Residents Association bank account

quint

Hi,

I own one of three flats in a block. Collectively we three lessors own a company that owns the freehold to the block.

We want to keep a sinking fund for repairs and maintenance. We can't open a company bank account to store this because this would make the co non-dormant which means long-winded bureaucracy every year.
We don't want a joint account, since any one bad credit rating affects the others'. Also change of ownership would mean all three signing, which could be tiresome to arrange (in the case of absent buy-to-letters).
We also don't want to keep the funds informally in one of our personal bank accounts because if the holder falls under a bus, the others lose their contributions (unless the holder writes a will and keeps it up to date as the lessors change - too much hassle).

Sooo... we're thinking a simple residents association is the best way forward. This has the benefit of a having formal constitution should anyone be difficult or obstructive in future. Companies House advisory GBA9 states in chapter 1.3:

"If your company just pays a few bills, perhaps for repair or maintenance, then your advisor may say that these payments need not go through the company's books. Less formal arrangements, such as collecting the money through a residents association, may be satisfactory. The company could then continue to own the freehold (or head lease) of the property, but it would conduct all accounting transactions elsewhere - the company would then be 'dormant'."

A bank account for a RA falls under the clubs and charities category at banks. Does anyone know whether this faces the same bad credit problem as described for joint accounts? Ie, if one is bad, it affects the others'?

Perhaps this thread belongs in the banking section, but I'd appreciate a sanity check for the logic of starting a RA.

Many thanks

propertyman

Ok this comes up a lot. there are several issues. Bear with me

"The CH advice is not helpful and contradicts other advice such as the ICAEW who themselves aren't decided, but in short as freeholders your transactions means that you are not dormant. However as a small company and you will be required to account to leaseholders for service charge expenditure ( under the lease and if requested under"section 21" and by future buyers) producing simple accounts isn't that expensive.

2: The RA they suggest is bluntly wrong. It is unlikely to meet the obligations that the freeholder has to the leaseholders as above and even if it is set up and authorised to manage still has to account for monies in and out, has to be certified, and open an account see 3. But Ch aren't required to be aware of the restrictions on RA's or under leases If you want the detailed answer http://www.icaew.com/~/media/Files/Technical/technical-releases/legal-and-regulatory/tech-03-11-residential-service-charge-accounts.pdf

Bearing in mind if you have reserve fund/sinking fund there will be substantial sums and tax to pay on the interest and an unincorporated RA is a worry.

My advice is to do what most companies do, file a dormant return, understanding that there is a risk, but that it is accepted and widespread practice, and produce a simple statement of income and expenditure in accordance with the lease.
http://www.landlordzone.co.uk/forums/showthread.php?50840-RTM-Dormant-Accounts-Statement

3 Service Charge Funds and Sinking Fund- the law requires that any such money is held on trust in a bank or similar institution in E & W. A treasurer's account is ideal as it is comparable to a basic bank account for this purpose.http://www.landlordzone.co.uk/forums/showthread.php?50684-Trust-Account-for-Service-Charge

4 Sinking Fund You can only collect this in accordance with the lease if there is no provision you cannot do so. If you do it is voluntary and you need a declaration of trust to hold the funds and how they will be treated.

Here are two more link which will help.
http://www.landlordzone.co.uk/forums/showthread.php?47824-Service-Charge-Bills-%E2%80%9CDo-I-have-to-pay-it-%E2%80%9Cand-%E2%80%9C-Is-it-valid-%E2%80%9D
http://www.landlordzone.co.uk/forums/showthread.php?43583-Service-Charge-Residential-Management-Code-of-Practice

In short strictly speaking it's wrong to file as dormant but most do, and operate a trust account and simple Income and Expenses reporting each year.