Leaseholder Question - Managing Agent Reserve Fund Mismanagement

flat_white_

Hi guys, 

newbie here but thought this might be the place for the question. 

I own a lease flat on London which is managed by a managing agent (MA) on behalf of the landlord. The lease states service charge deficit and surpluses each year shall be carried over to the subsequent year's budget; and it is silent on having a reserve fund.

Upon inspecting the annual accounts, we discovered that the surpluses were never carried over and used up properly over the past years - they had instead been accumulated in a seperate "reserve" line on the accounts while each year's service charges were collected in full without touching the reserve. In response to my queries on why the reserve can't be utilised, the MA has been quite illusive and responded with answers ranging from " I am not sure if the cash is really there" or " i don't think the surplus is as much as the account says".

I also noticed that the reserve is a seperate line from "cash in bank", which makes me wonder if there are any rules regarding how MA handles reserve?  I have the suspicion that the reserve is certainly not kept in cash in segregation, or the MA would have quite happy told me the cash balance is there. My limited knowledge by looking at the accounts seem to imply that while we have a seperate "accounting statements" each year, the service charge funds are certainly "co-mingled" with the MA's finances and the surpluses may have never been returned to the building's account. 

What actions can I take on getting to the bottom of this? I have read that leaseholders can dispute service charges on the ground of reasonableness, but is there a similar rule allowing an audit of the "balance sheet"? (i.e. is the cash really there?). We are talking about a relatively small building here (5 flats) and small reserve (7k). Is there a relatively inexpensive way to do this rather than using a solicitor (which, the cost and effort of herding 5 flats will likely outweigh the benefits). I'd also be interested in knowing if it is the liability of the MA or the landlord if we discover the cash has been mismanaged, as the landlord may not be aware of this.

I am relatively new to the UK and quite puzzled by how much people get away with in this country's leasehold system. If we apply a similar principal in banking/asset management/trust, failure to segregate/safeguard client money and asset is a pretty serious breach and can have the FCA jump up and down on you..

Thank you.