The landlord (or his agent if any) must hold service charges in a trust account (S42 – Landlord and Tenant Act 1987). At handover to the new RTMC he must pass all unspent sums on the date of acquisition (2002 Act – Section 94(1)). These sums not only include unspent service charges, but also any reserve account or sinking fund.
The RTMC does not have to serve any notice to get the unspent money– the landlord must hand it over on the acquisition date or ‘as soon after that date as is reasonably practicable’.
The landlord must also provide accounting records for all monies. The landlord can withhold an amount if he shows he has outstanding expenses incurred prior to RTM. If he is unreasonable, apply to the FTT.
The amount to be handed over is:-
– receipts from leaseholders paid as service charges, plus
– funds deposited from service charge receipts (and any interest), less
– expenses for services up to the acquisition date.
The RTMC does not have any money in the bank at the start, so it needs control of existing funds to maintain services. An RTMC is legally entitled to seek a loan, but I cannot say if this would be successful at birth. An easier solution would be to ask (expect) members of the RTMC to make a contribution that would be offset against future invoices. We did this for such things as Directors & Officer’s insurance.
The way we got service charge income was to ignore nonsensical advice from our first, allegedly expert, RTM agent. When told they could not issue invoices until the second half year anniversary, we took independent advice and issued our own s47/48 invoices to all flats with a due date of the acquisition date. I will return to this story. Luckily most paid as they wanted RTM to get off to a successful start. Otherwise we would have been paying that managing agent for months without any service charge income for them to do any work.
If the landlord spends money unreasonably prior to RTM being acquired, this can be challenged at the FTT.