'
association and, if appropriate, hold meetings. When a meeting is convened, the
managing agent should give reasonable notice of it to all leaseholders including the
place, date and time of the meeting and the matters to be considered.
A recognised tenants’ association has the right to serve notice on the landlord asking
them to consult with the association about the appointment or employment of a
managing agent.
When such a notice has been served and it is proposed to appoint or reappoint a
managing agent, the landlord must serve a notice on the association stating the name of
the proposed managing agent, and which of the landlord’s obligations it is proposed that
the agent should discharge. The landlord must allow a period of at least one month for
comments to be sent to a person named by the landlord at an address in the UK. The
landlord shall have regard to observations made by the association.
On written request the landlord must provide the secretary of a recognised tenants’
association with details of the managing agent’s duties and allow a reasonable period for
them to comment on the managing agent’s duties and performance. The landlord must
provide the details and invite comment every five years thereafter and whenever the
landlord appoints a new managing agent, if a notice has previously been served by a
recognised tenants’ association. Unless the appointment of the managing agent has been
fully consulted under section 20 of the Landlord and Tenant Act 1985 (as amended), the
landlord should ensure that the managing agent's contract does not constitute a
qualifying long-term agreement.
s.30B Landlord and Tenant Act 1985
s.30 Landlord and Tenant Act 1985 (as inserted by s.44 Landlord and Tenant Act 1987)
Reform Act 2002)
4.12 Income tax

The treatment of income tax should be covered in the agreement with the landlord. All
landlords will require sufficient information to manage their tax affairs. When a landlord
lives overseas, unless there is a valid exemption certificate from HM Revenue &
Customs, the agent must deduct income tax from payment to them. Further information
32
is available from the Non-Resident Landlord Scheme, a scheme for taxing the UK rental
income of non-resident landlords. Information about this scheme can be obtained from
HM Revenue & Customs (HMRC).
Finance Act 2007
ss.11, 479 and 480 Income Tax Act 2007
4.13 Money laundering

You must comply with the Money Laundering Regulations and Proceeds of Crime Act.
Money laundering may be used to conceal serious criminal activities. Any method
whereby the proceeds of criminal activities are disguised or converted and then realised
as legitimate funds or assets constitutes money laundering. Investing in property as a
means of conversion and subsequent resale or mortgaging can release clean funds.
Legislation has created three broad criminal offences. These are:
• assisting a criminal to obtain, conceal or retain or invest funds if the person

giving assistance knows or suspects the funds to be the proceeds of crime
• tipping off a person who is the subject of suspicion or is under investigation; and
• failure to report knowledge or suspicion of laundering acquired in the course of a

person’s trade, profession, business or employment.
The Money Laundering Regulations 2012 apply to those who undertake relevant financial
business. All managing agents must implement procedures in order to minimise the risk
of committing a criminal offence.
Money Laundering (Amendment) Regulations 2012
Proceeds of Crime Act 2002
4.14 Bribery
You must comply with the Bribery Act 2010. It is a criminal offence to make or receive a
bribe. There is also a corporate offence of failing to prevent a bribe.
You should ensure that both you and your staff know what constitutes a bribe and have a
proper training programme in place.
Bribery Act 2010
4.15 On-site staff

From time to time, landlords/managing agents may be required to employ 'on-site' staff
33
and there is significant legislation affecting their employment and housing rights which
you should be aware of.
Your terms of engagement should define who is the employer of any on-site staff. This is
usually the landlord or the manager under the lease, rather than the managing agent;
however, HMRC may still consider the managing agent to be the employer. Therefore you
should take relevant advice if necessary.
Your recruitment policies and procedures must fully comply with the requirements of the
Equality Act 2010. You should make enquiries into the legal status, employment history,
relevant personal qualities and background of all prospective employees, either directly
or on behalf of your clients. You should also be satisfied they are legally entitled to work
in the UK, and are honest, trustworthy and suitable for the job.
You must issue all staff with a contract of employment and job description that clearly
defines their duties and responsibilities. You should agree these duties, hours of
employment and other job-related details with your clients and share them with the
leaseholders.
Equality Act 2010

Employment Act 2002
Employment Act 2008
Immigration Rules (UK Visas and Immigration)
An appropriate training programme based on the complexity of the tasks required and
the experience and qualifications of the employee should be identified and provided. It is
recommended that a full induction training programme is offered shortly after
commencement of employment. You must provide all employees with a copy of your
health and safety policy and ensure that they are fully trained and competent before
undertaking any duties with health and safety implications.
You should have an appropriate supervision and support system in place, and ensure
that proper practices and procedures are being followed to the satisfaction of your client.
Disciplinary, grievance and harassment procedures should be in place, details of which
should be communicated to all staff.

34
Part 5 Complaints and disputes
5.1 Introduction
You should have clear procedures in place for handling complaints and dealing with
disputes. You must also belong to one of the government approved redress schemes.
The procedures should include a series of steps that clients, leaseholders and neighbours
can take to help resolve problems and misunderstandings. Complaints and disputes are
time consuming and often arise out of a lack of information; they can often be avoided if
information is provided in a timely manner and there is transparency.
Redress Schemes for Lettings Agency Work and Property Management Work
(Requirement to Belong to a Scheme etc) (England) Order 2014 (SI 2014/2359)
In dealing with disputes in particular, you should be careful that, by your actions, you do
not assume a responsibility you do not have.
5.2 Disputes between occupiers
You should always refer to the lease when dealing with disputes between occupiers. You
cannot go further in dealing with the parties than the landlords remit under the lease.
Most leases will not allow you to recover any costs from the service charge in connection
with disputes between occupiers.
The local authority may help in establishing evidence of noise, anti-social behaviour or
keeping animals in unsuitable conditions.
You should always have regard to the enforceability clause in the lease before embarking
on any action which involves expense from the service charge.
Leases typically contain a mutual enforceability clause requiring landlords to seek an

indemnity for their costs from leaseholders requesting enforcement. This may also leave
the landlord the option of choosing not to enforce if it is not ‘in the interests of good
estate management’.
Any enforcement action should be with your client’s authority and confirmation that the
client will be responsible for the costs until or unless recovered from the leaseholder.
This can be by way of requesting estimated costs in advance as part of the indemnity.
Complainants should be given realistic estimates of the likely time and cost involved in
any enforcement. You should also consider other methods of dispute resolution such as
mediation, be familiar with local mediation services and suggest this method of dispute
resolution, where appropriate. Information on mediation service providers can be
obtained from the National Mediation Helpline. (See Part 5.5 Alternative dispute
resolution and mediation.)
5.3 Disputes between landlord and leaseholder
The lease agreement may contain a disputes procedure such as arbitration, which may
involve extra costs. Following the introduction of the Commonhold and Leasehold Reform
35
Act 2002, such clauses are likely to be void, and arbitration must be agreed post-
dispute.
s.27A(6) Landlord and Tenant Act 1985 (as inserted by s.155 Commonhold and
Leasehold Reform Act 2002)
Schedule 11 Commonhold and Leasehold Reform Act 2002
The landlord should try to resolve the dispute by informal means and consider
suggesting mediation or arbitration by agreement, rather than litigation, as a way of
settling particular disputes. The leaseholder should be recommended to seek legal advice
on any such suggestion.
Unresolved disputes concerning level, quality and/or cost of services recovered as

service charges may form the basis of an application to the FTT. You should, therefore,
respond to any notification of dissatisfaction from clients and customers by ensuring that
services and monitoring procedures are adequate and represent value for money. Any
genuine service delivery issues should be addressed in a timely manner, and your client
and customers should be kept informed of your actions.
5.4 Complaints
It is not always straightforward to differentiate between a complaint against an agent
and landlord/leaseholder disputes. Complaints about matters such as service delivery,
timescales and cost are typically landlord/leaseholder disputes (see Part 5.3, Disputes
between landlord and leaseholder). This section covers complaints against the direct
actions and/or behaviour of the managing agent.
You must have a formal written complaints handling procedure in place to deal with
complaints about your own work and that of your staff. The procedure should be made
available to your client and leaseholders. It should include a short series of steps and
response times for its various stages and should provide for leaseholders to complain to
the landlord. The procedure should provide for complaints about your staff to be made to
a responsible principal and for them to be investigated quickly and fairly. It must
include details of the nominated Ombudsman Scheme to which you belong.
(Requirement to Belong to a Scheme etc)(England) Order 2014 (SI 2014/2359)
The lease/tenancy agreement may contain a disputes procedure such as arbitration.

Such formal arrangements may involve extra costs, and any such agreement contained
in a long lease is not valid, unless it is as a result of an agreement after the dispute has
arisen. It is desirable to try to resolve the dispute by informal means before turning to
any formal provision in the lease or tenancy agreement.
Qualifying leaseholders have the right to have a management audit carried out.
Landlords and managers must comply with valid notices in this respect.
s.76 Leasehold Reform, Housing and Urban Development Act 1993
You should bear in mind that, where the dispute refers to service or administration
charges, any clause specifying that arbitration must be used is not valid unless it is as a
result of an agreement after the dispute has arisen.
36
s.27A Landlord and Tenant Act 1985 (as inserted by s.155 Commonhold and Leasehold
Reform Act 2002)
5.5 Alternative dispute resolution and mediation

The Ministry of Justice Practice Direction – Pre-Action Conduct aims to:
• enable parties to settle the issues between them without the need to start
proceedings (that is a court or tribunal claim); and
• support the efficient management by the court and the parties of proceedings
that cannot be avoided.
Increasingly, courts and tribunals are recommending that disputing parties seek
alternative dispute resolution (ADR) including mediation before cases are heard and you
should encourage all parties to seek alternative ways of resolving their issues as this
can prove a more cost effective way of resolving disputes
There are different forms of ADR:

• Mediation
• Independent expert determination
• Early neutral evaluation
• Arbitration
Mediation
Mediation is a non-binding structured settlement negotiation facilitated by a neutral third

party – the mediator – who has no decision-making power. The objective of mediation
is to achieve a mutually satisfactory agreement between the parties, rather than have
something imposed by a third party.
Independent expert determination
Independent expert determination is an ADR process where an independent third party

determines the outcome of the dispute. The basis of the appointment is that the
independent expert is empowered by an agreement between the parties to make a final
and binding decision. The agreement of two parties to refer their dispute to independent
expert determination creates a contractual obligation for them to be bound by the
decision of the independent expert. The independent expert will usually be a specialist
in the subject of the dispute.
Early neutral evaluation
Early neutral evaluation is an ADR process whereby both parties retain a neutral party to
provide a non-binding evaluation on the merits of a dispute. As the name suggests, this
is usually most effective if attempted early in the life of the process, before positions
become entrenched and significant costs have been incurred. There are no procedural
requirements for early neutral evaluation beyond those agreed between the parties.
Arbitration
The Arbitration Act 1996 governs all arbitrations in England and Wales. A request may
be made for an arbitrator to be appointed (often set out in the terms of a lease) or the
involved parties can agree on one. The process is more formal. The arbitrator (who
should have some knowledge in the subject of the dispute) will decide the outcome of
37
the dispute based on the evidence before him or her but is not allowed to stray outside
the evidence.
5.6 First-Tier Tribunal – Property Chamber

The First-tier tribunal – Property Chamber (Residential Property) provides an
independent service in England for settling disputes involving leasehold and private
rented property.
Legislation has given the tribunal powers to settle certain types of dispute which would
otherwise have to be dealt with by the courts. The tribunal aims to provide easier and
cheaper access to justice. It also promotes the use of alternative dispute resolution and
mediation.
5.7 Redress (Ombudsman) schemes
The Enterprise and Regulatory Reform Act 2013 requires that all letting and property
management agents in England are a member of a government-approved redress
scheme.
(Requirement to Belong to a Scheme etc)(England) Order 2014 (SI 2014/2359)
38
Part 6 Accounting for other people's money (client
money)
6.1 Introduction
You should make sure that you have a clear understanding of the meanings of ‘client
money’ and ‘client’. Any money you receive or hold which is not entirely due and payable
to you is called client money because it belongs to someone else and as such you should
be very careful in handling and accounting for it. You hold client money in trust and if
you fail to account for that money properly you are open to legal action for breach of
that trust, and criminal liability could also arise.
Remembering that it is not your own money that is involved, you should decide, having
regard to the amounts involved and the volume and frequency of activity affecting the
account, whether to place client money in an interest-bearing account. Unless the client
has agreed otherwise in writing, client money should be available immediately to your
clients, so a deposit account with a withdrawal notice period may not be suitable. You
should discuss with a new client where you will keep the money.
Special rules apply to service charge funds you collect. Section 42 of the Landlord and
Tenant Act 1987 establishes a statutory trust so that service charge funds for each
property must be identifiable and either be placed in a separate bank account, or in a
single client account where the accounting records of the manager separately identify
the service charge funds attributable to each property.
6.2 Bank accounts

