The Missing Account

The English debate about mandatory reserve funds is being conducted almost entirely in the language of accounting. How much should be saved, against what plan, certified by whom, disclosed in which form. These are the right questions and they are all downstream of a duller one that nobody is asking.

Money has to be somewhere. A reserve fund is a bank account with a legal wrapper around it, and if several hundred thousand small collective bodies are shortly to be required to hold one, the binding constraint will not be the certification of the maintenance plan. It will be whether a bank will open the account.

England has the trust without the account

Section 42 of the Landlord and Tenant Act 1987, in force since 1 April 1989, makes service charge contributions trust money. It says nothing about where the money is kept. That gap was noticed and legislated for: section 156 of the Commonhold and Leasehold Reform Act 2002 inserted sections 42A and 42B, requiring the payee to hold trust funds in a designated account at a relevant financial institution, giving contributing tenants the right to inspect documents relating to that account, and making failure a criminal offence punishable by fine.

Neither section has ever been brought into force, except so far as to permit the making of regulations. Schedule 12 of the Housing and Regeneration Act 2008 redrafted them and was commenced on the same restricted basis. No regulations have been made under either Act. Twenty-four years after Parliament decided that leaseholders’ money should sit in a designated account, the requirement remains a provision that exists and does not operate.

The vacuum has been filled from the professional side rather than the statutory one. The RICS Service Charge Residential Management Code, whose fourth edition takes effect on 7 April 2026 under section 87 of the Leasehold Reform, Housing and Urban Development Act 1993, expects a separately designated account and applies expressly to resident management companies and right to manage companies as well as to professional agents. A tribunal will take the Code into account. It is not, however, an offence to ignore it, and the Code cannot compel a bank to offer anything.

The government is aware of the gap. Its consultation asked for new proposals on how service charge monies can be kept safe, expressly in the context of an expected increase in the sums held. That is the department circling the problem without naming it: the reform being contemplated increases the money and leaves the custody rule dormant.

What happened when the Netherlands named the account

Dutch law does specify custody. Article 5:126 of the Civil Code requires the reserve fund to be held on a separate account in the association’s own name: not the current account, not the treasurer’s personal account. Since 2018 every association has been required both to save and to keep the savings somewhere identifiable. On paper this is exactly what England is missing.

In practice the second obligation turned out to be harder than the first. A Dutch owners’ association is a legal person, so a bank treats it as a business customer and prices it accordingly, even though it is in substance a group of private individuals. In most cases a savings account can only be obtained bundled with a paid payment package, and the packages are expensive relative to the budget of a small association. Standalone savings accounts have become progressively harder to open, and some banks have terminated existing savings accounts where no payment package was attached. The practical field is three institutions.

Client due diligence under the anti-money-laundering legislation applies in full. Associations are exempt from ultimate beneficial owner registration but are routinely asked to declare that they have none, which is a conversation that a volunteer treasurer of a three-flat building conducts once and rarely enjoys. The model regulations require that the reserve fund be drawn on jointly by the chairman of the meeting and a second owner, a control that banks have found difficult to configure, along with four-eyes authorisation generally. VvE Belang, the owners’ association membership body, reported a rising volume of helpdesk enquiries about bank refusals from 2022 onwards.

The outcome is the one that matters for England. Small associations of two or three members frequently do not open a payment account at all, and therefore cannot open the savings account, and therefore cannot hold the reserve fund that the law of 2018 obliges them to hold. Some part of the non-compliance discussed in the first piece in this series is not a refusal to save. It is an inability to open the container.

The same problem, differently distributed

England’s exposure is not identical, and the difference is instructive.

Where a block is professionally managed, the agent holds the banking relationship and the money sits in a designated client account, often pooled across schemes with the individual block’s balance tracked in the agent’s ledger. For that population, mandating a reserve fund creates no new account at all. It is a line in a system that already exists, which is one reason the larger agents have been comparatively relaxed about the proposal.

Where a block is self-managed, the account has to be opened by a resident management company or a right to manage company: a company with no trading income, frequently filed as dormant, run by volunteer directors who change every year or two, each change triggering fresh customer due diligence. That is close to the least attractive customer type in British retail banking, and it is the same profile the Dutch banks have been quietly shedding. England has roughly 350,000 residential blocks against 4.90 million leasehold dwellings, and sampling suggests around one London block in four self-manages. The tail is large, it is concentrated in small conversions, and it is precisely the population whose buildings are oldest and whose reserves are thinnest.

Deposit protection, which nobody has raised

On 1 December 2025 the Financial Services Compensation Scheme limit rose from £85,000 to £120,000 per eligible depositor per authorised firm, with temporary high balances covered to £1.4 million for six months. That limit was set with individual savers in mind. It has not been considered against a policy that is about to require several hundred thousand collective bodies to accumulate cash.

The arithmetic is not demanding. A block of forty flats with a rebuilding value of £8 million, saving at the Dutch flat rate of half a per cent, puts aside £40,000 a year and passes the protection limit in the fourth year. A more modest English block saving £400 per flat per year against a median service charge of £1,375 gets there in under eight. Any building with a lift, a roof and a facade on the same thirty-year plan will hold a six-figure balance for most of the cycle, by design, because that is what the plan is for.

What happens to the excess depends on a question that has no published answer. If the account stands in the name of the resident management company, the company is a single depositor and everything above £120,000 is unprotected. If it sits in a managing agent’s pooled client account, whether the scheme looks through to each leaseholder as a separate eligible depositor determines whether the same balance is fully covered or not covered at all. The Netherlands has already met this in its own form: the deposit guarantee is €100,000 per account holder, an association is one holder, and Dutch guidance now routinely instructs treasurers to monitor the balance and open further accounts at further institutions as the fund grows. That is a real and recurring administrative burden, invented by a savings mandate, and England is on course to inherit it without having discussed it.

