Module 5. Financial Management Lesson 1 - Key Principles
Please switch to FULL SCREEN (bottom right of window)
Start
Introducing Financial Management
The Service Charge Cycle
The Service Charge Cycle: Interactive
Click to Reveal info Knowing where you are in the service charge cycle is essential to managing your block or estate. The cycle repeats each year and there are best practice timeframes for good fiscal management.
Budget Draft Shared
Cycle starts again
Final Accounts Served
Budget Charged & Issued
Draft Accounts Produced
Final Accounts Agreed
Get to Know Your Finance People
A Typical Accounts/Finance Team
Undertand the different roles within a typical Accounts or Finance Team Click on the hotspots to understand more about each member of the team. Remember, all companies vary. There may be one person carrying out all these fucntions in a small firm. Other, larger firms, will have many more roles which extrapolate these duties across several people. Either way, it's good to be aware of the different elements of a block management finance function.
Key Legal & Best Practice Considerations
Module 5 - Lesson 1: Complete
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FINANCIAL CONSIDERATIONS IN
The RICS Service Charge Residential Management Code
The RICS Service Charge Residential Management Code
The RICS Service Charge Residential Management Code sets recognised standards for financial management in block management. It covers client accounts, transparency, reasonableness, reporting deadlines, and statutory trust obligations. Approved by Parliament, it guides best practice and supports compliance with landlord and tenant law, protecting both leaseholders and landlords. It contains a summary of the legal requirements around how managing agents must conduct themselves as well as best practice rules. It may be used by tribunal and court judges to determine reasonableness of service charge.
RICS Code – Financial Management Content We've touched on the RICS Code before. Here are some of the key elements relating to financial management: Separate Accounts – Service charge money must be held in distinct client/trust accounts (Code 6.2). Statutory Trust – All service charge funds are automatically held on trust under s.42 LTA 1987. Transparency – Accounts must clearly identify money for each property and show how it is used. No Cross-Subsidy – Funds for one block cannot pay costs of another. Timely Reporting – Prepare budgets in advance, issue year-end accounts within six months. Fairness & Evidence – Expenditure must be reasonable, documented, and in line with the lease.
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Title
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A reminder of what's in the code...
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What is
Financial Management in Block Management ?
Financial management in block management is about the responsible planning, control, and reporting of leaseholder and owner funds, guided by RICS and TPI standards. It includes: Budgeting – setting realistic annual service charge budgets. Cashflow – monitoring income versus expenditure to ensure funds are available when needed. Billing & Credit Control – raising demands, managing arrears, and protecting client money. Expenditure control – approving invoices and keeping spend within budget. Reporting – producing transparent accounts and compliance with Section 20B. Good financial management protects leaseholders and owners, ensures buildings run smoothly, and maintains trust.
FINANCIAL MANAGEMENT
KEY ACTS OF PARLIAMENT - Part 2
More important rules directly brought about by statutory law: Every demand must include a summary of rights and obligations - Section 21B, Landlord and Tenant Act 1985 A bill isn’t payable without the Summary of Tenants’ Rights and Obligations. Service charge money is trust money - Section 42, Landlord and Tenant Act 1987 Funds must be kept in a separate trust account. Landlord details and service address - Section 47/48, Landlord and Tenant Act 1987 Each demand must show the landlord’s name and address (Section 47, Landlord and Tenant Act 1987). Additionally, an address in England or Wales must be given for notices to be served upon the landlord(Section 48).
Finance/Accounts Team Manager
The Finance Team Manager (or Accounts Team Manager) is responsible for the overall finance function within a block management firm. They will:
- Lead the team – Guide and support the finance staff.
- Check financial reports and keep things on track.
- Make sure rules, audits, and controls are followed.
- Improve systems
- Deal with serivce complaints or escalations
Landmark 3.
Draft Accounts Produced
What is this all about? The service charge accounts (or service charge certifcate) are produced in conjunciton with an independant accountant. They indicate how much was actually spent in the previous year. It is a best practice requirement for year-end accounts to be subject to an indepndant certification process. Sometimes a full audit will be requried if the lease stipulates it. When? Ideally within 3 months of the year-end.
Landmark 1.
Budget Draft Shared
What this all about? A budget is an estimate of service charge expenditure prepared for your client in advance of the financial year start. The service charge demands for the upcoming financial year will be based upon the budget. Draft with clients: Ideally no more than 2 months prior to financial year-end.
Landmark 4.
Final Accounts Agreed
What is this all about? Typically the Landlord or RMC must agree with the final serivce charge accounts - with any adjustments made by the finance team or accountantants. When? Ideally within 4 months of the year-end.