You must open one or more client bank accounts which should be held at a recognised
bank; that is, an institution authorised by the Financial Services and Markets Act 2000 or
a deposit account (and not invested in deferred shares) of a building society within the
meaning of the Building Societies Act 1986.
The Service Charges Contributions (Authorised Investments Order 1988 (SI 1988/1284
(Amended by the Financial Services and Markets Act 2000 (Consequential Amendments
and Repeals) Order 2001 (SI 2001/3649)
On opening a client bank account, you should give written notice to and seek written
confirmation from the bank or building society that:
a) all money standing to the credit of that account is client money
b) the bank or building society is not entitled to combine the account with any other
39
account or to exercise any right of set-off or counter-claim against money in that
account in respect of any sum owed to it or any other account of yours; and
c) any interest payable in respect of sums credited to the account should be credited
to that account.
Self-managed blocks should obtain a statement from their bank that the funds are ring-
fenced.
You should advise, in writing, all those whose money you are holding including each
client, the name of the account and the name and address of the institution. Further
account details should be provided if requested. This may include whether or not it is an
interest-bearing account and, if it is, the withdrawal notice period and any restrictions on
withdrawals. If not immediately accessible, such restrictions will require the client's
approval in writing.
You should hold your own or your office account separately from client money. You
cannot be a client of your business and, as a result, your personal or office transactions
should not be conducted through a client bank account. Office money should not be kept
in a client account. Client money should be kept separately. If money is paid in to open
the client account, it should be withdrawn at the earliest opportunity.
You should pay any client money you receive into a client bank account either on the
same working day or the next working day after receipt or as soon as practical.
When you receive a cheque, banker's draft or other receipt which includes any element
of client money, you should pay it into a client bank account before withdrawing any
monies which are due to you from that client.
You should be cautious about drawing against a cheque before it has been cleared
because, if it is not honoured, you will have to make up the shortfall.
You should never overdraw a client bank account. You should ask your client to supply
you with funds before the payment is made or you may make a payment from your own
funds, but in so doing you may be at risk if your client fails to pay you. You should never
lend one client’s funds to another.
You must only draw money from a client bank account:
a) if it is your own money paid into a client bank account for the purpose of opening
or maintaining the account
b) for payment to a client
c) for duly authorised payment on behalf of a client to a third party
d) for payment of your fees and/or disbursements provided that your client has a
copy of your account and your client has authorised payment in writing or it is
permitted by your contract
e) if it is paid in by mistake
f) to transfer it on behalf of a client to another client account; or
g) when a payment into a client bank account includes non-client monies.
40
6.3 Records
You should keep account records to differentiate clearly the money which you hold for
different clients. You should keep the records in written form, or on computer (provided
that they can be reproduced in written form) all accounts, books, ledgers and records
maintained in respect of all client accounts and all bank or building society statements, for
at least 12 years from the date of the last entry therein.
You should keep properly written records to show all of your dealings with client money
received, held or paid and to show all your other dealings through client bank accounts.
You should keep properly written records in respect of each client to show all of your
dealings with client money and enable the current balance of that client to be shown.
You should keep a list of all persons for whom you are or have been holding client
money and a list of all bank and building society accounts in which client money is held.
You should reconcile your cash books with your client bank account statements and with
your client ledger balances within a reasonable time and keep a record of your
reconciliation. Reconciliations should be completed by the end of the following month,
at the latest. Discrepancies should be investigated and shortfalls on client accounts
should be made good.
You should send a written account to your client (or as they direct) for all client money
held, paid or received (whether or not there is any payment due to your client) at
appropriate intervals agreed with your client but not less than once a year.
6.4 Ending the instructions and handover process
Your contract should provide clear means of termination if either party breach its
obligations. It should also provide for a clear period of notice and means of termination,
on behalf of both parties, irrespective of any fault. In other words, both parties should
be free to terminate after the effluxion of a specified period of time.
If you or your client decides to terminate your contract, you should deal with any
handover in a professional, competent and efficient manner within agreed timescales. All
pertinent information should be provided with the minimum of delay to your client or the
new agent.
There are no statutory requirements as to what information must or should be handed

over, or when. Therefore, your contract should contain comprehensive details of the
services to be undertaken and information to be provided to the client, or any other
agent appointed, following termination. It is far better to agree the process when you
have a good working relationship than trying to rectify the issues after the event, with
the possibility of antagonism between the parties.
Another key issue that should be covered within the contract includes who will deal with
ongoing litigation, disputes and arrears collection.
6.5 Written confirmation of termination
If you receive instructions from your client that they wish to terminate your contract or if
you decide that you no longer wish to manage on their behalf, you should confirm the
termination in writing. You should make it clear at which date you will cease to manage
41
and spell out how and when you will pass over to the client all relevant documentation
and monies held.
Your contract should detail the notice period(s) required. Longer periods can allow for a
more structured handover.
6.6 Handover of documentation
For the sake of future clarity, your contract should confirm which information belongs to
the client and which remains the property of the agent. You should, in any event, refer
to the RICS UK information sheet Whose files are they anyway? (2013) which contains
comprehensive advice as to the ownership of documentation held by the agent.
Generally speaking, if you are acting as an agent, all documents that you produce or
receive from third parties during your appointment belong to your client. It therefore
follows that the vast majority of documents held by you as an agent, such as copy
leases, leaseholder's files, tender documents and contracts, belong to your client and are
only being held by you on the client’s behalf during the term of your agency. Records of
service charge demands, accounts, payments, arrears, books of account, invoices and
other similar documentation also belong to your client but you can retain copies. You
should agree arrangements for handing over all your client's documents in a timely
manner.
You are entitled to keep your copy of the client’s letters to you and your file copies of
letters or reports to the client. These are your records of contract. If you receive your
instructions by phone, you can also keep notes that you make for your own purposes.
6.7 Accounting for client monies and service charge funds upon
termination
This is often an area of dispute between managing agents and their ex-clients. Your
contract should make clear provision for how and when client monies and uncommitted
service charge monies are to be calculated and handed over to your client or the
appointed agent.
You should ensure that you can account in a timely manner for any money that you hold
directly on behalf of a client.
Service charge monies are usually handed over in two stages. At handover the outgoing
agent should handover the balance of funds that are not required to meet commitments
already made. Then the remaining balance is handed over at an agreed later date, along
with the statement of accounts made up until the date of handover. It is important that
this procedure and timescale is detailed within your contract to avoid unnecessary
disputes.
42
Part 7 Service charges, ground rent and administration
charges
7.1 Introduction
Leases typically provide for a landlord to be responsible for maintaining and insuring the
structure and common parts of a development, and for providing relevant services. The
landlord's costs are usually recoverable as a service charge from the leaseholders.
Recovery of these costs, often in advance, is normally a primary role of the managing
agent.
You should have regard to specific lease terms to identify what costs are recoverable as a
service charge and when they are due for payment and should advise clients if their
instructions deviate from the lease provisions. There are no statutory rights for landlords
to recover any costs or to collect service charges in advance; the rights are purely
contractual, thus the lease is paramount.
7.2 Variable service charges

You should be fully aware of the extensive statutory protection for leaseholders and
tenants paying variable service charges. Variable service charges are defined within
section 18 of the Landlord and Tenant Act 1985 as:
‘[…] an amount payable by a tenant of a dwelling as part of or in addition to the

rent—
(a) which is payable, directly or indirectly, for services, repairs,

maintenance, improvements or insurance or the landlord’s costs of
management, and
(b) the whole or part of which varies or may vary according to the relevant
costs.’
Crown copyright material is reproduced under the Open Government Licence v2.0
for public sector information: www.nationalarchives.gov.uk/doc/ open-
government-licence/
The legislation is limited to a leaseholder (tenant) of a dwelling, but covers service

charges which are payable 'directly' or 'indirectly'. These terms can have particular
relevance when managing mixed use or mixed tenure developments or where there is
more than one landlord. It is important that you are aware of these rights, whichever
party you are acting for, when managing any properties.
Service charge provisions within residential long leases usually fall within the section 18
definition, but this is not always the case. Therefore, you should have regard to the
actual lease terms and take further advice if necessary.
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7.3 Budgeting/estimating service charges
The lease commonly provides for the landlord to recover expenditure as an estimated
interim service charge payable in advance. When calculating a service charge budget,
you should use due diligence and professional expertise to make an assessment of
expenditure required to maintain the development and services for the forthcoming
period (typically a year) and beyond. Similar to when securing instructions, here too you
must not purposely underestimate costs or provide leaseholders with misleading
estimates of future contributions required.
Some leases, however, do not require advance payments to be made or specify a rate of
payment which is out of date and therefore do not allow for recovery of the actual costs
adequately. From a landlord's point of view it is not a satisfactory system if all the bills
have to be paid by the landlord without sufficient advance contributions from
leaseholders. Services may be difficult to provide but the landlord must follow the terms
of the lease.
In such a situation, the landlord may have to wait over a year to recover the expenditure
incurred early in the service charge year and may have to pay for the cost of borrowing
money to finance the costs. Sometimes the landlord cannot recover any interest charged
on borrowings as part of the service charge.
This problem of financing the service costs can also cause difficulties where the
leaseholders themselves are responsible for providing services and the charges are
payable in arrears. If any of the leaseholders are late payers, funds to carry out
maintenance and repairs may run out before the end of the year. Failure to provide such
services may constitute a breach of the landlord's obligations, leading to legal action.
You should consider an application to the FTT for a variation of the lease if the lease
deals inadequately with the payment of service charges. However, leaseholders have no
obligation to agree to variation of their leases.
The best information available should be used to inform the budget estimate. This is
likely to be, in descending order of importance:
• actual costs where contracts are already in place and/or the actual costs for the
following period have already been agreed, taking into account any known or
anticipated major works, or cyclical costs to be incurred during the year
• estimates based on likely out-turn of current year, actual accounts for the last
completed financial year and any known or likely variations/increases for the future
year; and
• comparable evidence from similar schemes, which is often the best information
available for some costs on new developments.
Unless your contract delegates specific authority to you for service charge budgets, they
should be approved by your client prior to demanding any service charges. Initial service
charge demands should be accompanied by a copy of the approved budget. This budget
should have sufficient detail to enable leaseholders to understand the nature of the
charges being levied and the rationale behind the level of estimated expenditure. To
allow comparison between years, there should be a standard format for presentation to
leaseholders.
While it is prudent to slightly over-estimate the total level of funds required to run the
development for the following year, the estimated budget should always be as close to
the subsequent final accounts as possible. It is appropriate to make some explained
allowance for a contingency within the estimated budget.
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The purpose of an estimated budget is to ascertain and support the level of interim
service charges demanded on account and to provide a robust benchmark for monitoring
service costs throughout the period (typically a year). You should explain to leaseholders
that it is only an estimate upon which the interim service charge is based. The budget
may also include contributions to reserve funds. The final level of service charge
contributions will be based on the actual expenditure incurred, which may be more or
less than anticipated, especially where unforeseen matters arise during the year. The
amount of the actual service charge contributions may also reflect any surplus or deficit
from the previous year, depending on the terms of the lease. You should notify
leaseholders of significant departures from the budget and should be willing and able to
explain the reasons for them.
7.4 Applications to the FTT

It is essential that managing agents can justify the reasonableness of any item of
expenditure and the level of the charge. Leaseholders can apply to the FTT if they feel
that the charges proposed are not reasonable or payable. In that scenario, collection
may prove difficult, and cash flow compromised, until the FTT has determined the
reasonableness of any charges.
In most cases both landlords and leaseholders have the right to apply to the FTT before
or after a service charge is incurred for determination as to the liability to pay a service
charge and if so:
a) the person by whom it is payable
b) the person to whom it is payable
c) the amount which is payable
d) the date at or by which it is payable; and
e) the manner in which it is payable.
The same rights apply where costs have yet to be incurred for services whether or not
any payment has been made. Payment by a leaseholder should not always be taken as
agreement that the leaseholder has agreed or admitted any matter as this will depend
on the particular circumstances.
Landlord and Tenant Act 1985
7.5 Reserve funds (sinking funds)
The lease often provides for the landlord to make provision for future expenditure by
way of a ‘reserve fund’, or ‘sinking fund’. You should have regard to the specific
provisions within the lease that may, for example, provide for a general reserve fund(s)
for the replacement of specific components or equipment.
The intention of a reserve fund is to spread the costs of ‘use and occupation’ as evenly
as possible throughout the life of the lease to prevent penalising leaseholders who
happen to be in occupation at a particular moment when major expenditure occurs.
45
Reserve funds can benefit both the landlord and leaseholder alike by ensuring monies
are available when required for major works, cyclical works or replacing expensive plant.
It is, therefore, considered good practice to hold reserve funds where the leases permit.
If the lease says the landlord ‘must’ set up a fund, then this must be done. Neglecting to
have a fund when the lease requires one could be deemed to be a breach of the terms of
the lease. No attempt to collect funds for a reserve fund should be made when the lease
does not permit it.
Where there is no provision in the lease for reserve funds, there is no entitlement to
create or hold one, and any money collected for such a purpose can be demanded back
by the leaseholders. In these circumstances, or where the current provisions are likely to
prove inadequate, you should make leaseholders aware and encourage them to make
their own long-term saving provisions towards the estimated expenditure. You should
also consider recommending to your client that consideration be given to discussing with
leaseholders the benefits of a variation to the leases to allow for a reserve fund to be set
up.
You should also recommend your clients to have a costed, long-term maintenance plan
that reflects stock condition information and projected income streams. This should be
made available to all leaseholders on request and any potential purchasers upon resale.
The level of contributions for simple schemes should be assessed with reference to the
age and condition of the building and likely future cost estimates. On more complicated
developments, the assessment should reference a comprehensive stock condition survey
and a life-cycle costing exercise, both undertaken by appropriate professionals.
The usual method of working out how much money is to go into the fund each year,
assuming the lease/tenancy agreement does not make any other provision, is to take
the expected cost of future works, including an allowance for VAT and fees, and divide it
by the number of years which may be expected to pass before it is incurred. The level of
contributions should be reviewed annually, as part of the budget process, and the
underlying survey information should be reviewed at appropriate intervals. This will vary
for each scheme depending on complexity, age, condition and the relative size of funds
held.
If after the termination of any lease there are no longer any contributing leaseholders,
any trust fund shall be dissolved and any assets comprised in the fund immediately
before dissolution shall, if the payee is the landlord, be retained by them for their own
use and benefit, and in any other case, be transferred to the landlord by the payee.
Again this is subject to any express terms of the lease relating to distribution, either
before or at the termination of the lease.
s.42(7) Landlord and Tenant Act 1987
7.6 Holding service charge funds in trust
You must hold service charge monies, and any interest accruing, by way of statutory
trusts in accounts established in accordance with section 42 of the Landlord and Tenant
Act 1987. Service charge payments must be kept separate from the landlord and
managing agent's own money and must only be used to meet the expenses for which
they have been collected.
46
They should be held in either separate client service charge bank accounts for each
scheme you manage, or a universal client service charge bank account for all service
charge monies but where monies for each scheme are separately accountable. If you
operate one universal account it is a breach of trust to allow funds held for one scheme
to be used to finance any other scheme. The accounts should include the name of the
client or the property (or both) within the title of the account.
You should not commit expenditure unless you have the funds available to cover the
costs in full. Some leases provide for the service charge account to borrow funds to meet
required expenditure, but you cannot assume this to be the case without reference to
the lease. In any event, you should ensure those funds have been made available prior
to committing to the expenditure and should not allow service charge bank accounts to
go into deficit.
You must hold such sums in trust for the purpose of meeting the relevant costs in
relation to the property and they should not be distributed to the leaseholders when the
lease is assigned/terminated, subject to any express terms of the lease relating to
distribution, either before or at the termination of the lease.
Funds held for longer terms, or comprising large balances, should be held in an interest-
earning account. Funds required to meet day-to-day expenditure should be
immediately accessible. Where reserve funds are invested these must be invested in
accordance with current regulations.
Service Charge Contributions (Authorised Investments) Order 1988 (SI 1988/1284)(as

amended by the Financial Services and Markets Act 2000 (Consequential Amendments
A trustee is under a duty to invest the trust funds not required to meet day-to-day
expenditure. The investment must be in accordance with the terms of the trust, the
Trustee Investments Act 1961 or an order made under the Landlord and Tenant Act
1987 (which enables funds to be deposited at interest with the Bank of England or with
certain institutions under Part 4 of the Financial Services and Markets Act 2000,
including a share or deposit account with a building society, or a European Economic
Area firm mentioned in Schedule 3 to the Act). Trustees who want to take advantage
of the wider powers of investment under the Trustee Investment Act 1961 (as
amended by the Trustee Act 2000) should have regard to the provisions of that Act,
and to the various subsequently enacted statutory instruments.
Service Charge Contributions (Authorised Investments) Order 1988 (SI 1988/1284)(as

amended by the Financial Services and Markets Act 2000 (Consequential Amendments
Trustee Investments Act 1961 (as amended by the Trustee Act 2000)
47
Financial Services and Markets Act 2000
If leaseholders contribute towards different costs (e.g. one group of leaseholders

contributes towards the lift, whilst another group contributes towards gardening), the
funds should be differentiated. This should be done by way of different service charge
schedules, each schedule should total 100 per cent although you should be aware that
percentages under some leases do not add up to 100 per cent.
7.7 Demanding service charges
The lease will normally dictate individual apportionments of the overall service charge
expenditure and the method and frequency of payments. Leaseholders are only obliged
to pay service charges where the lease/tenancy agreement requires this, where
reasonably incurred and where the works or services have been carried out to a
reasonable standard.
Service charge percentages do not always add up to 100 per cent, and you should advise
your client of any discrepancies and, if necessary, suggest that further advice should be
taken regarding an application to the FTT for lease variations.
The lease may provide for individual proportions to be ‘fair and reasonable’ (or similar
words) and often to be determined by the landlord or the landlord’s surveyor. You should
ensure that proportions have been assessed in accordance with the lease and that your
client has satisfied any professional requirements regarding assessment or re-
assessment.
All service charge demands should be clear, easily understandable, relate to available
budget estimates or actual accounts and be served in accordance with the lease. They
must contain the landlord’s name and address where the landlord can be found. In the
case of an individual this should be their place of residence or place from which they
carry out business (in England or Wales). In the case of a company this should be the
registered office or the place from which it carries out business in accordance with the
requirements of section 47 of the Landlord and Tenant Act 1987.
s.47 Landlord and Tenant Act 1987 (as amended by Schedule 11, Part 2(10))
Commonhold and Leasehold Reform Act 2002
They must also be accompanied by a summary of rights and obligations in accordance

with section 21B of the Landlord and Tenant Act 1985. It should be noted that the Act
provides a right for the form and content of such summaries to be prescribed by
regulations. Different regulations have been issued in England and Wales and are
potentially subject to amendments over time. You should ensure that you keep yourself
informed of the current prescribed content and format.