Who earns the float

There is a commercial dimension and it should be stated plainly, because it predicts behaviour.

A national reserve fund mandate creates a new pool of deposits measured in billions, held for years at a time, with a highly predictable drawdown profile. Interest on trust money belongs to the trust and, in a well-run arrangement, to the building. But the relationship with the bank belongs to whoever holds the account, and the value of that relationship is not confined to the credit interest passed on. The Swedish founders of Odevo, now among the two largest managing agents in Britain, said so openly at the group’s launch: the cash flows attached to managed properties are enormous, and deposits, lending and insurance are areas in which a manager can create value. The group subsequently acquired a financial technology company to provide exactly that infrastructure.

The consequence is a clean asymmetry. For the consolidated agents, who already hold the accounts and the systems, a reserve fund mandate is revenue. For the self-managed tail, it is a cost and an errand, beginning with a bank appointment that may not produce an account. If you want to predict which buildings will comply with the new duty and which will not, that asymmetry will tell you more than any analysis of leaseholder willingness to pay.

Four things to settle before the mandate lands

1. Commence a custody rule or replace it. Sections 42A and 42B, or a modern equivalent, should be in force before or with the reserve fund duty, not after it. Increasing the sums held under a trust while leaving the account rule dormant is the wrong sequence, and it is the sequence currently in prospect.

2. State the deposit protection position. The Financial Services Compensation Scheme, the Prudential Regulation Authority and the department should publish, jointly and before the duty commences, how cover applies to a designated client account held for multiple blocks and to an account held in the name of a resident management company. This is a question of fact, not of policy, and leaving it unanswered means several hundred thousand bodies will be told to save without being told whether the savings are protected.

3. Secure access to an account. If the state requires a body to hold money in a designated account, it should ensure such an account can be obtained. The Netherlands demonstrates that a legal duty to save does not by itself summon a product into existence, and that when the product is priced as a business relationship the smallest bodies simply drop out. A basic designated account, at retail rather than commercial pricing, with an authorisation model that supports joint mandates, is a modest ask and it is the difference between a mandate that binds and one that does not.

4. Make interest follow the fund, visibly. Credit interest on a reserve should accrue to the building and be disclosed in the prescribed accounts alongside the balance. Where an agent holds the money, the arrangement with the institution, including any retained margin, should be disclosed on the same basis as the insurance commission arrangements the government has already decided to bring into the open.

Conclusion

The first piece in this series argued that a savings mandate without an enforcement route produces a statute admired abroad and unmet at home. This is the same argument one level lower down. A savings mandate without a custody rule and without a guaranteed route to an account produces a duty that the well-resourced discharge as a matter of routine and the small cannot discharge at all, however willing they are.

England is unusually well placed here. It already has the trust, it already has a designated account rule sitting on the statute book waiting to be commenced, and it has a professional infrastructure that holds most of the money competently. What it does not have is a decision. The Dutch experience suggests that the decision is worth taking before the mandate rather than in response to the first wave of complaints, because by then the associations that could not open an account will already be in breach of a law that was never designed to reach them.

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The author co-runs a Dutch owners’ association management practice in the Randstad. The practice holds no client relationships in the United Kingdom and has no commercial interest in the outcome of the reforms discussed.

Notes

1. Landlord and Tenant Act 1987, section 42 (service charge contributions held on trust), brought into force 1 April 1989 by the Landlord and Tenant Act 1987 (Commencement No. 3) Order 1988.
2. Sections 42A and 42B, inserted by the Commonhold and Leasehold Reform Act 2002, section 156, and commenced only so far as to confer power to make regulations; redrafted by Schedule 12 to the Housing and Regeneration Act 2008 and commenced on the same restricted basis by article 4(6) of the Housing and Regeneration Act 2008 (Commencement No. 2 and Transitional, Saving and Transitory Provisions) Order 2008. No regulations have been made under either provision.
3. RICS Service Charge Residential Management Code, fourth edition, reported as effective from 7 April 2026 and approved by the Secretary of State under section 87 of the Leasehold Reform, Housing and Urban Development Act 1993, applying expressly to resident management companies and right to manage companies. Effective date and scope should be confirmed against the published Code.
4. Ministry of Housing, Communities and Local Government, Strengthening leaseholder protections over fees, charges and services: consultation (2025), on safeguarding leaseholder funds in the context of increased use of reserve funds; and Government response, 15 July 2026.
5. Burgerlijk Wetboek, article 5:126, requiring the reserve fund to be held on a separate account in the association’s own name.
6. VvE Belang, Weigering banken, 2022, on business tariffs, compulsory payment packages, refusal and termination of standalone savings accounts, and the difficulty banks have with joint-signature and four-eyes mandates; sector guidance on the limited field of providers and on client due diligence and beneficial owner declarations under the Wet ter voorkoming van witwassen en financieren van terrorisme.
7. Financial Services Compensation Scheme, deposit protection limit of £120,000 per eligible depositor per authorised firm from 1 December 2025, with qualifying temporary high balances protected to £1.4 million for up to six months. Dutch depositogarantiestelsel, €100,000 per account holder.
8. MHCLG, Leasehold dwellings, 2024 to 2025, published 21 May 2026: 4.90 million leasehold dwellings in England, of which 3.38 million flats and 1.52 million houses. English Housing Survey 2023-24, median annual service charge reported by leasehold owner-occupiers of £1,375.
9. Block counts for England and Wales and the estimate that around one London block in four is self-managed are industry estimates rather than official statistics.
10. Odevo, launch communications on financial services and the cash flows attached to managed properties, and the subsequent acquisition of the financial technology company Monu.