EARLY DAYS
Likely Early Issues
Typical financial issues you'll encounter early-on:
Questions about the make up of service charge statements
Requests about line items on the service charge budget
Difficult conversations around service charge debts
Questions about service charge expenditure from the client
Affordability issues around major works and reserve funds
Service Charge Accountant
A client or service charge accountant is the financial backbone of block management. They may:
- Support the PM in the creation and charging of budgets
- Ensure expenditure is in order and coded correctly
- Run various reports, including budget variance analyses, to assist the PM in making expenditure decisions
- Reconcile service charge accounts and manage the year-end accounts process in collaboration with external accountants
FINANCIAL MANAGEMENT
KEY ACTS OF PARLIAMENT: 1
Several acts of parliament have been very influential on how service charges must be managed. Here are some of the key rules which are directly led by statutory legislation: Service charges must be fair - Section 19, Landlord and Tenant Act 1985 You can only charge leaseholders for costs that are reasonable/properly carried out. 18-Month Rule (Section 20B, Landlord and Tenant Act 1985 Costs must be billed within 18 months of being incurred. Leaseholders have rights to see the books (Sections 21/22, Landlord and Tenant Act 1985 They can request a summary of accounts and inspect receipts.
Landmark 2.
Budget Issued
What is this all about? The budget should be agreed by the client in writing. Once done, the budget is 'charged' by the finance team. Service charge demands are raised and are based on the budget. The budget and demands should be accompanied with a good cover letter explaining any major changes. When? It is ideally served 2-4 weeks prior to the year-end. The lease may stipulate other timefames.
Credit Controller
Once the service budget and demands have been issued, credit control begins. Reminders are issued and funds need to be banked. Action on late payments needs to be taken swiftly. The Credit Controller will typically:
- Chase payments, issue reminders and manage the follow-up work.
- Escalate aged debts to solicitors for legal recovery
- Keep strong records of all credit control activity.
- Produce debt recovery reports to aid the Property Manager.
Landmark 5.
Final Accounts Served
What is this all about? It is a requriement that service charge accounts are served on all leaseholders in a block/etstate. Overspends (deficits) are most often charged back out to lessees with a 'balacning charge.' Surpluses are typically credited back as refunds to thier service charge statements. Some leases stipulate alternative arrangements. When? No later than 6 months after the year-end.
Purchase Ledger Clerk
Could also be a Purchase Ledger Manager in larger firms. May also be called 'Accounts Payable.' This operator may:
- Check invoices to ensure bills are correct
- Code costs based on Property Manager instructions
- Pays suppliers
- Sort queries - dealing with questions from suppliers
- Keep records as requried
WHAT makes a legally payable
Service Charge Demand?
Service Charge Demand
Service Charges Summary of Tenants' Rights & Obligations
14 October 2025 Ref: EXC/005/2025 To: Mr & Mrs Lessee 12 Example Gardens, London AB1 2CD Property: Flat 5, Example Court, London AB1 2XY Period: 1 Oct 2025 – 31 Mar 2026 Payment Due: 1 Nov 2025 Description / Amount: Service Charge 650.00 Reserve Fund 150.00 Total Due: £800.00 Landlord (s.47): Example Freehold Ltd, 1 Example St, London AB1 3YZ Service Address (s.48): c/o ABC Block Mgt Ltd, 10 High St, London AB2 4CD
For a service charge demand to be legally payable, these basic rules must be met: 1. Landlord’s details – It must show the landlord’s name and address (s.47 Landlord and Tenant Act 1987). 2. Address for service – It must give an address in England or Wales where notices can be served (s.48 Landlord and Tenant Act 1987). 3. Clear demand – It must set out who is being billed, the property, the period covered, the amount due, and the payment date. 4. Summary of Rights & Obligations – It must be sent with the prescribed “Summary of Tenants’ Rights and Obligations” (s.21B Landlord and Tenant Act 1985). This is vital because if the Landlord or RMC fail to get the deamnd right the leaseholder can legally refuse to pay.
1. This summary, which briefly sets out your rights and obligations in relation to variable service charges, must by law accompany a demand for service charges. Unless a summary is sent to you with a demand, you may withold the service charge. The summary does not give a full interpretation of the law and if you are in any doubt about your rights and obligations you should seek independent advice. 2. Your lease sets out your obligations to pay service charges to your landlord in addition to your rent. Service charges are amounts payable for services, repairs, maintenance, improvements, insurance or the landlord's costs of management, to the extent that the costs have been reasonably incurred. 3. You have the right to ask the First-tier Tribunal to determine whether you are liable to pay service charges for..........................