Service Charges (Summary of Rights and Obligations and Transitional Provisions)
Regulations 2007 (SI 2007/1257)
Where required by the lease, service charge demands should be based on the
assessment of the relevant professional and ‘signed off’ accordingly.
48
7.8 Service charge arrears
You should have an efficient system to monitor service charges received when due and
those that go into arrears, and issue leaseholders with timely reminders. Your contract
should specify the extent of your services in terms of recovering outstanding service
charges and any fees payable for those services. You should provide regular statements
of service charge payments, in accordance with the frequency set out in the lease, to all
those who are making payments.
Your client should be informed, in writing, of any significant arrears situation

immediately and your client’s instructions should be taken as to the appropriate next
steps. If a legal adviser needs to be appointed, this should be with your client’s authority
and confirmation that they will be responsible for the costs until or unless they are
recovered from the leaseholder.
You should have regard to the Practice Direction – Pre-Action Conduct made under the
Civil Procedural Rules (see www.justice.gov.uk) prior to commencing any court action for
recovery of outstanding service charges.
Ministry of Justice Practice Direction – Pre-Action Conduct
The lease typically provides for interest to be added on service charges not paid within a
certain period of time (typically 14, 21 or 28 days) and often at a prescribed, and
relatively high, rate. This can be a useful mechanism to encourage reluctant leaseholders
to make timely payments, but may make the situation more serious for those who are
having genuine difficulty in meeting payments. While having full regard to your fiduciary
duties to your client and other leaseholders, you should attempt to contact defaulting
leaseholders and discuss any difficulties regarding payments. You should take your
client’s instructions, or have agreed standing instructions in place, as to deciding phased
payment or other options in preference to commencing legal proceedings.
You should inform leaseholders in arrears about the availability of independent financial
advice or debt advice from, for example, National Debt Helpline, Citizens Advice Bureau,
Money Advice Service and Stepchange Debt Charity (previously the Consumer Credit
Counselling Service).
Where arrears are related to service delivery or cost disputes, you should consider
offering mediation or alternative dispute resolution (see Part 5.5 Alternative dispute
resolution and mediation), where appropriate, before commencing any legal
proceedings. If not resolved, these disputes are likely to end up being determined by the
FTT. Your advice to your client should balance the risks of a negative determination with
the requirements for positive cash flow.
7.9 Forfeiture
Where you are acting on behalf of the freeholder or head landlord with a reversionary
interest, you should have procedures in place to guard against the possibility of a waiver
of the right of forfeiture. Legal advice should be taken, if necessary.
You should be fully aware of the restrictions on forfeiture imposed by the Housing Act
1996 and sections 167–171 of the Commonhold and Leasehold Reform Act 2002. In
particular, the Act outlines the limitations on commencing forfeiture proceedings for
small debts owing for short periods of time, and breaches of covenant are to be
determined by a court or FTT. You must not commence forfeiture proceedings or attempt
49
to recover any associated costs or administration charges from the leaseholder until or
unless these requirements have been fully met.
Housing Act 1996

ss.167-171 Commonhold and Leasehold Reform Act 2002
You should be aware of any restrictions imposed by the Limitation Act 1980 and advise
your client accordingly on the need to take timely recovery action.
Limitation Act 1980
7.10 Accounting for service charges

An annual statement should be issued to leaseholders following the end of each service
charge period, giving a summary of the costs and expenditure incurred and a statement
of any balance due to either party to the lease. It is also recommended that explanatory
notes are included. The accounts should be transparent and reflect all of expenditure in
respect of the account period.
Many leases set out the procedures regarding preparation of the annual statement and
often require for it to be certified by the landlord’s surveyor, managing agent and
sometimes the landlord’s accountant. In addition, certain leases might also require the
statement to be audited.
It is essential that contractual requirements in the lease are followed. Compliance with
the requirements and procedures set down in the lease may be a condition precedent.
You should therefore ensure that service charge statements are issued strictly in
accordance with the procedures and requirements as set down under the terms of the
lease.
If the lease does not specify the form and content, service charge accounts should be
prepared in accordance with TECH 03/11 (see glossary for details) It is best practice
and helpful to users of the accounts if prior year numbers and/or budgeted figures are
included.
The law protects leaseholders against costs that are unreasonably incurred,
unreasonably high and services and works that are not of a reasonable standard. The
FTT can be asked to make a determination on whether costs have been reasonably
incurred or works have been completed to a reasonable standard.

s.27A Landlord and Tenant Act 1985
s.13 Supply of Goods and Services Act 1982
If leaseholders believe that the charges that they are being asked to pay are
unreasonable and they are not satisfied with the manager's explanation then they should
seek professional advice or consult either the Citizens Advice Bureau or a local law
centre.
Service charge funds for each property should be identifiable and either be placed in a
separate bank account, or in a single client/trust account where the account records of
the manager separately identify the fund attributable to each property.
Where interest is earned this belongs to the fund collectively. Interest should not be
distributed to the contributing leaseholders but should be shown as a credit in the
50
service charge accounts and should be retained within the fund and used to defray
service charge expenditure.
Where statutory trusts apply, the contributions are held:
a) on trust to meet the relevant costs; and
b) subject to the point above, on trust for the contributing leaseholders for the
time being in proportion to their respective liability to pay the relevant service
charges. (This does not mean, however, that the leaseholders are entitled to any
repayment of the service charge fund. Upon the termination of any lease, their
share of any service charge fund remains part of the service charge fund, and
upon the termination of the last lease, the fund passes over to the landlord.)
The trusts set out in section 42 of the Landlord and Tenant Act 1987 do not always
apply. Where there are express trusts created by a lease before 1 April 1989, the
statutory trusts apply only to the extent they are not inconsistent with the express trusts.
Also, express or implied trusts created by a lease on or after that date may vary the
statutory trusts in certain respects.
Section 42 does not include service charges payable under the terms of a tenancy which is
regulated by the Rent Act 1977 unless the rent is registered as a variable rent on the basis
that service charges are payable which vary according to the costs payable from time to time.
7.11 Tax
The two main aspects to the tax treatment of service charges covered in this section
are the tax treatment so far as the landlord is concerned of the service charge payments
receivable, and the tax treatment of income earned on service charges received before
they are spent on the provision of the relevant services. Other tax considerations, for
example VAT obligations, should be considered.
If the statutory trusts apply without any modification, then HMRC have confirmed that,
in its view, so long as the trust terms are observed:
a) the receipt of service charge payments subject to the section 42 trusts will not
give rise to any tax liability in the hands of the payee; and
b) any investment income accrued on the service charge trust fund is subject to tax
but not at the special trust rates that would otherwise apply. Instead this income
is taxable at the basic rate applicable to other persons.
The purpose of this summary is only to draw attention to the general tax position and it
does not refer to all the possible tax charges that can arise in connection with service
charge funds. This summary does not apply if there is any modification to the statutory
trusts, or if they do not apply to all (e.g. where the service charge payments are
governed by express trusts set out in a lease entered into before 1 April 1989).
Specialist advice should be taken in all cases.
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7.12 Summary of costs
A leaseholder or the secretary of a recognised tenants’ association can request that you
provide a summary of relevant costs incurred during the last accounting year or, where
accounts are not kept on that basis, the 12 months before the leaseholder’s request.
You must comply with the request within one month of the request or within six months
after the end of the accounting period, whichever is later.
The summary provided in response to a request must cover all costs incurred by the
landlord for works and services and so on showing how they are reflected or will be
reflected in demands for service charges. The reasonable cost of preparation and
external examination of the summary is properly chargeable to the service charge
account.
The summary must distinguish:

• between items/costs for which no payment has been demanded of the landlord
within the period to which the summary relates
• for which payment has been demanded of the landlord but not paid within that
period; and
• for which the landlord has paid within that period.
The summary must also include the total of any money received by the landlord for
service charges and still standing to the credit of the leaseholders paying these charges at
the end of the period, and any costs which relate to works for which grants have been or
will be paid and show how they have been reflected in the service charge demands.
If within six months of receiving the summary under section 21 a leaseholder or the
secretary of a recognised tenants’ association makes a request to inspect the accounts,
receipts and other supporting documents, you must provide such an opportunity. You must
not charge for the inspection and copies or extracts from any documents supporting the
summary may be taken. You are not precluded from including a charge for the
inspection in the cost of management but any charges made for providing copies of any
documents or having a member of your staff in attendance must be reasonable.
You must respond to the leaseholder's or recognised tenants’ association’s secretary’s

written request to inspect the accounts, receipts and other supporting documents within
one month, and must allow them a period of two months beginning no later than one
month after the request is made, to inspect the accounts, receipts and other documents
supporting the last accounts or the expenditure in the last 12 months. A leaseholder
may make a request for information themselves. Where they are represented by a
recognised tenants' association they may also consent to the secretary of that
association making such a request on their behalf. Where the request for information
is made by the leaseholder, the information is supplied to that leaseholder. Where
the request for information is made by a secretary of a recognised tenants'
association, the information request should be supplied to the secretary and
leaseholder.
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S..22 Landlord and Tenant Act 1985
Where a request is made for information from a superior landlord the intermediate
landlord must make a written request to their superior landlord who must in turn comply
within a reasonable time.
Where a request is made for facilities to inspect, the landlord must inform the leaseholder
or recognised tenants’ association of the name and address of the superior landlord, to
whom they should address the request instead as section 22 would apply to the superior
landlord in this case.
If the service charges are payable by the leaseholders of more than four dwellings, the
summary must be certified by a qualified accountant as a fair summary sufficiently
supported by accounts, receipts and other documents which have been produced. A
qualified accountant means a person who is eligible for appointment as a statutory
auditor under section 1212 of the Companies Act 2006.

s.1212 Companies Act 2006
If you fail to comply with the requirements in sections 21, 22 and 23 of the Landlord and
Tenant Act 1985 without reasonable excuse you will be committing a summary offence and
will be liable on conviction to a fine.

s.37 Criminal Justice Act 1982
You must notify the leaseholders in writing of costs incurred within 18 months of
incurring those costs or the cost may not be recoverable.
When a leaseholder has paid service charges in advance, the amount payable must be
reasonable and you must repay any excess paid, or deduct it from subsequent charges as
the lease directs once the costs have been incurred. The lease often dictates how any
surpluses or deficits arising at the end of the accounting period should be handled.
Advance payments and actual expenditure should be presented clearly.
ss.19 and 27A Landlord and Tenant Act 1985 (as inserted by s.155(1) Commonhold and
Service charge accounts should be prepared, and copies made available to all
contributors, within six months of the end of the financial period, or any shorter
timescales required by the lease. If for some reason the accounts cannot be prepared
within six months of the year end (for example, because of a change of managing
agent), all parties should be informed of the reasons and any statutory notices served.
53
7.13 External examination of service charge accounts
Service charge accounts should be subject to an annual examination by an independent

accountant unless the costs cannot be recovered. The form of the examination will
depend on the requirements in the lease and should be proportionate to the
circumstances of the property. You should follow the guidance contained in TECH 03/11
as to:
• the qualification and eligibility of the independent accountant; and

• the alternative forms of examination, being an engagement to report on specified
findings or an audit
7.14 Ground rent

The lease normally provides for an annual consideration to be payable to the freeholder
or head lessee as ground rent and prescribes its amount and frequency. It is not
uncommon for a lease to provide for increases in the level of ground rent payable during
its lifetime. In some leases, ground rent is reserved as ‘a peppercorn’, which is a nominal
rent intended only to preserve the status of the lease.
The lease typically states that ground rent is payable whether demanded or not. Section
166 of the Commonhold and Leasehold Reform Act 2002 introduced a requirement for all
ground rent to be demanded in a prescribed form. Ground rent is not payable until
demanded, nor until 30 days after receipt of the statutory demand. The demand may be
served up to 60 days prior to the due date within the lease. If you are retained to collect
ground rent on behalf of your client, you should serve the demand between 30 and 60
days prior to the due date, otherwise your client’s cash flow may be compromised.
s.166 Commonhold and Leasehold Reform Act 2002
You should have an efficient system to monitor ground rents collected and any arrears.
Leases typically provide for interest to be added on ground rent not paid within a certain
period of time (typically 14, 21 or 28 days). This is often at a prescribed, punitive rate.
Forfeiture proceedings can also be commenced for non-payment of ground rent and
leases typically provide for the costs of such action to be payable by the leaseholder but
you should be fully aware of the restrictions on forfeiture imposed by the Housing Act
1996 and sections 167–171 of the Commonhold and Leasehold Reform Act 2002. In
particular, the Act outlines the limitations on commencing forfeiture proceedings for
small debts owing for short periods of time, and breaches of covenant are to be
determined by a court or FTT. You should not commence forfeiture proceedings or
attempt to recover any associated costs or administration charges from the leaseholder
until or unless these requirements have been fully met.
Housing Act 1996

ss.167–171 Commonhold and Leasehold Reform Act
Non-payment of ground rent when due can therefore have serious financial
consequences for the leaseholder. When ground rents are not received when due, you
should communicate promptly with the leaseholder to chase payments not received
before applying any punitive interest or other charges.
54
You should keep your client informed, in writing, of any significant arrears situation as
soon as reasonably practicable. Your client’s instructions should be taken as to the
appropriate next steps. If a legal adviser needs to be appointed, you should have your
client’s authority for this and confirmation that the client will be responsible for the costs
until or unless they are recovered from the leaseholder, if applicable.
7.15 Administration charges
Administration charges are defined within Schedule 11 to the Commonhold and

