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Management company accounts

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Management company accounts


Postby UncleEbenezer » March 15th, 2019, 11:39 am

Not an investment question, but you property-owning folks probably have the best insights.

I've viewed a nice converted flat. Very ample space inside, quiet location, and in addition to communal garden there's a roof terrace so private as to be usable in one's birthday suit without risk of embarrassment. And it looks well-maintained. It's pushing my budget, as are the management charges and council tax band E (ouch!).

I understand the freehold is owned by the (five) leaseholders, so our interests will be aligned. But in view of quite high-looking charges, I asked the agent to see the last year's management company accounts, to get an idea of the expenditure. The agent seems unable to supply accounts, and has instead offered a general short list of works that have been undertaken in recent years.

How suspicious should I be of this? Is it realistic that a leaseholder-owned converted building should have no management company accounts, or is it more likely there's something to hide?

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Re: Management company accounts


Postby Charlottesquare » March 15th, 2019, 12:07 pm

Companies House might be worth looking at.

Now up here we do not really have these sorts of property ownership arrangements (Scotland) so I am well out of my comfort zone here, but I have read on accounting forums that sometimes receipts from leaseholders and expenditure on costs re these sorts of accounts may not ever actually pass through the profit and loss account or be detailed in same, that all such transactions may often just be reflected as movements in debtors and creditors in the balance sheet and accordingly the published accounts may impart little information. If this is the case then leaseholders may receive details , not in accounts form, of expenditure incurred as more akin to a typed up list rather than as accounts, so what you have been given may actually be the most useful piece of information produced.

ICAEW have published guidance on the form of accounts but from my reading online it appears not all accountants agree with their guidance ,which indicates best practice is to produce an Income and Expenditure Account like the model in the attached. ... ashx?la=en

Accordingly whilst I would expect accounts to be available, and Companies House may have full or abbreviated versions, there may ,if I understand correctly, in reality be differing ways they have been produced re layout/information included.

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Re: Management company accounts


Postby rabbit » March 15th, 2019, 8:19 pm

First step - find out the name of the management company (and its Companies House number if possible). The management company should produce full accounts for the members (the leaseholders in this instance) but they may well file abbreviated or micro accounts at Companies House which are next to worthless. However, even with these you do get some hints regarding overall propriety, for example do they file them on time?

I suspect the agent is being a bit lazy, though it may well be that the vendor doesn't understand the importance of accounts either, and hasn't kept a copy of them. Companies House will tell you who the company secretary is (if they have one - it's not compulsory these days) so you could suggest that the agent contacts the secretary for a set. Keep asking!

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Re: Management company accounts


Postby Clitheroekid » March 29th, 2019, 4:08 pm

Apologies for the late reply, but I very rarely visit this board.

How suspicious should I be of this? Is it realistic that a leaseholder-owned converted building should have no management company accounts, or is it more likely there's something to hide?

I suspect that you have answered your own question. Earlier in the post you said:

I understand the freehold is owned by the (five) leaseholders

If so, it may well be the case that there is no management company. Setting up such a company is relatively complex, and is often considered to be not worth the effort if there is only a small number of leaseholders, as in this case.

So instead the joint owners of the freehold often work on a very informal basis, just agreeing to pay for repairs and maintenance as the need arises, and each chipping in either at the time or maybe at the end of the year.

However, although they will often not have proper accounts prepared by an accountant there should be some record of income and expenditure, even if it is a bit `back of the envelope', and you should definitely insist on seeing this, together with information about any major repairs that are expected and whether there is any sinking fund to pay for them.

The agent seems unable to supply accounts

In my experience most agents are completely useless when it comes to trying to obtain information, so you'd probably be better going direct to the seller.

Provided you can live with this informal method of management and accounting there's no problem. Although such systems can run into problems if one of the five refuses to pay their share or argues that work isn't necessary, exactly the same issues arise with manco's where one shareholder fails to co-operate, so manco's should not by any means be seen as a superior solution.

If you manage to get hold of some basic information about income and expenditure which appears to makes sense and your fellow freehold owners appear to be decent people I'd say go ahead.

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