Why opening a service-charge bank account can be difficult for RTM and RMC companies

1. An unexpected obstacle for resident-led companies

Taking control of a building can give residents a clearer view of decisions, spending and maintenance. But directors of a right-to-manage (RTM) company, residents' management company (RMC) or share-of-freehold company can encounter an unexpected obstacle: opening a suitable bank account for service-charge funds.

The company registration certificate establishes that the company exists. An ordinary business account enables it to bank. Neither, by itself, establishes that the bank recognises the nature of the service-charge money or offers appropriate protections for it.

Where the statutory trust requirements apply, service-charge money is not simply the company's ordinary operating money. It must be treated as money held for the purposes of the trust, rather than available for the company's unrelated spending. Company administration money, ground rent and service-charge funds should not be treated as interchangeable.

This guide concerns resident-led companies in England. An RTM company, an RMC and a company owning the freehold do not necessarily have identical responsibilities: check the leases and the company's role. For background, read the Right to Manage process.

2. What changed in April 2026?

The fourth edition of the RICS Service charge residential management code took effect in England on 7 April 2026. It applies to residential management involving variable service charges, including self-managed blocks, RTM companies and RMCs - not just firms regulated by RICS.

The Code was approved by a statutory instrument under section 87 of the Leasehold Reform, Housing and Urban Development Act 1993. It is not a new Act of Parliament. Failure to follow an approved code does not, by itself, create liability to proceedings; relevant provisions can be admitted in evidence and must be taken into account by a court or tribunal. Separate statutory duties and applicable professional rules still matter. The approval excludes the Code's RICS standards framework and freehold-house/variable estate-rentcharge sections; earlier approved codes remain relevant to proceedings about acts or omissions before 7 April 2026.

The trust obligation is much older

Section 42 of the Landlord and Tenant Act 1987 provides the longstanding statutory trust for qualifying residential service-charge funds. Its scope uses the definition of a variable service charge in section 18 of the 1985 Act. The money, investments representing it and accruing income are held on trust to meet the costs for which the charges were payable and, subject to that, for the contributing tenants for the time being.

Section 42 can also cover a charge paid by the tenant of a single dwelling; do not assume that a one-contributor fund is excluded. There are exceptions, including the statutory categories of exempt landlords in section 58 and particular Rent Act registered-rent arrangements. The legislation also contains qualifications concerning existing express trusts and distribution. Check the actual landlord, lease and charge rather than assuming every residential payment falls within the same rule.

Separate money and separate records

The Code says service-charge payments must be kept separate from the landlord's and managing agent's own money. One development's funds must not finance another development. Its banking guidance recommends written acknowledgement of client money, protection against set-off for the manager's debts, appropriate interest treatment and reconciliation at least monthly.

The trust duty is not the same as a statutory requirement for one separate bank account per building. The Code allows separately ring-fenced accounts or a universal service-charge account in which each scheme's money is separately accountable. Suitable terms, accurate development-specific records and proper controls remain essential whichever structure is used.

Do not automatically apply these long-leasehold service-charge rules to contributions from freehold houses. Freehold estate arrangements require separate consideration of the relevant documents and law.

3. Why an ordinary business account may be unsuitable

A company's ordinary business account is usually set up for its own trading or operating money. An account used for service-charge trust or client money needs terms and working arrangements appropriate to money held for others. The name on the product does not settle that question: labels such as "business", "community" or "client" are not proof of suitability.

Directors should ask for written confirmation covering:

• Nature and ownership: does the bank recognise that the funds are service-charge trust or client money, rather than the account holder's unrestricted business money?
• Separation: how are the funds kept apart from the account holder's own operating money?
• Set-off: can the bank use the funds to offset the managing agent's own debts, or combine the account with the agent's business accounts?
• Interest: who receives it, and how is it identified and accounted for?
• Designation and records: how is the development identified, and can its balance and transactions be traced?

These questions bring together different safeguards. Section 42 establishes the statutory trust where it applies; the RICS Code sets out professional management expectations; the bank's written terms establish the banking relationship and protections it offers. Do not assume that each item above is a separate statutory account-opening requirement or that the word "client" supplies all of them automatically.

The practical aim is a suitable account supported by appropriate terms, accurate records, reconciliation and payment controls - not a particular product label.

4. Why small RTM and RMC companies can struggle

Some client-account application processes are designed around professional businesses holding money for multiple clients. A volunteer board looking after one building may not fit that application process neatly.

East Valley's experience, not a rule applying to every bank:

Some banks we have approached have asked for evidence of anti-money-laundering supervision and, in some cases, client money protection membership as part of their client-account eligibility process.

For a small resident-led company, satisfying a provider's checklist can involve administrative work and, where relevant, costs that are difficult to justify. That does not mean all banks impose the same criteria, or that a suitable account in the company's own name is impossible.

Before committing time or money, explain the company's actual activities and the purpose of the account to the bank. Ask whether it accepts that type of resident-led company, which requirements apply and whether its terms are suitable for the proposed service-charge funds. This article does not attribute an eligibility policy to any named bank.

5. Does an RTM or RMC need AML registration?

A bank's account eligibility policy is not the same as a statutory obligation to register for anti-money-laundering supervision. Banks also carry out customer-identification and due-diligence checks; being asked for identity documents is not the same as being required to become an AML-supervised business.

Do not assume that every RTM, RMC or share-of-freehold company must register simply because it collects service charges. The answer depends on the activities undertaken and the applicable rules, not just the company's name or the fact that it holds a service-charge fund.

HMRC's guidance identifies regulated activities, including certain trust or company services provided by way of business to other people. Company formation, registered-office services and acting or arranging for someone to act as a director or company secretary can be relevant. Another competent body may supervise an activity instead of HMRC. A managing agent offering additional services should check its own obligations rather than treating all block-management activity as automatically exempt.

Ask a provider to explain why its eligibility criteria apply to your company and obtain advice on the company's actual activities where necessary. Do not register unnecessarily just to satisfy a generic banking checklist. AML supervision, a bank's customer checks and HMRC's Trust Registration Service are distinct matters; this article does not determine a company's position under the latter.

6. Is client money protection compulsory?

Client money protection (CMP) is a scheme intended to compensate eligible clients where a property agent fails to repay their money. Eligibility, conditions, exclusions and limits depend on the particular scheme and activities covered. It is different from:

• Professional indemnity insurance: liability cover for covered professional claims, not automatic protection against missing client money.
• Bank deposit protection: protection for eligible deposits if a bank fails, subject to the applicable depositor, beneficiary and account rules.
• The statutory service-charge trust: the legal basis for holding and using qualifying funds, not an insurance policy or an unconditional promise to repay every loss.

England's mandatory property-agent CMP regime is not a universal requirement covering every long-leasehold block-management arrangement. Its application is tied to defined letting-agency and property-management work and the holding of client money for those activities.

GOV.UK enforcement guidance describes activities associated with lettings of 21 years or more as outside the mandatory regime. The underlying definition in section 56 of the Housing and Planning Act 2016 uses "more than 21 years". For a lease of exactly 21 years, obtain specific advice rather than relying on that shorthand. An agent's other activities may independently fall within the regime.

A bank or professional body may impose separate eligibility or membership requirements. Ask what a particular CMP scheme actually covers, including whether the relevant service-charge funds and the legal entity holding them are within its scope. Do not assume that a firm's membership for its lettings business protects every block-management fund. This guide makes no claim that East Valley Block Management's service-charge funds benefit from CMP cover.

7. Can the bank account be in the resident company's own name?

Yes, a suitable account in an RTM or RMC company's own name can be possible. The practical challenge is finding a provider willing to accept the company and offer appropriate terms for holding its service-charge funds.

If the company already has an account, review the terms and how it is operated rather than assuming it is unlawful. Ask for written confirmation of the account holder, the treatment of the funds, set-off provisions, interest and access permissions. Seek specialist advice if the answer is unclear.

Using a managing agent's client-banking arrangements is another route, not the only lawful solution. An agent's account still needs suitable bank terms, segregation, records and operating controls. There is no formal section 42 account approval or certification implied by this guide.

For East Valley's two available approaches, see service-charge banking: your options.

8. East Valley's approach

At East Valley, we arrange a designated client account for each development under East Valley Block Management's client-banking arrangements. The development's service-charge funds are held separately from East Valley's own business money.

East Valley Block Management Ltd is the bank's legal account holder in this arrangement. That does not make the development's service-charge funds East Valley's ordinary business money: the funds remain held on trust where the relevant trust requirements apply.

This route avoids asking each resident-led company to establish a standalone client-banking relationship. It does not remove the need for appropriate bank terms, segregation, accurate records, reconciliation and operating controls, or make an account suitable solely because it sits under East Valley's arrangements.

Authorised directors can access their development's account to view transactions at any time of day, subject to online banking availability.

Access is to their own development's accounts only, subject to identification checks and the required authorisation forms. Directors can monitor activity directly rather than relying solely on periodic reports or requesting statements.

Viewing access is not permission to create, approve or release payments. Payment permissions depend on the agreed bank mandate and authorisation arrangements. Viewing access does not give directors access to other developments' accounts or transfer East Valley's responsibilities to them.

9. What does it cost?

At East Valley, the bank charge is £3 per month for each designated client account, equivalent to £36 per year per account. This is paid from the development’s service-charge account and is separate from our management fee.

This is per account, not per flat. One designated account costs £36 per year; two cost £72 per year. If a development has separate designated service-charge and reserve accounts, each account attracts its own charge. £36 does not cover every account a development may hold.

Charges should be transparently disclosed and reflected in the agreed arrangements. Payment from the development's service-charge account does not mean that a charge is automatically recoverable from every leaseholder. Recoverability depends on the relevant lease or estate documents and applicable legal requirements, including reasonableness where relevant.

East Valley's separate operating-account costs are not included in this example. The example describes the designated-account charge only; ask for the full agreed terms and read our management fees and the full-cost block management fees guide.

10. Questions directors should ask

Use the following questions when speaking to a bank or comparing managing agents. Ask for answers in writing, including any conditions or exclusions.

Bank deposit protection depends on the current rules and the actual depositor, beneficiary and account arrangements. An account described as "client" does not by itself establish who is protected or how any entitlement is calculated. Obtain confirmation for your arrangement rather than assuming a fixed amount per development or per flat.

For ongoing oversight, see how to request service-charge information and what a service-charge balancing charge means.

11. Finding a workable arrangement

The goal is a banking arrangement with clear ownership, appropriate safeguards, transparent charges and practical oversight. A suitable account in the resident company's own name and a properly operated managing agent client account can both be routes to consider.

If your directors are having difficulty opening an account, you can discuss your building's requirements with East Valley. We can explain our designated client-banking arrangement and director viewing access, alongside the option of a suitable company-held account.

The right approach depends on the company, property, leases and bank terms. Difficulty with one provider's checklist does not mean every existing resident-company account is unlawful or that appointing a managing agent is the only lawful solution.

Sources and further reading

The official material below supports the legal and regulatory explanations. Bank acceptance and account terms must be checked for the proposed arrangement. East Valley's reported banking experience, designated-account arrangement, director viewing access and per-account charge were supplied by East Valley for this article; they are not universal bank policies or independent certifications.