Leasehold Reform Act 2002. In general terms, they are amounts payable by a
leaseholder for, or in connection with, the following:
• approvals, or applications for approvals

• the provision of information, or documents by or on behalf of the landlord
• failure to make a payment by the due date; or
• a breach, or alleged breach, of a covenant or condition in the lease.
You must only seek to recover administration charges that are provided for within the
lease, and only to the extent that they are reasonable.
Administration charges are commonly retained by the managing agent to cover the costs
of providing the services. Your contract should specify any fees payable for services for
which administration charges may be made and retained by the managing agent. You
should only retain administration charges with the express consent of your client.
Any demand for administration charges must be accompanied by the summary of rights
and obligations prescribed under section 158 of and Schedule 11 to the Commonhold
and Leasehold Reform Act 2002. It should be noted that the Act provides a right for the
form and content of such summaries to be prescribed by regulations. Different
regulations have been issued in England and Wales and are potentially subject to
amendments over time. You should ensure that you keep yourself informed of the
current prescribed content and format.
Administration Charges (Summary of Rights and Obligations) (England) Regulations

2007 (SI 2007/1258)
7.16 Surpluses and deficits
The lease often dictates how any surpluses or deficits arising at the end of the financial
year should be handled. It typically provides for surpluses to be:
• credited towards the following year’s service charge budget

• credited to the reserve fund; or
• refunded to the leaseholders by their due proportion.
Deficits will typically be:
55
• due from leaseholders on demand for their due proportion; or
• recoverable during the following year, in addition to the estimated
costs for the year.
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. This practice can lead to costs being
irrecoverable, by virtue of section 20B of the Landlord and Tenant Act 1985. Instead,
you should advise your client of the consequences of not demanding any under-
payments in accordance with the lease.
7.17 Appointment of a surveyor or manager
The requisite number of leaseholders have the right to have an audit carried out which
relates to the management of the property. The purpose is to ascertain whether the
landlord’s obligations are being discharged in an efficient and effective manner and the
extent to which service charges are being applied in an efficient and effective manner.
The audit must be carried out by a qualified accountant or qualified surveyor.
In addition a recognised tenants association may appoint a qualified surveyor to advise

on matters relating to service charges payable.
s.84 Housing Act 1996
56
Part 8 Health and safety: risk management
Note: The list of laws and regulations set out in this section is a guide to the main laws
and regulations which might be applicable when managing a residential building/estate.
You should be aware, however, that this is not an exhaustive list. The age, type and
complexity of a building/estate will determine exactly what laws and regulations should
be followed. You should seek advice from either the Health and Safety Executive (HSE)
(www.hse.gov.uk) or a relevant competent person. You should also take into account
that legislation is constantly changing and therefore, the references to any statute below
may not be the latest.
8.1 Introduction
Managing agents should satisfy themselves that all buildings/estates under their
management meet the relevant standards under the health and safety statute and
regulations. Where they do not, managing agents should ensure that corrective action is
taken or that problems are brought to the landlord's attention.
You should be satisfied that any proposed method of work is safe and appropriate for the
task in hand.
You must comply with your duties under relevant legislation, such as the Health and
Safety at Work etc Act 1974, to ensure the health and safety of your employees, visitors
and contractors.
Workplace (Health, Safety and Welfare) Regulations 1992
8.2 Employers/employees
The Health and safety at Work etc Act places a legal duty on all employers to provide
and maintain equipment and systems of work that are safe and without risk to the health
of employees, or others who may be affected by their work. Equally, employees need to
take reasonable care of their own safety and that of others who may be affected by their
acts or oversights.
Other regulations that are important to know and adopt include:
• the Workplace (Health, Safety and Welfare) Regulations 1992; and

• the Management of Health and Safety at Work Regulations 1999
8.3 Risk assessments

As the common parts of residential developments are deemed to be a ‘place of work’.
(Westminster City Council v Select Managements Ltd [1984] 1 All E.R. 994), they are
hence subject to health and safety at work legislation. The Management of Health and
57
Safety at Work Regulations 1999 require employers to assess and manage health and
safety risks.
Risk management involves identifying and controlling, by sensible health and safety
measures, any potentially significant risk of accident or ill health to you, staff under your
supervision, contractors, leaseholders, members of the public and visitors.
Management of Health and Safety at Work Regulations 1999
You should ensure that periodic risk assessments are carried out by competent persons
at every scheme with common parts. The frequency of formal review should form part of
the risk assessment process but should be carried out whenever there are significant
changes at the scheme. The risk assessment should be treated as a ‘live document’
which the property manager should refer to from time to time. FTTs have been critical of
some managers incurring costs on a regular basis by frequently procuring new risk
assessments. Regular reviews do not necessarily entail producing a completely new risk
assessment document. The extent of any review should be proportional to the risks
identified and the complexity of the installations at each scheme.
The Health and Safety Executive (HSE) publishes detailed guidance on managing health
and safety and recommends that risk management should be about practical steps to
protect people from real harm and suffering. It has also produced an example risk
assessment for the common parts of a block of flats. You should be aware of the
guidance and other advice published by the HSE (see www.hse.gov.uk).
A managing agent is likely to be deemed as a ‘responsible person’; you should therefore

ensure that risk assessments are undertaken by a ‘competent person’. This may be you
or other suitably qualified and experienced person(s). If you are employing specialist
consultants, they should be registered on the Occupational Safety and Health
Consultants Register (OSHCR). This scheme was launched in January 2011 and can be
accessed online at www.oshcr.org.
Copies of the risk assessment should be made available to anybody attending, or

working, on-site. You should also make occupiers aware of any issues that have an
impact on their safety, and provide copies of the risk assessment on request. The risk
assessment should be regarded as a ‘live’ document and kept under continual review.
Any variations or newly identified risks should be assessed and appropriate controls
actioned without delay.
8.4 Fire risk assessments
The Regulatory Reform (Fire Safety) Order 2005 came into force in October 2006 and
replaced over 70 pieces of fire legislation. It applies to all non-domestic premises in
England and Wales, including the common parts of blocks of flats and houses in multiple
occupation (HMOs).
Under this Order, the ‘responsible person’ must ensure that a fire safety risk assessment
has been undertaken by a ‘competent person’ and must implement and maintain a fire
management plan. This may be included within the generic risk assessment, or
undertaken separately by a fire safety specialist. You should ensure that assessments
have been undertaken and an up-to-date fire management plan has been implemented
for every scheme.
Article 3 of The Order defines the ‘responsible person’ as
• an employer, if the workplace is under his or her control,
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• a person who has control of the premises in connection with trade or business, or
• the owner of the property.
Regulatory Reform (Fire Safety) Order 2005 (SI 2005/1541)
Guidance is available from:
• Local Government Regulation (formerly LACORS) at www.lacors.gov.uk

• the Department for Communities and Local Government guide Fire safety risk
assessment: offices and shops (available at
www.gov.uk/government/publications/fire-safety-risk-assessment-offices-and-
shops); and
• the Local Government Association's guidance on fire safety for purpose-built
blocks of flats (www.local.gov.uk).
You should ensure that you are familiar with these publications and wider guidance from
the HSE on fire risk assessments and management plans.
Any works required to fulfil the action plan should be planned with your client without
delay. To ascertain if costs are recoverable as a service charge you should refer to the
lease. Where service charge monies are insufficient to meet any expenditure required,
you should consult with your client regarding longer term planning or arranging other
funding options. Health and safety should not be compromised due to lack of funds and
further advice should be taken if necessary.
It is essential that escape routes, and the means provided to ensure they are used
safely, are managed and maintained to ensure that they remain usable and available at
all times. Corridors and stairways should be kept clear and hazard-free at all times. You
should monitor compliance and, if necessary, arrange for items to be removed. Where
necessary consideration should be given to taking action against leaseholders
breaching the terms of their lease.
You should have regular testing and servicing arrangements in place for any fire-fighting
and detection equipment.
8.5 Control of asbestos

The duty to manage asbestos is contained in regulation 4 of the Control of Asbestos
Regulations 2012. It is not always clear who has the duty but it is, generally speaking,
the person(s) who has the responsibility for maintenance and repair or who is in control
of the building. In the common parts of residential properties this is likely to encompass
both the landlord and the managing agent (jointly and severally).
There is also a requirement on anyone to co-operate as far as is necessary to allow the

duty holder to comply with the regulations.
Control of Asbestos Regulations 2012 (SI 2012/632)
8.6 Gas safety

You must comply with the Gas Safety (Installation and Use) Regulations 1998. The
landlord must ensure that the gas fittings and flues which fall within their area of
59
responsibility are maintained in a safe condition. Gas appliances should be serviced in
accordance with the manufacturer’s instructions. An annual gas safety check may also be
required to ensure that boilers and heaters in communal areas are certified as safe to
use.
Gas Safety (Installation and Use) Regulations 1998
8.7 Electrical equipment
The Electrical Equipment (Safety) Regulations 1994 require that all electrical equipment
supplied by a landlord is safe. You must ensure that periodic portable appliance (PAT)
testing is carried out on electrical equipment situated in communal areas.
The Electricity at Work Regulations 1989 requires electrical installations to be tested.
Electrical Equipment (Safety) Regulations 1994

Electricity at Work Regulations 1989
8.8 Furniture and furnishings
If the landlord supplies furniture and furnishings in a property, the landlord must meet
the levels of fire resistance set out within the Furniture and Furnishings (Fire) (Safety)
Regulations 1988, as amended for soft furnishings.
Furniture and Furnishings (Fire)(Safety) Regulations 1988 as amended

SI 1988/132
SI 1989/2358
SI 1993/207
8.9 Hazardous substances

The Control of Substances Hazardous to Health Regulations 2002 (COSHH) require
employers to control substances that are hazardous to health. These may include
everyday cleaning materials.
COSHH covers chemicals, products containing chemicals, fumes, dusts, vapours, mists
and gases (including asphyxiating gases), and biological agents (germs). If the
packaging has any of the hazard symbols, then it is classed as a hazardous substance.
COSHH also covers asphyxiating gases.
Germs that cause diseases, such as leptospirosis or Legionnaires' disease, and germs
used in laboratories are also addressed in these Regulations.
Control of Substances Hazardous to Health Regulations 2002
8.10 Working at height

The Work at Height Regulations 2005 apply to all work at height where there is a risk of
a fall liable to cause personal injury. They place duties on employers, the self-employed
60
and any person that controls the work of others; for example, facilities managers or
building owners who may contract others to work at height.
The Regulations include schedules giving requirements for existing places of work and
means of access for work at height, collective fall prevention (e.g. guardrails and
working platforms), collective fall arrest (e.g. nets, airbags), personal fall protection
(e.g. work restraints, fall arrest and rope access) and ladders.
Work at Height Regulations 2005
8.11 Manual handling

Employees are required under the Manual Handling Operations Regulations 1992 (as
amended) to take steps to reduce risks from manual handling, and employees must
make full and proper use of any systems provided.
As part of the steps to reduce risk, there is a requirement for employees to receive
relevant training on manual handling injury risks and prevention.
Manual Handling Operations Regulations 1992 as amended
8.12 Water risk assessments
You have a duty to keep water supplies wholesome and to monitor the quality of water,
including the presence of bacteria, in the communal areas of the properties you manage,
in particular where the water supply is provided other than by a water provider; for
example, when you have communal tanks. You must arrange for a water risk
assessment from a competent person. If there are risks then a written action plan
should be produced and acted upon following discussion and instructions from the client,
to reduce the risks. Water tanks, taps and showers within lessees’ demises are the
responsibility of the lessee unless the lease puts the repairing responsibility for them on
the landlord.

Management of Health and Safety at Work Regulations1999 (SI 1999/3242)
The HSE have published an Approved Code of Practice (ACOP) and guidance,
Legionnaires' disease: The control of legionella bacteria in water systems (2013), which
gives further detail on managing and controlling legionella risks.
8.13 Construction
Everyone controlling site work has health and safety responsibilities. Checking that
working conditions are healthy and safe before work begins, and ensuring that the
proposed work is not going to put others at risk, require planning and organisation. This
applies whatever the size of the site.
The Construction (Design and Management) Regulations 2015 (CDM) place legal duties
on virtually everyone involved in construction work and therefore can all be categorised
as duty holders.
61
Construction (Design and Management) Regulations 2015
8.14 Signs and signals

The Health and Safety (Safety Signs and Signals) Regulations 1996 cover various means
of communicating health and safety information, such as the use of illuminated signs,
hand and acoustic signals (e.g. fire alarms), spoken communication and the marking of
pipework containing dangerous substances.
Employers are required to provide specific safety signs whenever there is a risk that has
not been avoided or controlled by other means; for example, by engineering controls
and safe systems of work.
Fire safety signs (i.e. signs for fire exits and fire-fighting equipment) are also covered by
the Regulations.
Health and Safety (Safety Signs and Signals) Regulations 1996
8.15 Lifting equipment

The Lifting Operations and Lifting Equipment Regulations 1988 aim to reduce risks to
people’s health and safety from lifting equipment provided for use at work. They apply to
employers or self-employed persons providing lifting equipment for use at work, and to
those who have control of the use of lifting equipment.
Any equipment used at work for lifting or lowering loads is covered in these Regulations,
including attachments used for anchoring, fixing or supporting. There is a wide range of
equipment included, such as cranes, fork-lift trucks, lifts, hoists and mobile elevating
work platforms ('cherry pickers') that are considered lifting equipment. The HSE
definition also includes lifting accessories such as chains, slings and eyebolts.
You must ensure that statutory lift inspections take place twice a year by a competent
person (usually an insurance inspector). Their reports will normally indicate the priority
of works required or recommended.
Lifting Operations and Lifting Equipment Regulations 1998
Approved Code of practice and guidance (2014) available from HSE (www.hse.gov.uk)
8.16 Personal protective equipment