Use this side of the card to provide more information about a topic. Focus on one concept. Make learning and communication more efficient.
Title
Write a brief description here
Flip the interactive demand back and forth (right) to see both sides of the service charge demand.
Full legal wording here:
Module 5. Lesson 1 - Key Principles
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Transcript
Module 5. Financial Management Lesson 1 - Key Principles
Please switch to FULL SCREEN (bottom right of window)
Start
Introducing Financial Management
The Service Charge Cycle
The Service Charge Cycle: Interactive
Click to Reveal info Knowing where you are in the service charge cycle is essential to managing your block or estate. The cycle repeats each year and there are best practice timeframes for good fiscal management.
Budget Draft Shared
Cycle starts again
Final Accounts Served
Budget Charged & Issued
Draft Accounts Produced
Final Accounts Agreed
Get to Know Your Finance People
A Typical Accounts/Finance Team
Undertand the different roles within a typical Accounts or Finance Team Click on the hotspots to understand more about each member of the team. Remember, all companies vary. There may be one person carrying out all these fucntions in a small firm. Other, larger firms, will have many more roles which extrapolate these duties across several people. Either way, it's good to be aware of the different elements of a block management finance function.
Key Legal & Best Practice Considerations
Module 5 - Lesson 1: Complete
End of Activity
Did you access all the content? Make sure you've read all the info
Minimise window and hit 'Complete' Lesson' (above) if ready to move on...
Back
FINANCIAL CONSIDERATIONS IN
The RICS Service Charge Residential Management Code
The RICS Service Charge Residential Management Code
The RICS Service Charge Residential Management Code sets recognised standards for financial management in block management. It covers client accounts, transparency, reasonableness, reporting deadlines, and statutory trust obligations. Approved by Parliament, it guides best practice and supports compliance with landlord and tenant law, protecting both leaseholders and landlords. It contains a summary of the legal requirements around how managing agents must conduct themselves as well as best practice rules. It may be used by tribunal and court judges to determine reasonableness of service charge.
RICS Code – Financial Management Content We've touched on the RICS Code before. Here are some of the key elements relating to financial management: Separate Accounts – Service charge money must be held in distinct client/trust accounts (Code 6.2). Statutory Trust – All service charge funds are automatically held on trust under s.42 LTA 1987. Transparency – Accounts must clearly identify money for each property and show how it is used. No Cross-Subsidy – Funds for one block cannot pay costs of another. Timely Reporting – Prepare budgets in advance, issue year-end accounts within six months. Fairness & Evidence – Expenditure must be reasonable, documented, and in line with the lease.
Use this side of the card to provide more information about a topic. Focus on one concept. Make learning and communication more efficient.
Title
Write a brief description here
A reminder of what's in the code...
Get the code here:
What is
Financial Management in Block Management ?
Financial management in block management is about the responsible planning, control, and reporting of leaseholder and owner funds, guided by RICS and TPI standards. It includes: Budgeting – setting realistic annual service charge budgets. Cashflow – monitoring income versus expenditure to ensure funds are available when needed. Billing & Credit Control – raising demands, managing arrears, and protecting client money. Expenditure control – approving invoices and keeping spend within budget. Reporting – producing transparent accounts and compliance with Section 20B. Good financial management protects leaseholders and owners, ensures buildings run smoothly, and maintains trust.
FINANCIAL MANAGEMENT
KEY ACTS OF PARLIAMENT - Part 2
More important rules directly brought about by statutory law: Every demand must include a summary of rights and obligations - Section 21B, Landlord and Tenant Act 1985 A bill isn’t payable without the Summary of Tenants’ Rights and Obligations. Service charge money is trust money - Section 42, Landlord and Tenant Act 1987 Funds must be kept in a separate trust account. Landlord details and service address - Section 47/48, Landlord and Tenant Act 1987 Each demand must show the landlord’s name and address (Section 47, Landlord and Tenant Act 1987). Additionally, an address in England or Wales must be given for notices to be served upon the landlord(Section 48).
Finance/Accounts Team Manager
The Finance Team Manager (or Accounts Team Manager) is responsible for the overall finance function within a block management firm. They will:
Landmark 3.
Draft Accounts Produced
What is this all about? The service charge accounts (or service charge certifcate) are produced in conjunciton with an independant accountant. They indicate how much was actually spent in the previous year. It is a best practice requirement for year-end accounts to be subject to an indepndant certification process. Sometimes a full audit will be requried if the lease stipulates it. When? Ideally within 3 months of the year-end.
Landmark 1.
