Service-charge money
Before choosing accounts, map whose money you are holding.
A bank account is an operating arrangement. The lease, the payment and the applicable trust rules determine what the money is for and how it should be treated.
Start with the money
Do not let different pots become one unexplained balance.
Current service charges
Identify the leaseholders, service-charge period, services and apportionment behind the money collected for current expenditure.
Reserve or sinking funds
Link the balance to the lease power, intended future work, contribution record and any restrictions on its use.
The company's own money
Share capital, membership receipts or other company funds are not automatically service-charge money. Keep their source and purpose visible.
Deposits, claims and project receipts
Classify insurance receipts, contractor retentions, licence deposits and other sums before deciding where they sit and who can authorise movement.
The legal layer
Trust status and account structure are connected, but they are not the same question.
Check whether section 42 applies
For qualifying variable service charges paid by tenants of two or more dwellings, section 42 of the Landlord and Tenant Act 1987 can require the payee to hold the sums on trust for the stated purposes.
Do not assume every landlord is in scope
Section 42 has exemptions. HMRC guidance notes that registered social landlords and other exempt landlords fall outside it, although the lease or another arrangement may still create a trust.
Read the lease machinery
The lease may distinguish current charges, reserves, interest, investment and year-end treatment. Do not replace that wording with a standard bank-account template.
Check what is in force today
Proposed or uncommenced account reforms should not be described as current duties. Use the current legislation and live official guidance for the entity in question.
Operating controls
Seven questions for each account or pot.
Whose name is on the account?
Match the account holder and description to the actual payee, company and capacity in which the money is held.
What has the bank been told?
Ask how trust status, set-off risk, deposit protection and bank failure would be treated. Record the bank's answer rather than assuming it.
Who can approve and make payments?
Use a mandate that reflects the board's authority and practical resilience. A fixed number of signatories is not a substitute for a considered control.
Can the ledger reach the statement?
Reconcile each balance regularly and explain transfers, interest, uncleared items and money held for a specific purpose.
Can a leaseholder follow their contribution?
Keep statements, ledgers, demands, year-end records and the link to the service or future work.
Is the bank still suitable?
Review access, service, interest, protection and fees when the mandate, directors, managing agent or balance changes.
Can control pass without losing the trail?
Document the account, mandate, credentials route, reconciled balance, open payments and authority needed for a safe handover.
Sources for this page
Open the law and guidance yourself.
Current HMRC guidance on when residential service-charge contributions are held on trust under section 42.
↗Official guidanceHMRC: exempt landlordsThe section 42 position for registered social landlords and other exempt landlords, including the possible role of lease terms.
↗Primary lawLandlord and Tenant Act 1987, section 42Open the current statutory text before deciding whether it applies to a particular fund.
↗Working guideReserve and sinking fundsConnect the balance to the lease power, planned work and contribution record.
→Links and current-law position checked 18 August 2026. Apply the governing documents, building facts and current law to the case in front of you.