Personal protective equipment (PPE) is defined in the Personal Protective Equipment at
Work Regulations 2002 as ‘all equipment (including clothing affording protection against
the weather) which is intended to be worn or held by a person at work and which
protects him against one or more risks to his health or safety’.
Crown copyright material is reproduced under the Open Government License v2.0
for public sector information: www.nationalarchives.gov.uk/doc/ open-
government-license/
This includes safety helmets, gloves, eye protection, high visibility clothing, safety
footwear and safety harnesses.
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The main requirement of these Regulations is that PPE is to be supplied and used at
work wherever there are risks to health and safety that cannot be adequately controlled
in other ways
Personal Protective Equipment at Work Regulations 2002
8.17 Environmental protection

You should be aware of the terms of part 2 of the Environmental Protection Act 1990 in
so far as they affect the management of residential properties. You must ensure that all
waste in your care is transferred safely and by a registered contractor.
Environmental Protection Act 1990
8.18 Pressure systems

The Pressure Systems and Safety Regulations 2000 outline the maintenance and
inspection regimes you should apply to boilers, communal space heating and domestic
hot water systems. You should also have regard to the requirements of insurance
inspectors.
Pressure Systems and Safety Regulations 2000
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Part 9 Repairs and other services
9.1 Introduction
You should have regard to the lease in determining the respective repairing obligations
of landlord and leaseholder. The lease may also contain prescribed time periods for
cyclical works, especially for decoration.
The landlord owes a duty of care to all persons who might reasonably be affected by
defects to any property that they own, to see that they are reasonably safe from
personal injury and from damage to their property which might be caused by a relevant
defect. The managing agent acting on behalf of the landlord also has this duty of care.
This can include, for example, taking reasonable care to repair paths, driveways or stair
carpets so that they are reasonably safe to use.
S.4 Defective Premises Act 1972
As not all repairs can be predicted or pre-planned, reactive works will always be
necessary on some occasions. The requirement for reactive works can, however, be
reduced, or even minimised, by good inspection and planning regimes. You should have
adequate servicing contracts in place for any plant and machinery.
You should ensure that you have sufficient funds prior to instructing a contractor, or that
the method of payment has been agreed between all parties prior to works commencing.
Contractors should issue appropriately detailed invoices for all works carried out,
however minor, which state clearly what the charges are for.
9.2 Repairs
Leaseholders should be told how and to whom repairs should be reported. This process
should be as straightforward as possible and can include modern forms of
communication, such as email and text messaging, to improve the ease and availability
of reporting regimes. You should deal promptly with leaseholder's reports of disrepair,
the remedy of which is the landlord's responsibility, and you should have a notified
procedure for dealing with urgent and out-of-hours repair work. You should also have a
procedure for dealing with any health and safety implications.
You should keep residents informed of any actions or proposed actions and, where
necessary, make convenient appointments for contractors to attend. Communal parts or
services, however, will require most of the repairs, which should not need access
arrangements. You should notify residents of target timescales for responses to repairs,
which may vary depending upon the urgency and nature of the repair. Depending on the
nature of the repair and its impact, residents should be informed of contractors' start
dates and any contact details prior to works being commenced.
You should have control systems in place to ensure that works have been completed to
an acceptable standard prior to authorising payment of any invoice. Checks should be
proportionate to the level or costs incurred. Repair work should be cost effective taking
into account its durability and expense. In the long term it may prove more cost
effective to replace than to continue to repair. In certain circumstances work which is
considered not to be of a reasonable standard can be the subject of court action on the
basis of a breach of contract.
s.13 Supply of Goods and Services Act 1982
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9.3 Planned and cyclical works
You should use scheme inspections to inform a programme of planned and cyclical
works. This plan should be used to inform budget calculations and reserve fund
contributions and should cover a minimum period of three years. Programmes for large,
more complicated developments should cover a longer period. You should consider the
use of experienced or qualified building consultants/specialists, depending on the size
and complexity of the project. The building specialist should also inspect reported defects
before work is done if it is likely to be complicated and/or costly. Their use should also
be considered for carrying out periodic inspections to identify defects.
The programme should reflect a realistic cost of maintenance including periodic

redecoration work. You should be aware of the adverse cost implications for older
buildings. Your planned and cyclical works programmes should be agreed with your
client, communicated to leaseholders and be included as a note in each year’s service
charge budget. A budget for the cost of maintenance should be included in each year's
service charge budget to ensure an adequate fund to meet the cost where permitted in
the lease.
Your contract should specify the level of your authority to instruct contractors and
commit to expenditure. The level of financial authorisation should also be stated and
may vary according to urgency of works required. You should not exceed your authority
to instruct contractors or your financial authorisation without your client’s instructions.
On-site staff should be aware of the (limited) extent of their authority to order urgent
repair work.
9.4 Services
Unless it is a leaseholder’s or other party’s obligation, and where costs are recoverable
under the terms of the lease, you should arrange for the regular cleaning of all internal
common areas including among other things corridors, staircases, glass in doors and
windows accessible from common areas. Cleaning materials must be stored safely in
accordance with the COSHH 2002 Regulations. Landings, corridors and staircases should
be kept clear and safe.

Regulatory Reform (Fire Safety) Order 2005
Health and Safety at Work Act etc. 1974
Unless it is a leaseholder’s obligation, you should keep shared garden areas tended to
a reasonable standard consistent with the quality of the property. The gardening
service should normally include:
a) grass cutting and lawn maintenance
b) weeding and pruning; and
c) appropriate replacement of shrubs, trees and plants.
Garden waste should be removed or composted on- site in a suitable

screened compound remote from any dwelling or removed by a suitably
licensed contractor.
65
Environmental Protection Act 1990, Controlled Waste Regulations 1992
You should carefully consider the implications of requests by leaseholders to be allowed to

undertake the above roles themselves, subject to the arranging of insurance cover and
consideration of safety requirements.
9.5 Bulk buying

If you enter into a bulk buying agreement involving the provision of goods or services to
more than one property you:
a) must ensure that the prices and services which are the subject of the agreement
meet the test of reasonableness
b) must have regard to the consultation requirements for long-term agreements
c) should notify your clients of the agreement; and
d) should enter into the agreement in your name on behalf of the clients for the
properties subject to the agreement.

Reform Act 2002)
You or your clients should be able to withdraw from the arrangement without penalty on
reasonable notice.
9.6 Central utility supplies
Where there is a master electricity meter and electricity is resold to the leaseholders for
electricity used within their premises rather than a communal supply, the charge should
be reasonable and you must have regard to the maximum resale price set by the Gas
and Electricity Markets Authority (Ofgem).
There are also restrictions set by the Water Services Regulatory Authority (Ofwat) on
water charges and administration costs which you should be aware of.
9.7 Access
Staff or contractors may need to gain entry to individual dwellings to carry out building
works or repairs. You should always give adequate notice and try to arrange a
convenient appointment with occupiers.
The lease often grants powers for landlords to gain access to a leaseholder’s property to:
• undertake repairs for which the landlord is responsible

• monitor the leaseholder’s performance of repairing obligations
• undertake works in default; and
• undertake emergency works.
Each of these powers is specific and different; the circumstances should not be confused
with each other.
66
Reasonable notice will be required, and the lease often specifies what the minimum
notice periods are. In any event, you should give leaseholders as much notice as
possible and have due regard to their valid difficulties in providing access during normal
working hours. Even after giving reasonable notice, you should not assume that you
have any rights to force entry unless specified in the lease for the premises and an
application to the courts for permission may be required. In the event of an emergency,
such as a fire, gas or electrical emergency, escape of water or something similar, the
police or fire brigade may attend and force entry if necessary. In other situations, forced
entry should only be contemplated in extreme circumstances. (See Part 9.8 Forced
Entry)
9.8 Forced entry

No decision to force entry should be taken until you have exhausted all timely
possibilities of contacting the leaseholder and the occupier. You should also read the
lease to establish what power of entry you have. If the decision to force entry is taken
you should (as a minimum):
• advise the police and request their attendance (remember that many properties are
now fitted with alarms, in which case police attendance is required)
• find an independent witness and keep photographic or video records
• avoid damaging the property or its contents unreasonably
• make the property safe and secure before leaving
• organise repairs to make good any damage without delay; and
• take identification and evidence of your authority to act.
To reduce the likelihood of forced entry being necessary, occupiers should be advised to
keep you informed of emergency contact and of key holder details. Many leasehold
properties have been underlet on assured shorthold tenancies (ASTs). You should bear in
mind the tenant in occupation has a right to ‘quiet enjoyment’, as does the leaseholder.
9.9 Consultation
You should aim to achieve good and effective communication with clients, leaseholders,
residents, occupiers and any RTAs. In addition to any statutory consultation
requirements you should consult with leaseholders on management matters that are
likely to have a significant effect on the level, quality or cost of services provided.
When managing on behalf of RMCs or, in particular, RTM companies, you should
distinguish between seeking the views of shareholders/guarantors, clients (‘landlords’)
and consulting with leaseholders. You will frequently need to do both.
You should also be aware of the importance of the lease with regard to the landlord’s
obligations and right to recover costs as service charges. Obtaining majority support
from leaseholders does not override the terms of the lease. You should ensure your
clients are in a position to make fully informed decisions regarding any proposed works
or services and the cost recovery implications thereof.
In addition, consultation with clients, leaseholders, residents, occupiers and any RTAs
may be required under section 20 of the Landlord and Tenant Act 1985 (as amended)
before any contractors are selected or tendering is commenced. You should allow
adequate time to complete the consultation process and collect any additional funds
required to undertake the works. In addition, reasonable allowance should be made in
the programme of works for leaseholder's absence; for example, when they are away
from the property when the works are being undertaken and access is required. (See
Part 9.10 Section 20 consultation)
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s.20 Landlord and Tenant Act 1985 (as amended)
9.10 Section 20 consultation
You should be aware that there is considerable case law in connection with section 20 of
the Landlord and Tenant Act 1985 (as amended) and you should keep yourself up to
date with case decisions. The most notable decision is Daejan Investments Ltd v Benson
& Ors [2013] UKSC 14.
You should be fully aware of the consultation requirements of section 20 of the Landlord
and Tenant Act 1985 (as amended). Your clients must fully comply with the consultation
requirements and take further advice where necessary. Non-compliance can have
serious financial consequences for landlords and, potentially, managing agents.
There are five different consultation routes depending on the particular circumstances,
and their requirements are prescribed by law. When undertaking consultations you may
need to refer to the specific detail contained within the Service Charges (Consultation
Requirements). You should take further advice if necessary.
Service Charges (Consultation Requirements) (England) Regulations (SI 2003/1987), or

the Service Charges (Consultation Requirements) (Wales) Regulations (SI 2004/684
(W.72))
ARMA and LEASE have produced joint guidance, s.20: Consultation for private landlords,
resident management companies and their agents (2013), and precedent notices for
each of the consultation stages within each of the five routes. These notices have been
upheld and recommended by the Lands Tribunal (now Upper Tribunal – Lands Chamber).
Where you are managing on behalf of head or intermediate landlords, you should
understand the obligations to consult and the rights to be consulted. Where your client is
an intermediate landlord, you should be aware of their obligations to cascade any
consultation to their own leaseholders and both parties’ rights to challenge the
reasonableness of service charges.
9.11 Qualifying long-term agreements
A qualifying long-term agreement is an agreement entered into by the landlord with an

organisation or contractor for a period of more than 12 months, where the amount
payable by any one contributing leaseholder under the agreement in any accounting
period exceeds the statutory limit.
Where the costs are above the statutory limit and in order for the costs to be
recoverable above the statutory limit, the landlord must consult with every leaseholder
and any recognised tenants' association. Thus, in a property with unequal service charge
proportions, the landlord must consult all leaseholders if any one of them would have to
pay more than the statutory limit in any one year (i.e. the accounting period). The figure
is to be calculated on the basis of the leaseholder’s total contribution resulting from the
relevant costs incurred under the agreement, including VAT.
S20 Landlord and Tenant Act 1985 (as amended by s151 Commonhold and Leasehold
Reform Act 2002)
The Service Charges (Consultation Requirements) (England) Regulations 2003 (as

amended). SI 2003/1987
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If consultation is not undertaken in full compliance with the procedures the landlord may
not be able to recover more than the statutory limit per leaseholder in any accounting
period towards the costs under the agreement.
9.12 Qualifying works
Qualifying works are works on a building or any other premises; that is, works of repair,
maintenance or improvement. The inclusion of ‘improvement’ in the definition of
qualifying works does not allow a landlord to recover costs of improvement works, unless
a provision for the recovery of costs of improvements is included in the lease. However,
a renewal of something which may result in an improvement being made, may be
regarded as a repair where this represents a cost-effective solution.
Where the costs are above the statutory limit the landlords must consult with every
leaseholder contributing to the costs, and must consult with any RTA, if the amount
payable by any one contributing leaseholder is more than the statutory limit. Thus, in a
property with unequal service charge proportions, the landlord must consult all
contributing leaseholders if any one of them would have to pay more than the statutory
limit.
Reform Act 2002)
The Service Charges (Consultation Requirements) (England) Regulations 2003 (as

amended). SI 2003/1987
If consultation is not undertaken in full compliance with the procedures the landlord may
not be able to recover costs over the statutory limit per leaseholder.
9.13 Emergencies and escalation of works
The consultation regulations do not provide any exceptions from the procedures due to
urgency. Even if you believe that works are urgently required, non-compliance with the
regulations may lead to any costs in excess of the statutory limit for each leaseholder,
being irrecoverable.
Under section 20ZA of the Landlord and Tenant Act 1985 the FTT can, however, dispense
with all or any of the requirements, if satisfied that it is reasonable to do so. If works are
urgently required that are likely to exceed the consultation threshold, you should advise
your client to seek dispensation from the FTT if the client wishes to recover the full costs
of the works as service charge.
In extremely urgent situations your client may wish to undertake works prior to
obtaining dispensation from the FTT, which can be granted retrospectively. Such
situations have resulted in a number of challenges in the FTT, but one common theme
from resulting determinations is that landlords should undertake as much of the
consultation process as possible. They should attempt to ensure that leaseholders are
not prejudiced and that demonstrable value for money has been obtained.
The FTT will look at every individual application on its merits, so you should not assume
that dispensation will be granted. Dispensation is unlikely to be forthcoming where
consultation has not occurred due to incompetence, ignorance or lack of forward
planning. Before instructing any contractor to undertake works at a cost above the
consultation threshold and without fulfilling all the statutory consultation requirements,
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you should make your client fully aware of all the financial risks involved and only
proceed with the client’s express instructions to do so.
It is not uncommon for contracts to be specified, tendered and works commenced, only
to subsequently discover that more extensive works are required at greater cost. This
may lead to further consultation being required. It can frequently be prudent or more
cost effective to complete the required works, rather than suspending the contract until
the consultation requirements can be fulfilled. This is another situation in which a
request can made to the FTT to grant dispensation from the (further) consultation
requirements so that the works can continue in a timely manner.
The FTT will consider carefully the circumstances of each individual case in deciding if the
consultation requirements have been fully met and, if not, whether to grant
dispensation. This is a complex area of case law and tribunal determinations, with which
you should familiarise yourself and take further advice where necessary.
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Part 10 Contractors and suppliers
10.1 Introduction
The landlord or manager under the lease should normally be the employer under any
contract, not the managing agent.
All persons, including managing agents and landlords, should only undertake property-
related services or repairs where they are competent to do so.
Where you have a connection with any proposed company, individual, contractor or
supplier, whether financial or otherwise, this should be declared to your client and the
leaseholders as a note in the year end service charge accounts. The statutory
consultation requirements (S20 Landlord and Tenant Act 1985) also require any
connections to be identified).
Any charges for specifying, tendering and monitoring contracts should be pre-agreed
with your clients and proportional to the tasks involved. All appointments or re-
appointments should be confirmed by a written works order providing contractors with a
‘licence to work'.
10.2 Selection, approval and tendering