Budget Draft Shared
What this all about? A budget is an estimate of service charge expenditure prepared for your client in advance of the financial year start. The service charge demands for the upcoming financial year will be based upon the budget. Draft with clients: Ideally no more than 2 months prior to financial year-end.
Landmark 4.
Final Accounts Agreed
What is this all about? Typically the Landlord or RMC must agree with the final serivce charge accounts - with any adjustments made by the finance team or accountantants. When? Ideally within 4 months of the year-end.
EARLY DAYS
Likely Early Issues
Typical financial issues you'll encounter early-on:
Questions about the make up of service charge statements
Requests about line items on the service charge budget
Difficult conversations around service charge debts
Questions about service charge expenditure from the client
Affordability issues around major works and reserve funds
Service Charge Accountant
A client or service charge accountant is the financial backbone of block management. They may:
FINANCIAL MANAGEMENT
KEY ACTS OF PARLIAMENT: 1
Several acts of parliament have been very influential on how service charges must be managed. Here are some of the key rules which are directly led by statutory legislation: Service charges must be fair - Section 19, Landlord and Tenant Act 1985 You can only charge leaseholders for costs that are reasonable/properly carried out. 18-Month Rule (Section 20B, Landlord and Tenant Act 1985 Costs must be billed within 18 months of being incurred. Leaseholders have rights to see the books (Sections 21/22, Landlord and Tenant Act 1985 They can request a summary of accounts and inspect receipts.
Landmark 2.
Budget Issued
What is this all about? The budget should be agreed by the client in writing. Once done, the budget is 'charged' by the finance team. Service charge demands are raised and are based on the budget. The budget and demands should be accompanied with a good cover letter explaining any major changes. When? It is ideally served 2-4 weeks prior to the year-end. The lease may stipulate other timefames.
Credit Controller
Once the service budget and demands have been issued, credit control begins. Reminders are issued and funds need to be banked. Action on late payments needs to be taken swiftly. The Credit Controller will typically:
Landmark 5.
Final Accounts Served
What is this all about? It is a requriement that service charge accounts are served on all leaseholders in a block/etstate. Overspends (deficits) are most often charged back out to lessees with a 'balacning charge.' Surpluses are typically credited back as refunds to thier service charge statements. Some leases stipulate alternative arrangements. When? No later than 6 months after the year-end.
Purchase Ledger Clerk
Could also be a Purchase Ledger Manager in larger firms. May also be called 'Accounts Payable.' This operator may:
WHAT makes a legally payable
Service Charge Demand?
Service Charge Demand
Service Charges Summary of Tenants' Rights & Obligations
14 October 2025 Ref: EXC/005/2025 To: Mr & Mrs Lessee 12 Example Gardens, London AB1 2CD Property: Flat 5, Example Court, London AB1 2XY Period: 1 Oct 2025 – 31 Mar 2026 Payment Due: 1 Nov 2025 Description / Amount: Service Charge 650.00 Reserve Fund 150.00 Total Due: £800.00 Landlord (s.47): Example Freehold Ltd, 1 Example St, London AB1 3YZ Service Address (s.48): c/o ABC Block Mgt Ltd, 10 High St, London AB2 4CD
For a service charge demand to be legally payable, these basic rules must be met: 1. Landlord’s details – It must show the landlord’s name and address (s.47 Landlord and Tenant Act 1987). 2. Address for service – It must give an address in England or Wales where notices can be served (s.48 Landlord and Tenant Act 1987). 3. Clear demand – It must set out who is being billed, the property, the period covered, the amount due, and the payment date. 4. Summary of Rights & Obligations – It must be sent with the prescribed “Summary of Tenants’ Rights and Obligations” (s.21B Landlord and Tenant Act 1985). This is vital because if the Landlord or RMC fail to get the deamnd right the leaseholder can legally refuse to pay.
1. This summary, which briefly sets out your rights and obligations in relation to variable service charges, must by law accompany a demand for service charges. Unless a summary is sent to you with a demand, you may withold the service charge. The summary does not give a full interpretation of the law and if you are in any doubt about your rights and obligations you should seek independent advice. 2. Your lease sets out your obligations to pay service charges to your landlord in addition to your rent. Service charges are amounts payable for services, repairs, maintenance, improvements, insurance or the landlord's costs of management, to the extent that the costs have been reasonably incurred. 3. You have the right to ask the First-tier Tribunal to determine whether you are liable to pay service charges for..........................
Use this side of the card to provide more information about a topic. Focus on one concept. Make learning and communication more efficient.
Title
Write a brief description here
Flip the interactive demand back and forth (right) to see both sides of the service charge demand.
Full legal wording here: