Our previous managing agent has been replaced but will not transfer the reserve fund to the new agent. They say there is a dispute about their fees. Can they hold on to the money?
An outgoing managing agent should not treat reserve funds as its own money or withhold them purely as leverage in a fee dispute, because qualifying service charge contributions are generally held on statutory trust for the leaseholders who paid them. That does not mean every penny must move on day one. Balances need to be identified and reconciled, and a specific, proportionate and documented retention to settle authorised invoices and complete a final reconciliation can be reasonable. Undisputed funds should not be delayed. Ask in writing for bank statements, a reconciliation, an arrears schedule and a transfer timetable.
Qualifying service charge contributions, including money collected towards a reserve or sinking fund, are generally held on trust under section 42 of the Landlord and Tenant Act 1987 for the leaseholders who contributed. Money held on that basis is not the agent's working capital and should not be treated as a bargaining chip in a fee dispute. An outgoing agent who simply refuses to account for or transfer funds because it is unhappy about its own invoices is in a weak position.
In practice the transfer of funds is the last stage of a reconciliation, not the first. Before money moves, somebody has to establish what the balance actually is. That normally means:
It can be legitimate for an outgoing agent to retain a specific, proportionate and clearly identified sum for a short period to settle authorised invoices and complete a final reconciliation. What is not legitimate is an unspecified, open-ended retention, or a refusal to release undisputed balances while a separate contractual argument runs.
Disputes become intractable when different questions are argued at the same time. Keep them apart:
An agent may well have a genuine claim under issue 2. That claim is normally pursued as a debt, not by holding trust money indefinitely.
Vague requests produce vague answers. Ask, in writing and with a date for response, for the closing bank statements for every account, a reconciliation to the transfer date, an arrears schedule, a schedule of authorised but unpaid invoices, details of any retention with the amount and reason, and a proposed transfer timetable. Keep the correspondence factual. Our guidance on a managing agent refusing handover sets out how to escalate calmly if nothing arrives.
Be careful with deadlines. There is no single universal statutory number of days within which every outgoing agent must transfer every fund; timing is driven by the management agreement, the trust obligation to account properly, and what is reasonable in the circumstances. The Service Charge Residential Management Code sets professional expectations for prompt and orderly handover, and membership of a redress or professional body may give an additional route if an agent is unresponsive.
Recovering a reserve fund is usually easier when someone is tracking the reconciliation on the company's behalf. This is part of our professional management for RTM companies.
Where a block sits in East London or Essex, a local managing agent based in Romford can chase the reconciliation in person rather than by email alone.
Where the board is weighing up a change rather than dealing with one already underway, our guide to changing managing agent sets out the authority, notice and handover steps in order.
Most reserve fund handover disputes are really reconciliation disputes. Separating the trust question from the fee question usually unlocks them.
Arguing the fee dispute and the fund transfer as one issue
Merging them lets an unresponsive agent keep the whole matter open. Ask for the undisputed balance to move while the fee point is resolved separately.
Accepting a closing balance with no reconciliation
Without statements and an arrears schedule, the new agent cannot demand or account for service charges accurately and errors surface a year later.
Allowing an unquantified retention
A retention that has no figure, reason or end date is very difficult to challenge later. Insist all three are stated.
Letting compliance slip while the money is argued about
Insurance, fire safety works and contractor payments still need to happen during a funds dispute.
Most questions on this topic are management questions rather than legal ones, and the two are worth separating. A managing agent can tell you how something works day to day and what it will cost. A solicitor tells you what your rights are and how a Tribunal is likely to view them.
East Valley Properties provides management expertise, not legal advice. Where a matter turns on the wording of your lease or on formal proceedings, we will say so and work alongside your solicitor.
The official material behind this guide. We summarise it in plain English rather than reproducing it.
The statutory trust over service charge contributions.
Approved code of practice covering handover and the handling of client money.
Background on the agent''s role and accountability.
We handle the notice periods, handover of funds and records, and the transfer of compliance documents. Start with a free review of how your block is currently managed.
Answered by Romain Maillard - Director, East Valley Properties
Romain manages residential blocks and estates for RTM companies, residents' management companies, share of freehold developments and freeholders across East London and Essex.
Published · Updated
This answer has been anonymised. Personal details, addresses and company names have been removed. Guidance is general and does not replace advice from a solicitor or surveyor on your specific block. East Valley Properties is a managing agent, not a firm of solicitors or legal advisers.
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