You should have criteria in place for the selection of contractors prior to employing them.
This should include:
• identity
• competency and experience
• appropriate insurance – employers’ liability and third-party liability
• tax – HMRC Construction Industry Scheme, VAT
• health and safety – compliance with codes and regulations, provision of safe working
method statement; and
• compliance with your equal opportunities and anti-discrimination policy.
For more major works you should also include:

• financial position
• membership of relevant trade organisations; and
• compliance with Construction (Design and Management) Regulations 2015 (CDM).
You may have a list of pre-selected, approved contractors for small value or urgent
works. In these cases you should have agreed pricing mechanisms (e.g. hourly rates)
and financial limits that are reviewed at appropriate intervals. You should be able to
justify the reasonableness of expenditure to your client and have some process for
market testing and ensuring value for money.
For larger value works, you must obtain competitive prices from a minimum of two
selected contractors one of which must not be connected with the landlord. For low-
value contracts or extremely urgent works, however, this may not always be
appropriate. Selection should be by competitive tender based upon a uniform
specification. Selection criteria should have regard to economy, quality, value for money,
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and health and safety policies, and final selection should be approved by your client
unless you have delegated authority to act. You should clearly define the duties of the
contractor including expected response times.
S20 Landlord and Tenant Act1985 (as amended by s151 Commonhold and Leasehold
Reform Act 2002)
All ‘qualifying works’ must be fully consulted under section 20 of the Landlord and
Tenant Act 1985 (as amended) before the appointment of a contractor (see Part 9.9–
9.12 Consultation).
10.3 Health and safety method statements
You should obtain a health and safety method statement from all contractors before
entering into a contract. You should be satisfied that the proposed method(s) of work is
safe and appropriate to the task in hand. No contractors should undertake any work until
you are fully satisfied with the proposals, and the contract should be conditional upon full
compliance.
10.4 Monitoring
You should have procedures in place for monitoring all contractors, either in-house or via
appropriate external consultants (e.g. building surveyors, chartered engineers).
You should make sufficient checks that all contractors give due attention to any health
and safety issues on-site that have been identified before work started. You should also
ensure that they work in a safe manner, in accordance with their health and safety
method statement.
You should have procedures for checking the standard of work carried out and for
ensuring that contractors behave courteously, are trustworthy and work in a manner
that does not cause undue inconvenience to occupiers. The views of leaseholders and
residents should be sought and taken into account. This monitoring process should have
regard to the value and extent of the works and be linked to any interim payments and
the final payment to the contractors. The results of such monitoring will also be a
material factor in deciding whether to award further work to those contractors.
Contractors should issue appropriately detailed invoices for all works carried out,
however minor, which should state clearly what the charges are for.
Contracts for major works may provide for liquidated and ascertained damages as
another device that can be used to ensure that work is carried out promptly and to a
reasonable standard.
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Part 11 Works to extend or develop an existing block or
new phase
When arranging new construction works the landlord should have regard
to any requirements under the terms of the leases, be aware that
leaseholders are entitled to the quiet enjoyment of their homes, and
should seek to minimise disruption.
The landlord should consult leaseholders on the details of and programme

for carrying out such works and reasonable allowance should be made
in the programme if possible for leaseholders’ absence; for example,
when they are away from the property, when the works are being
undertaken and access is required.
Following an increase in occupied floor area, you should discuss with

your client/landlord reapportionment of leaseholders' responsibilities
for making financial or other contributions. You should be aware, and
make your client aware, that alterations in obligations or rights under
existing leases can only be made with the consent of the leaseholders
or, in certain circumstances, by order of the FTT or by a court.
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Part 12 Insurance
12.1 Introduction
Significant restrictions are now placed on managing agents acting in various

insurance matters. These restrictions are administered by the FCA and regulations
allow varying levels of involvement subject to strict procedures being adhered to.
All parties should be aware of the risks to the interests of landlords, leaseholders and
residents if sufficient levels and types of insurance do not exist.
Insurance fees (including commissions) and all other sources of income and related
income or other benefits in relation to the service charge arising out of the management
should be declared annually to the client and to leaseholders and should reflect the
level of work carried out.
12.2 Obligations
The lease usually sets out the obligations of the parties with regard to insuring the
premises. Where there is an intermediate landlord or manager under a tripartite lease, it
is not uncommon for the insuring obligations to remain with the freeholder, or for the
freeholder to retain rights to nominate the insurers and/or brokers. RTM companies take
responsibility for insuring the premises following acquisition of the right to manage. You
should be aware of all the insurance obligations of your client and any restrictions
imposed in the lease.
Where the obligations are not set out in the lease, a managing agent should draw the
landlord's attention to the risks for which the property and its facilities are insured.
Under section 30A and schedule 1 of the Landlord and Tenant Act 1985, leaseholders
paying service charges, directly or indirectly, towards the cost of insurance (and any
recognised tenants’ association) can request a written summary of insurance cover. They
can also ask to inspect the policy and related documents, which may include receipts for
payment of the premium. Non-compliance, within 21 days of receipt of a written notice,
is a summary offence. You should ensure you have sufficient information to comply, or
forward the request to the relevant landlord without delay.
s.30 and Schedule 1 Landlord and Tenant Act 1985
Facilities for the inspection of insurance documents must be made available free of
charge. However, a reasonable amount may be charged as part of the costs of
management. A reasonable charge may also be made for doing anything else in
compliance with a requirement imposed by a notice served under the legislation.
Failure to comply, without reasonable excuse, is a criminal (summary) offence subject to
a fine, on conviction.
Leaseholders should be reminded that the landlord's insurance policy does not cover the
contents of their demise and it is the leaseholder's responsibility to insure their
possessions.
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12.3 Financial Conduct Authority
You should be fully aware of the general insurance regulations issued by the Financial
Conduct Authority (FCA) under the Financial Services and Markets Act 2000.
Before carrying out any insurance-related work, including claims handling, you must be
authorised to do so. There are several options available for landlords and managing
agents:
• register with the FCA as an authorised firm that can transact insurance business with
insurers or brokers
• be an appointed representative of a single insurer or broker (some brokers will still
be able to offer a choice of insurers as they are considered authorised firms and thus
work with many insurers)
• limit activities to that of an introducer, whereby the only involvement would be
introducing clients to an insurer or broker; or
• be licensed under a designated professional bodies scheme, such as the one run by
RICS which, as a designated professional body, can grant a licence to member firms
to regulate them for the purpose of general insurance activities.
Financial Services and Markets Act 2000
You will be acting illegally and could be fined or imprisoned if you continue to help your
customers with insurance products without authorisation.
12.4 Reinstatement valuations
There is a need for regular reviews of the level of insurance and reinstatement value,
which should be advised to your client. You should ensure that there is adequate
insurance and that the leaseholders are not paying for excessive or unnecessary
coverage.
Incurring a loss when inadequately insured can cause financial disaster. In the event of a
claim, the insurers will apply an ‘average clause’ and reduce the amount of any claim
proportionately to the amount of any under-insurance. The level of cover should be
related to reinstatement valuations. These should be undertaken regularly by
appropriately qualified and experienced professionals in accordance with the RICS
guidance note Reinstatement cost assessments of buildings (2nd edition, 2011), and
index-linked to rebuilding costs.
Where individual leaseholders within a block are responsible for insuring the dwelling and
a landlord has the right to nominate or approve the insurers, leaseholders can apply
to the FTT to determine whether the insurance from the nominated insurer is
unsatisfactory, or the premiums payable are excessive.
12.5 Placing insurance
You should not exceed your authority to undertake insurance activities. You should
ensure that suitable insurances are in place to satisfy the requirements of the lease, your
client and the landlord/freeholder. Your client’s instructions should be taken on any
further cover required, which may include:
• provision of alternative accommodation

• loss of rent
• legal fees
• fidelity cover; and
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• flood cover.
In particular, serious consideration should be given to the taking out of terrorism

insurance.
Recommendations should be made, where appropriate, that relevant cover is in place

for:
• employers’ liability
• third-party liability
• communal contents; and
• engineering insurance and engineering inspection insurance.
You should be aware that some of these insurances are compulsory in certain
circumstances and you should take advice.
When managing on behalf of RMCs, RTM companies or similar, it is prudent for your
clients to be covered by directors' and officers’ liability insurance. This will be a cost to
the company. If the cost is to be recovered as a service charge item, you should have
regard to the terms of the lease.
You should be aware of the requirements for costs, recoverable as a service charge, to
be ‘reasonably incurred’ and for the possibility of leaseholders to challenge it at the FTT.
Insurance procured may not necessarily be the cheapest available, but should cover
appropriate risks and be subject to market testing. You should regularly review the
extent of cover and level of premiums for all insurances under your control.
12.6 Remuneration including Commissions
Your client and leaseholders should be notified annually of any remuneration,

commission and other sources of income and related income or other benefits you
receive in connection with placing or managing insurance. You should also obtain your
client's informed consent to retain any commission received.
It is best practice to declare any other sources of income and related income or other
benefits including commissions arising from the provision of services with the annual
service charge accounts. On request, you should declare what services are provided for
the income received and the costs must be proportionate to the service.
12.7 Claims
Sufficient detail of the building insurance should be available to enable a claim to be

made and for you to advise on the process. When a claim arises, and you are authorised
to undertake this work, you should process it promptly. Where you are not authorised
you should refer the matter to the broker without delay.
You should keep leaseholders informed of the progress of any claims that affect them
directly, or provide them with sufficient information to pursue the matter themselves.
Any claim settlement funds received should be treated as belonging to the persons
suffering the damage. You should not, therefore, make any deduction, without express
consent, when passing funds received to the claimant. You are recommended to obtain a
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mandate allowing you or the claimant to receive insurance claims payments, as these
are often made payable to the insured who may not be the beneficiary of the claim.
12.8 Excess
There may be a trade-off between cost of premiums and the level of excess applied to
some claims. In some circumstances, such as poor claims history, location or method of
construction, obtaining competitively priced insurance cover without agreeing to a large
excess may not be possible. These difficulties may be reduced by insuring a landlord’s
portfolio under one policy and thus effectively spreading the insurers’ risk. There is likely
to be a contrary effect on ‘low-risk’ properties within the portfolio, the implications of
which you should consider carefully.
You should consider whether the terms of the lease/tenancy agreement contain
provision that, where an insurance claim is as a result of a negligent act by the
leaseholder, you are entitled to recover the excess from the leaseholder or whether the
lease allows the excess to be paid from service charges.
12.9 Other insurance
You should carry the appropriate insurance cover for your own business. This could
include (this is not an exhaustive list):
• buildings and contents

• employer’s liability
• legal assistance
• fidelity cover
• third-party liability
• professional indemnity
• business interruption
• cover for clients’ money
• plant and machinery; and
• staff sickness.
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Part 13 Provision of information
13.1 Introduction
Many other sections within this Code refer to legislation which requires specific
information to be given to leaseholders. In certain circumstances the following
information must be provided.
This is not an exhaustive list.
Where reasonable information and/or copies of documents are requested you should
provide them within reasonable timescales. This does not apply to commercially
sensitive documents nor documents protected by the Data Protection Act 1998.
Any charge that can be made should be reasonable, and you should be aware that you
may be liable to your client, and a wide range of parties for the accuracy of the
information you supply.
You should publish a list of proposed charges where possible (see subsection 3.5, Menu of
charges) and indicate what the timescales are likely to be for providing the information. It
is recommended that a response to an enquiry should be sent no more than 10 working
days from receipt of the request. This information should be made available on
request and be available online where possible.
13.2 Landlord’s name and address

You must provide the leaseholder with an address in England and Wales for the service of
notices. This could be the landlord’s own address. Until such information is provided any
rent, service charge or administration charge is deemed not to be lawfully due from the
leaseholder.
Where a written demand is issued to a leaseholder, it must contain the landlord’s name
and address and if that address is not in England and Wales an address in England and
Wales at which the leaseholder may serve notices of proceedings on the landlord.
The address for the landlord on the written demand must be the address where the landlord
can be found. In the case of an individual this must be their place of residence or place from
which they carry out business. In the case of a company this must be the registered office or
the place from which it carries out business.
You should at the commencement of the lease/tenancy, and must within 21 days of a
written request, give the leaseholder the name and address of the landlord. If the landlord
is a company and the leaseholder makes a further request, after receiving the name and
address of the landlord, then you must also give the name and address of the directors
and secretary of the company within 21 days of that further request. Failure without
reasonable excuse to comply with these requests is a summary offence liable to a fine on
conviction.
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When seeking to exercise a right to enfranchise, a leaseholder may request the name
and address of every person who owns a freehold interest in the property, including any
superior leasehold interest in the property. You must provide the information within 28
days.
13.3 Management policy

You should manage the property on as open and transparent a basis as is practicable,
subject to maintaining confidentiality in respect of commercially sensitive information
and personal information. You should explain to the leaseholders your relationship with the
landlord. Any interest, financial or otherwise, you may have in any companies employed
to provide services should be provided, following written request, or declared
voluntarily.
13.4 Landlord’s change of address

Landlords should inform the managing agent or, in the event of there being no managing
agent, the leaseholder, of any change of address, especially if they are going abroad.
Managing agents must be aware of the provision of the Finance Acts 1995 and 2007 and
the Non-Resident Landlord Scheme especially with regard to the requirements to deduct
tax from rent received.
Taxation of Income from land (non-residents) Regulations 1995, SI 1995/2902

Finance Acts 1995 and 2007
13.5 New landlord

A landlord who has just acquired the property must give notice in writing of the purchase
and of their name and address to the leaseholders not later than the next day on which rent
or service charge is payable under the lease/tenancy agreement, or if that is within two months
after the assignment not later than the end of that period of two months.
Where the leaseholder has ‘rights of first refusal’ additional information must be given: that
the leaseholders have such rights, that the leaseholders may (with other qualifying
leaseholders) have rights to information about the disposal and to acquire the landlord’s
interest, and must give the time limit for exercise of these rights.

