Budgeting, Financial Reporting and Management of Client Money
Budgeting and reporting cycle
The budget is the spine of block management. It must be built for the service charge year defined in the lease, apportioned by the lease's stated fractions, and split between day-to-day costs, contract uplifts and reserve fund contributions informed by a condition survey and a rolling 5–10 year planned maintenance plan. Demands are usually interim (on account) with a balancing charge or credit once actual expenditure is known. Statutory reporting includes the s.21 summary of costs within six months of the period end, with a qualified accountant's certificate where tenants of more than four dwellings contribute, plus inspection rights and the prescribed summary of rights under s.20B and s.21A.
Client money
Service charge funds are held on trust (s.42 Landlord and Tenant Act 1987). They must sit in a designated client account, separate from the agent's own money, reconciled monthly, with dual authorisation on payments. Client Money Protection cover has been mandatory for relevant property agents since 1 April 2019. Reserve funds belong to the block that raised them: they cannot subsidise another property, and interest earned generally follows the trust. Money must not be used to fund the landlord's own obligations or to carry a landlord's cash-flow.
Traps: treating reserve funds as landlord money; using one block's surplus to cover another's deficit; omitting accrued costs (e.g. an unbilled major works invoice) from the year-end accounts; issuing a demand that leaves out the landlord's name and address, which s.47 LTA 1985 requires.
Worked example: budget £180,000 across 12 equal-share flats = £15,000 each. Actual expenditure is £198,000, so the balancing charge is £1,500 per flat. If £30,000 of that spend was major works with a defective s.20 consultation, recovery for that element is capped at £250 per flat, and the landlord absorbs the shortfall.