The new landlord will be committing a criminal (summary) offence if they fail to give this
information without reasonable excuse. A local housing authority has the power to bring
proceedings. The ‘old’ landlord as well as the new one is liable for any breaches of the
landlord’s covenants until the leaseholders have been notified of the identity of the new
landlord (by either the former or current landlord).

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13.6 Change of occupier or correspondence address
Leaseholders should tell the manager in writing about any change of occupier and any
change in their own address. This is for security reasons, and because they are entitled
to receive certain information. It is also in the interest of good estate management.
Leaseholders also have ongoing responsibilities under the terms of their leases. It may
also be helpful for leaseholders to tell the manager if they are going to be absent for
more than four weeks. There is no statutory obligation for them to do so although there
may be a requirement under the buildings insurance policy.
13.7 Change of managing agents/managers

Likewise, managers should tell leaseholders in writing about any change of address or
where they no longer manage the property.
13.8 Demands for service or administration charges or ground rent

Information relating to tenants’ rights and obligations must be sent with any demand for
service or administration charges; if this is not sent payment can be withheld. The
particular wording and other requirements to be used for each summary are specified in
regulations. Likewise, ground rent does not become payable until it has been
demanded using the particular form of notice specified in regulations. Different
regulations have been issued in England and Wales and are potentially subject to
amendments over time. You should ensure that you keep yourself informed of the
current prescribed content and format.
Service Charges (Summary of Rights and Obligations, and Transitional Provision)

(England) Regulations 2007 (SI 2007/1257)
Administration Charges (Summary of Rights and Obligations) (England) Regulations

2007 (SI 2007/1258)
13.9 Sales of individual dwellings
Information which will be of interest to prospective purchasers of individual leasehold

homes is often held by the landlord or managing agent, and where documentary
information has not been retained by the leaseholder, the landlord or managing agent
may be the only reasonable source of such information. A fee can be charged for
providing this information which should reflect the level of work carried out. (see
section 13.10 Pre-contract enquiries)
There are statutory rights for leaseholders to obtain certain information (explained in
other parts of this Code), including insurance and service charge information. However,
provision by the landlord or managing agent of information or documents sought in
respect of the sale of a dwelling is regarded as good practice and helpful to all parties.
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You should send an introductory letter setting out basic information to new leaseholders.
13.10 Pre-contract enquiries

Information can also be requested in respect of pre-contract enquiries, which would
normally occur at a later point during the sale process. Pre-contract enquiries would most
commonly be made by or on behalf of the purchaser, through the seller or their
representative. The Law Society has issued standard leasehold property enquiries forms
known as an LPE1 and LPE2 (see Glossary). Your standard pack should answer the
relevant questions within this form.
You should supply prospective sellers or their representatives with information about
the premises that you manage to satisfy the pre-contract enquiries and any other
reasonable enquiries they may have. The information sought may vary, but in most
cases is likely to be of a ‘standard’ nature and could include information about:
• landlord
• ownership of the block/estate
• management
• other formal/information arrangements affecting the property
• residents' associations
• ground rent
• service charges, sinking funds, major works (existing and future plans
including details of any long-term plans) and other maintenance related
agreements
• insurance
• disputes (including any FTT/LVT or court cases)
• complaints
• notices/consents; and
• other general information that may be relevant.
You should provide the information within a reasonable timescale bearing in mind the
transaction taking place and the potential effects of any delays. A fee can be charged for
this information which should be reasonable and reflect the level of work carried out.
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Part 14 Residents'/tenants' associations
14.1 Introduction
Leaseholders may get together to form a recognised residents’/tenants’ association,
which is a type of association that has established statutory rights. The creation of an
association can bring advantages to the management in general, and in particular can
ease communication with the leaseholders to establish what they want and to appreciate
the differing points of view. It is desirable to establish how representative the
association is and to seek a copy of its constitution at regular intervals, as well as its
membership list. You should be informed when officers of the association change.
14.2 Recognition
A tenants' association can be recognised by a written notice from the landlord, or
alternatively by application to the FTT which may grant a certificate of recognition. A
notice withdrawing recognition of a recognised tenants’ association can be given by the
landlord, to take effect no earlier than six months after the notice is given, but only where
the landlord has given written recognition. A certificate given by the First Tier Tribunal
(previously the certificate would have been given by a Rent Assessment Committee) can
only be cancelled by that Tribunal.
Where a recognised tenants’ association has no secretary, the landlord or managing agent
should arrange with the chairman or other responsible officer to nominate a substitute
officer to receive notices on behalf of the association.
14.3 Appointment of managing agents

The landlord must provide to a recognised tenants’ association on written request
details relating to the appointment, employment or proposed employment of a
managing agent and allow a reasonable period for them to comment, including on the
managing agent’s duties and performance. The landlord must state which of their
obligations it is proposed that the agent should discharge, and must allow a period of at
least one month for comments to be sent to a person named by the landlord at an
address in the UK. The landlord shall have regard to observations made by the
association.
The landlord must provide the details and invite comment every five years thereafter
and whenever the landlord appoints a new managing agent, if a notice has previously
been served by a recognised tenants’ association. Unless the appointment has been fully
consulted under section 20 of the Landlord and Tenant Act 1985 (as amended), the
managing agent should ensure that the contract does not constitute a qualifying long-
term agreement. Legal advice should be sought if necessary.
s.30B Landlord and Tenant Act 1985 (as inserted by s.44 Landlord and Tenant Act 1987)
s.20 Landlord and Tenant Act 1985 (as amended by the Commonhold and Leasehold
Reform Act 2002)
82
14.4 Accounts, receipts and other documents
If requested, you must send a summary of relevant costs to the secretary of the recognised
tenants’ association, and provide an opportunity for the secretary of a recognised
t enants’ association to inspect the accounts, receipts and other documents supporting
the service charge. You must not charge the secretary for inspection, although the cost
of the inspection can be included in the cost of management. You must allow copies or
extracts to be taken from any document, although for this service you can levy a
reasonable charge.
Recognised tenants’ associations have rights to appoint qualified surveyors who are
members of RICS to advise on service charges. The surveyor has the right to request
reasonable access to inspect documents and also to the common parts of relevant
premises, including the structure and exterior of the building. Reasonable facilities for
taking copies or extracts from documents must be given.
s.84 and Schedule 4 Housing Act 1996
14.5 Management audit

Two or more qualifying leaseholders of the same landlord are entitled to have a
management audit carried out on their behalf, as is a single qualifying leaseholder where
there is no other dwelling in the premises. This will enable an investigation for the purpose
of ascertaining whether the management functions and expenditure of service charges are
being discharged in an efficient and effective manner.
14.6 Insurance
If requested, within a period of 21 days the landlord must provide the secretary of a
recognised tenants’ association with a written summary of the insurance cover. If
requested, the policy or associated documents must also be made available for
inspection and reasonable facilities afforded for taking copies or extracts. If requested,
copies or extracts must be taken and either sent to the secretary, or facilities allowed
for collecting them. Failure to comply without reasonable excuse is a summary offence,
subject on conviction to a fine. If a superior landlord insures, a written application must
be made to them for insurance details.
Landlord and Tenant Act 1985 (as amended by Schedules 10 (8 and 9) Commonhold and
14.7 Nomination of contractors

Recognised tenants’ associations have rights to nominate contractors for major works
and long-term agreements (see Part 9.9–9.12 Consultation).
Reform Act 2002
Service Charges (Consultation Requirements)(England) Regulations (SI 2003/1987)
83
Part 15 Right to Manage
15.1 Introduction
The Right to Manage (RTM) is provided by legislation and is a complex provision likely to
require specialist professional advice.
RTM is a group right for qualifying leaseholders of flats to manage their own building in
which they live. They do not have to prove fault with the existing landlord or
management nor pay any premium save for their own and the landlord's costs in
exercising the right. Once they have acquired the right to manage and appointed
directors to act on their behalf, they can employ a managing agent of their choice should
they wish. They must exercise this group right through a special company set up by the
leaseholders for that acquisition called an RTM company.
ss.71–113 Commonhold and Leasehold Reform Act 2002

Right to Manage (Model Articles)(England) Regulations 2009 (SI 2009/2767)
The Right to Manage (prescribed Particulars and Forms)(England) (SI 2010/825)
15.2 Rights
You should be aware of the leaseholders' rights in respect of the right to manage and be
aware that leaseholders must meet certain qualifying criteria and use prescribed forms
to set up an RTM company and acquire the right to manage a building.
Where an RTM acquires the right to manage, the management functions transfer from
the landlord to the RTM company.
The right to grant consents transfers to the RTM company subject to certain rules.
(Land Registry Practice Guide 27 – Right to Manage Companies, available from
www.gov.uk/government/publications)
(See Part 6.4 – 6.7 Ending the instruction and handover process)
15.3 Right to Manage on part only of a development

Where as a result of the acquisition of the Right to Manage of part only of a development
with shared estate services, more than one party has responsibility for providing the
shared estate services, the parties should enter into a written agreement with each other
to clarify:
• how the shared services are to be carried out in the future
• which party is to carry them out; and
• establish obligations in order to ensure that any party agreeing to undertake the
shared services can recover all reasonable and proper costs incurred in doing so
from residents on the development.
84
Where managing agents propose to enter into such agreements, this must be with their
clients’ authority and instructions.
Such agreements should take the form of a management agreement or subcontract

agreement and establish, amongst other things:
1. A single party to be authorised or appointed and responsible for budgeting,

providing and accounting for costs incurred in providing the shared estate
services, unless it is possible to sever the services. If the parties propose to sever
services, the agreement should provide for any necessary amendments to the
service charge matrix, or variations to title documents as required, which party is
to deal with these, and liability for costs of such amendments or variations (if
any).
2. That any parties delegating their responsibilities for shared estate services to
another must agree to pay the relevant contribution towards the cost of those
shared services on receipt of a demand from the party accepting responsibility to
carry them out. Alternatively, delegating parties may authorise the responsible
party to serve demands on their behalf on the leaseholders within their RTM parts
of the development, and recover individual contributions from those
leaseholders.
3. That the relevant contribution is that which is provided for in the title documents
for the development, or the aggregate of all the individual leaseholders’
contributions within an RTM part of the development.
4. That the party providing the shared services should consult with the other parties
over choice of contractors and costs and provide documentation to support costs
incurred. They must be mindful of consultation requirements and other legislative
provisions affecting how service charges are to be accounted for, reasonableness
of service charges and inspection of supporting documents.
5. That the party providing the shared services should agree that it has a duty of
care to the other parties and their customers to ensure that the costs incurred are
reasonable, of a reasonable standard and validly demanded in accordance with
legislation.
6. That the party providing the shared services should agree to assist the other
parties with information and documents concerning how services are provided,
and the costs incurred and in particular should the cost of those shared services
be unpaid or disputed by a customer of one of the RTM parts of the development.
7. That all parties delegating responsibility to another to carry out the shared
services should agree to assist that party, and authorise any necessary action
without delay to enable recovery of all contributions towards the cost of the
services.
When deciding which party should provide the shared estate services the general
principle should be that the party with responsibility for shared estate services to the
largest number of customers contributing towards the shared estate services should be
appointed or authorised to provide those services on behalf of all responsible parties.
When a single managing agent is to be appointed to manage the development or provide

the shared estate services, the terms of the managing agent’s appointment should
clarify the matters agreed between all parties as set out above, and from whom the
85
managing agent should seek their instructions on matters relating to the provision of
services.
ss.71–113 Commonhold and Leasehold Reform Act 2002

Right to Manage (Model Articles)(England) Regulations 2009 (SI 2009/2767)
The Right to Manage (prescribed Particulars and Forms)(England) (SI 2010/825)
In the event of a disagreement between the parties they should appoint an expert to
adjudicate, or go to mediation before issuing court proceedings against each other.
86
Appendices
Appendix A: Lease variations
Introduction
A lease can be varied by mutual agreement between all the parties concerned but
part IV of the Landlord and Tenant Act 1987 also provides for the ability to seek a
variation of long leases in certain circumstances where a variation cannot be agreed.
Part IV Landlord and Tenant Act 1987 (as amended by the Commonhold and Leasehold
Reform Act 2002)
Grounds to vary a lease
Either party to a long lease of a flat can apply to an FTT to vary a lease considered to be
defective. Section 35 of the Landlord and Tenant Act 1987 sets out the grounds where
this procedure applies. These are principally where the lease does not make satisfactory
provisions for the following:
a) repair or maintenance of the flat or block or any other building let under the lease
or any building or land over which the lease confers rights; for example, staircases
and common parts
b) the insurance of the building containing the flat or of any such land or building let
under the lease
c) the repair or maintenance of any installations and the provision or maintenance

of services which are reasonably necessary to ensure a reasonable standard of
accommodation
d) the recovery of expenditure where the lease provides for leaseholders to be liable
for the charges of expenditure incurred for the benefit of any other party
e) the computation of a service charge payable under the lease
f) amounts payable (by way of interest charges or otherwise) where there is a

failure to pay the service charges (in respect of (d) above); and
g) such other matters as may be prescribed by regulations made by the Secretary of

State.
s.35 Landlord and Tenant Act 1987 (as amended by ss.162 and 163 Commonhold and
Leasehold Reform Act 2002
There is also provision for varying leases of two or more flats let by the same landlord
where a majority of the parties require a variation. Where there are more than eight
leases at least 75 per cent must consent to the variation and not more than 10 per
87
cent oppose it. Where there are fewer than nine leases all or all but one of the parties
must consent, but an FTT must agree to it and the landlord constitutes one of the
parties concerned.
ss.35 and 37 Landlord and Tenant Act 1987 (as amended by ss 162 and 163
Commonhold and Leasehold Reform Act 2002)
88
Appendix B: Statutory rights of leaseholders
Introduction
Throughout this Code reference has been made to leaseholders' statutory rights on
service charges. In this appendix, a summary has been made of those principle statutory
rights. There are other statutory rights given in legislation and this is a summary only
rather than a full interpretation of the law. Each right is strictly regulated by detailed
provisions. A statutory right is a specific right given through legislation by parliament
which cannot be denied or removed by contract.
Names and addresses
The landlord must notify the leaseholder of an address in England and Wales where
leaseholders can serve notices (for example in connection with court proceedings). This
may be the address of a representative such as a solicitor (section 48 Landlord and Tenant
Act 1987. Failure to do this means any rent or service charge is not payable until this
information is provided.
Reform Act 2002
This name and address must also appear on any written demand for service charge or
rent.
Reform Act 2002)
New landlords must notify leaseholders in writing within two months of the
assignment of the freehold otherwise they commit a criminal offence.
ss.3 and 3A Landlord and Tenant Act 1985
The right to form a recognised tenants’ association
Tenants’ associations may seek recognition from the landlord or the FTT. Recognised
tenants’ associations have certain additional rights to information over and above those
available to individual leaseholders (see Part 14 Residents'/tenants' associations).
Recognition is formally given in writing and as a general guide such an association

should represent at least 60 per cent of the flats in the block where variable service
charges are payable.
Information about service charges and the right to challenge those charges
An individual leaseholder or the secretary of a recognised tenants' association may ask

the landlord for a summary of the costs on which the service charge is based. The
89
landlord must provide leaseholders with a summary of the costs for the last service
charge accounting year giving prescribed information. This summary should be
supplied within strict time limits, must be certified by a qualified accountant as defined,
and supported by financial evidence (receipts, etc).
The landlord must provide an opportunity for the inspection and copying of documents
within set time limits.
A leaseholder may challenge their liability for any part of the service charge they feel is
unreasonable at an FTT, whether they have paid it or not but not if the charge has
already been determined(by a court or arbitral tribunal for example) or admitted by
the leaseholder.
s.27A Landlord and Tenant Act 1985 (as inserted by s.155 Commonhold and Leasehold
Reform Act 2002)
A summary of tenants’ rights and obligations containing words prescribed in regulations

must accompany any demand for service charges, otherwise the service charge is not
payable until a demand with an accompanying summary has been sent.
s.21B Landlord and Tenant Act 1985 (as inserted by s.153 Commonhold and Leasehold
Reform Act 2002)
Service Charges (Summary of Rights and Obligations and Transistional
Provision)(England Regulations 2007 (SI 2007/1257)
Information about administration charges and the right to challenge those

charges
Any variable administration charge that is demanded under the lease is only payable to
the extent that it is reasonable. A leaseholder may challenge their liability to pay and
reasonableness of the charge at an FTT, whether they have paid it or not unless the charge
has already been determined or admitted.
Any party to the lease may also seek to vary a lease on the grounds that any
administration charge or any formula specified in the lease is unreasonable by application
to the FTT.
A summary of tenants’ rights and obligations containing words prescribed in regulations

must also accompany any demand for administration charges, otherwise the service
charge is not payable until a demand with an accompanying summary has been sent.
Administration Charges (Summary of Rights and Obligations)(England) Regulations

2007 (SI 2007/1258)
The rights of consultation on certain qualifying works and long term

agreements (See Part 9.9–9.12 Consultation)
90
Current legislation gives leaseholders the statutory right to be formally consulted if the
landlord (or managing agent) wishes to enter into long-term agreements for more than 12
months or if they wish to undertake qualifying works to the block.
s.20 Landlord and Tenant Act 1985 (as amended)
Detailed regulations include the requirement to serve notices on leaseholders, invite

observations and obtain nominations for contractors (in some cases), and where
appropriate give reasons for the contractor chosen.
The landlord will not be able to recover charges beyond the statutory financial limits if they
fail to carry out any of the consultation procedures or alternatively fail to obtain a
dispensation from an FTT.
Service Charges (Consultation Requirements)(England) Regulations 2003 (SI

2003/1987)
Service Charges (Consultation Requirements)(Amendment)(No2)(England) Regulations

2004 (SI 2004/2939
Information about building insurance

Buildings insurance costs must be reasonable, and leaseholders have the right to
challenge the landlord’s insurance arrangements at the FTT if this is not believed to be
the case, whether the costs are demanded as part of a service charge, or whether the
leaseholder is required to insure the property with an insurer nominated or approved by
the landlord under the lease.
Schedule - Landlord and Tenant Act 1985 (as amended by the Commonhold and
Leaseholders also have the right to ask the landlord in writing for a written summary of
the current insurance.
Leaseholders have the right to inspect the insurance policy.
Schedule – Landlord and Tenant Act 1985 (as amended by the Commonhold and
Leaseholders with a long tenancy of a house with a nominated or approved insurer clause
in the lease/tenancy have the right to choose their own insurer if the provisions of section
164(2) (a) to (d) of the Commonhold and Leasehold Reform Act 2002 are satisfied and
they give a notice of cover to the landlord within the period specified in that section.
Schedule – Landlord and Tenant Act 1985 (as amended by s157 and schedule 10(9)
Commonhold and Leasehold Reform Act 2002)
The Leasehold Houses (Notice of Insurance Cover)(England) Regulations 2004 (SI
2004/3097)
The Leasehold Houses (Notice of Insurance Cover) (England (Amendment) Regulations
2005 (SI 2005/177)
91
Right to a management audit
Leaseholders have the right to arrange for a management audit of all the
management functions which landlords or their agents undertake at the block.
Leaseholders will have to pay the cost of the audit which must be undertaken by a
qualified surveyor or accountant who is not connected with the block or the landlord.
ss.76–83 Leasehold Reform, Housing and Urban Development Act 1993
Such a management audit allows the auditor to look at both the accounts and at the
structure of the building.
Appointment of a manager by the FTT
Leaseholders may, subject to certain exceptions, ask the FTT to appoint a manager if they
believe the block is poorly managed or the landlord cannot be found. This is a fault-based
right. Briefly, the general criteria for seeking the appointment of a manager are:
• that there is a breach of the lease/tenancy relating to the management of the

block
• that unreasonable service charges have or are proposed to be made
• that there has been a failure to comply with any relevant provision of a Code of
Practice approved by the Secretary of State under section 87 of the Leasehold
Reform, Housing and Urban Development Act 1993; or
• where the FTT is satisfied that other circumstances exist.
ss.21–24 Landlord and Tenant Act 1987 (as amended by the Commonhold and Leasehold
Reform Act 2002)
In all cases it must be regarded by the FTT as being just and convenient to make the
order.
Right to Manage – subject to qualifying criteria (See also Part 15 Right to Manage)
Leaseholders also have the right to take over the management of the block themselves
or to appoint a managing agent to manage on their behalf by exercising their rights
contained in the Right to Manage (RTM) provisions. There need not be a fault in the
current regime. Again regulations are prescribed to govern procedures needed to
exercise this right.
ss.71–113 Commonhold and Leasehold Reform Act 2002 (Note: ss.76(2)(c) and 77(1)(a)
have been amended by the Civil Partnership Act 2004 and ss.87(4)(a) and 105(3)(a)
have been amended by the Enterprise Act 2002 (Insolvency) Order 2003 (SI 2003/2096)
The Right to Manage (prescribed Particulars and Forms)(England) (SI 2010 825)
Right to compulsory acquisitions
In extreme circumstances where the landlord is in breach of their obligations,
92
leaseholders may apply to the county court to acquire the landlord’s interest. This is not
to be confused with the right to enfranchise.
ss.25–34 Landlord and Tenant Act 1987
Right of first refusal
In most circumstances a landlord who wishes to dispose of their interest in a block must
give qualifying leaseholders the opportunity to buy it. This right is strictly regulated and
subject to time limits and legal advice is essential.
ss.1–19 Landlord and Tenant Act 1987
Right to enfranchise or extend your lease
Enfranchisement is the process whereby qualifying leaseholders of flats who meet the
requirements can form a group and buy the freehold interest from the landlord if the
building itself satisfies certain criteria.
There are particular requirements over notice periods, deposits, costs and valuation
procedures that need to be adhered to.
Similar rights apply to leaseholders of houses under the Leasehold Reform Act 1967.
Leasehold Reform, Housing and Urban Development Act 1993

Leasehold Reform (Collective Enfranchisement and Lease Renewal) Regulations 1993
(SI 1993/2407) (as amended by the Leasehold Reform (Collective Enfranchisement and
Lease Renewal)(Amendment)(England) Regulations 2003 (SI 2003/1990)
Leasehold Reform (Collective Enfranchisement) (Counter-notices)(England) Regulations
2002 (SI 2002/3208)
Right to vary your lease
Subject to the agreement of all parties concerned, leases may be varied. This is a
particularly useful right in the case of an inadequate or defective lease. In the event that
agreement cannot be reached, an application may be made to the FTT to vary the lease.
Part IV Landlord and Tenant Act 1987 (as amended by Ss162 and 163 Commonhold
and Leasehold Reform Act 2002)
Right to security of tenure at the end of a long tenancy
Subject to certain exceptions, leaseholders with a long tenancy have security of

tenure at the end of the tenancy. This means that they have the right to stay in the
property under an assured periodic tenancy. Particular procedures need to be adhered to
and where these circumstances occur it may be necessary to seek independent advice.
Schedule 10 Local Government and Housing Act 1989
Long Residential Tenancies (Principal Forms) Regulations 1997 (SI 19973008
Long Residential Tenancies (Supplemental Forms) Regulations 1997 (SI 1997/3005)
Long Residential Tenancies (Principal Forms)(Amendment)(England) Regulations 2002
(SI 2002/2227)
93
Additional Advice
Further guidance is available from the following:
• The Leasehold Advisory Service (LEASE) www.lease-advice.org

• Department of Communities and Local Government (DCLG)
www.communities.gov.uk
94
Appendix C: Information leaseholders can expect to receive during the ownership of a flat
Item From Whom When Comments
Information sheet about Estate Agent When you first show interest in Also available from
leasehold purchasing a flat www.lease-advice.org
Pre-contract enquiries Your solicitor/conveyancing During the conveyance stage of There is likely to be a separate
practitioner will request your purchase charge made for this
information from the vendor’s information. See Code ‘Pre-
solicitor/managing agent. (see Contract Enquiries’.
Glossary LPE1 form)
A copy of your lease Your solicitor/conveyancing It should form part of the pack If you are not given a copy of
practitioner provided to you during the your lease you should request
conveyancing process one as it sets out the obligations
of the parties. It is the contract
between you and your landlord.
Welcome letter The managing agent of the block When you have completed your It is likely to include information
or perhaps your landlord, purchase and/or moved into the about how to contact your
depending on the size and flat managing agent and/or landlord
ownership of the block including details of any out of
hours emergency service
provided.
Landlord’s name and address Landlord, Managing agent or When you have completed your See Code ‘Landlord’s Name and
95
other agent appointed by the purchase, and on all subsequent Address’.
landlord, for example, an demands for ground rent and
auditor. service charges.
Details of the services provided Managing agent (if appointed) Upon request Depending on the terms of the
by your managing agent and the lease, your managing agent will
fees they charge charge an annual fee for
providing day to day
management services. In
addition, they may have a
‘menu of charges’ for duties not
covered by the annual fee.
Annual service charge Budget Managing agent or landlord if no Shortly before the start of the Dates of the service charge year
managing agent appointed service charge year are usually set out in your lease.
See Code ‘Budgeting/estimating
Service Charges’.
Explanatory notes to the budget Managing agent or landlord if no With the budget Explanatory notes may be
managing agent appointed included within an
accompanying letter. They may
not always be needed if there is
no unusual expenditure
anticipated during the year
Major works plan Managing agent or landlord if no Usually with the Budget It should set out brief details of
managing agent appointed any anticipated major works to
the block likely to be carried out
during the course of the next 3
years. For larger blocks/estates,
the period covered is likely to be
longer. See Code ‘Planned or
Cyclical Works’.
96
Invoice for service charges Managing agent or landlord if no This will depend on the terms of A copy of ‘Service Charges
managing agent appointed your lease but most common Rights and Obligations’ sheet
are half yearly or quarterly must accompany the invoice.
See Code ‘Demanding Service
Charges’.
Invoice for ground rent (if Managing agent or landlord if no This will depend on the terms of See Code ‘Ground Rent’.
applicable) managing agent appointed your lease but most common
are yearly or half yearly
Year-end service charge Managing agent or landlord if no Within six months of the end of Dates of the service charge year
accounts managing agent appointed the service charge year are usually set out in your lease.
Depending on the size of your
block and the terms of your
lease, the accounts may be
certified or audited. See Code
‘External Examination of Service
Charge Accounts’.
Explanatory notes to the year- Managing agent or landlord if no With the year-end service Explanatory notes maybe
end service charge accounts managing agent appointed charge accounts included within an
accompanying letter. They may
not always be needed if there
has been no unusual
expenditure during the year
It is best practice to declare any

Details of any additional Managing agent (if appointed) other sources of income and
income/commission/benefits the related income or other benefits
managing agent has received including commissions arising
during the year arising out of from the provision of services
97
the management of the block with the annual service charge
accounts.
Section 20 Consultation Notices Managing agent/appointed When major works or long term See Code ‘Section 20
for major works surveyor or landlord agreements are planned but Consultation’
before work commences or the
agreement is entered into.
98

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Code of Practice

Service charge residential management Code

All parts except ‘RICS guidance notes’.

This Code has an effective date of 1st June 2016

Published by the Royal Institution of Chartered Surveyors (RICS)

ISBN 978 1 78321 141 8

Typeset in Great Britain by Columns Design XML Ltd, Reading, Berks.

Residential Professional Group

Client A person or organisation who has instructed you or your

All client money that is service charge money should

The term used in this Code for such a separate bank

Conflict of interest Circumstances in which an agent has an interest that

Contingency A future expense which is possible but cannot be

Contract The contract between the landlord and managing agent

Customer Any person who, either directly or indirectly, receives

Fidelity insurance An insurance to protect organisations from loss of

First-tier Tribunal Formerly called the Leasehold Valuation Tribunal (LVT).

Flat Covers any dwelling unit separated from others

Interest in land A form of legal title in land, for example freehold,

In writing, or written Typed or handwritten letters/notes, emails, faxes and

Landlord The person or company which owns and rents or leases

(Note: For convenience this Code has been written as

Leasehold Advisory Service The Leasehold Advisory Service is a non-departmental

Leaseholder/lessee/tenant The person who, or company which, owns the leasehold

Live/Work Units A property specifically designed for dual use, combining

Long leasehold Lease originally granted for a period in excess of 21

Manager/managing An agent who typically manages, within terms of

Plurals Words in the plural also usually include the singular.

Professional indemnity Insurance to cover you against a compensation claim if

Reasonable A particular standard which is judged on the standard of

Reserve/sinking fund A provision for future major expenditure. These terms

Residential property Property used as living accommodation.

Residents' management An organisation which may be referred to in the lease,

Residents'/tenants' A group of leaseholders with or without a formal

Right to manage company A specific company created by the Commonhold and

RICS Royal Institution of Chartered Surveyors.

Service charge Where an amount is payable by a leaseholder as part of

SI Statutory Instrument (Regulations or Order) that has

TECH 03/11 Residential Residential service charge accounting guidance issued

Available from www.icaew.com

Vulnerable customers Customers who may require special treatment as a

Aims and objectives: the core principles

• To improve general standards and promote best practice, uniformity,

Communication and consultation between managing agents and leaseholders should be

Transparency is essential to achieving good communication. By being transparent in the

Application of the Code

The references to a statute or statutory instrument are to be taken as being a reference

Document status defined

Type of document Definition Status

This term encompasses practice

2.1 Introduction to ethics and professionalism

2.2 Core principles

1 To conduct business in an honest, fair, transparent and professional manner.

2.3 Dealing with conflicts of interest

2.4 Understanding discrimination

• Discriminate on the basis of gender reassignment, age, religion or belief,

Equality Act 2010

You should not:

2.5 Equality Act 2010