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Last updated: 26 April 2026
Last legal check: 26 April 2026 · This page is information, not legal advice. Statutory references are correct as of the legal-check date but legislation changes; verify any specific section at legislation.gov.uk before acting on it. For specific situations, take qualified legal or accountancy advice.
For directors · Compliance fix

Bank accounts for a self-managed block. Three accounts. Two trusts. One personal liability you avoid.

Service charge held on trust under Section 42 LTA 1987. Reserve fund separately held. Company money kept apart. Most blocks get this wrong. Fixing it takes one afternoon.

Fiduciary duty & personal liability
Section 42 of the Landlord and Tenant Act 1987 requires service charge and reserve fund to be held on trust for leaseholders. Comingling with company money breaches this trust obligation. If a leaseholder or a court challenges how funds have been held, directors can face personal liability for breach of trust. Banks now actively check account naming; buying solicitors flag comingled accounts on property sales. In context: But the fix is straightforward. Once three accounts are set up with correct naming and dual signatories, monthly reconciliation takes minutes. You eliminate the breach and protect yourself.
What this means Your situation Risk calculator Suppliers Draft email FAQ
What this means

Three accounts you actually need.

Most self-managed blocks hold everything in one or two accounts and don't think about it. The law requires something different.

1. Service charge client account (designated trust account)

Trust money
Holds: Current-year service charge contributions collected from leaseholders.
Legal requirement: Held on trust under Section 42 of the Landlord and Tenant Act 1987. The money belongs to the leaseholders, not to the company. Bank account name must clearly identify it as trust money, for example: "[Block Name] Service Charge Trust" or "Client Account [Block Name]". Must be completely separate from the company's own money and from the reserve fund.
  • Reconcile statements monthly against lease arrears and payments received
  • Interest earned belongs to leaseholders (check your lease)
  • Signatories: at least two directors or director plus managing agent

2. Reserve fund account (separate trust account)

Trust money
Holds: Long-term major works fund. Contributions for future building repairs and replacements.
Legal requirement: Also held on trust under Section 42 LTA 1987. Must be a separate account from current-year service charge so that reserves accumulate without being disturbed by annual reconciliation. Interest belongs to leaseholders.
  • Use a higher-interest savings vehicle (notice deposit, NS&I, or bond fund) to grow the reserve
  • Some larger blocks split: short-term cash, medium-term NS&I, long-term gilts or bond fund
  • Reconcile against reserve fund schedule in the lease (typically reviewed at AGM)
  • Signatories: at least two directors or director plus managing agent

3. Company operational account

Company money
Holds: The RTM's or RMC's own money. Directors insurance, Companies House filing fees, AGM costs, professional fees, anything not chargeable to leaseholders.
Not trust money. This is the company's working account. Keep it separate from trust accounts to avoid any commingling.
  • Usually a small balance (under GBP 1,000)
  • Signatories: at least two directors
  • Reconcile monthly but no leaseholder accountability required
Your situation

Which account setup do you have now?

Three states: the risky setup most blocks have, the partial fix, and the best-practice structure.

Comingled (one account for everything)

Breach of trust
All service charge, reserve fund, and company money in one account. Lenders' solicitors flag this on property sale. Breach of Section 42 trust obligation.
You must fix this: Open a designated service charge trust account and a separate reserve fund account immediately. Move balances into the new accounts and notify leaseholders of the change. Consider getting an accountant to backfill historical reconciliation so you can confirm no funds have been misused.

Two accounts (operational and service charge mixed)

Partial fix
One account for operations and service charge, one for reserve fund. Service charge is held on trust but current-year reconciliation disturbs reserve growth. Still some risk.
Complete the fix: Open a separate service charge trust account so the two trust accounts (service charge and reserve) are completely independent. Reconciliation of the service charge account will not affect the reserve fund balance. This is best practice.

Three properly-separated accounts (best practice)

Compliant
Operational account (company money), service charge trust account (current-year service charge), reserve fund trust account (long-term major works). Each correctly named and reconciled.
Maintain and document: Keep doing what you are doing. Reconcile all three accounts monthly. Keep bank statements, reconciliation schedules, and audit trails. Ensure every year at the AGM you report to leaseholders on the balance of each trust account so they can verify nothing has been misused. You are protected and compliant.
Risk calculator

What is your account risk grade?

Answer these six questions to identify exactly which gaps need fixing.

Suppliers

Who to use for bank accounts.

High-street banks and specialist lenders who understand designated client accounts.

High-street banks for operational accounts

  • Lloyds, Barclays, NatWest, HSBC: Current accounts for company operations. No minimum balance usually. Modest monthly fees (GBP 5-10).
  • What to ask: "Can you open a current account in the name of [Block Name] RMC (or RTM)?" No special requirements.

Specialist lenders for client accounts

  • Reliance Bank, Cater Allen, Hampshire Trust Bank: Designed for designated client accounts. They understand trust requirements and ringfencing.
  • What to ask: "Can you open a designated client trust account in the name of [Block Name] Service Charge Trust?" Request written confirmation of trust status and segregation of funds.
  • Fees: Usually GBP 0-10 per account per month. Interest rates competitive for notice accounts.

Notice deposits and savings for reserve fund

  • NS&I Savings Certificates, Premium Bonds, notice accounts: Hold reserve fund in a higher-interest vehicle while retaining access.
  • Gilt funds, bond funds: For very long-term reserves (5+ years), consider a managed fund held in the block's name on trust.

Accountants and bookkeepers

  • ICAEW or ACCA qualified: Familiar with leasehold trust accounting (TECH 03/11 guidance).
  • What to ask: "Can you help us set up and reconcile three accounts under Section 42 LTA 1987?" Some offer payroll and bookkeeping bundles that include monthly reconciliation.
  • Typical cost: GBP 50-150 per month for ongoing accounting support.
Draft communication

Email templates to your bank and leaseholders.

Use these to formally request the account setup and to explain the change to leaseholders.

Email 1: To your bank

Email 2: To leaseholders

Frequently asked questions

Common questions about trust accounts.

What is Section 42 LTA 1987 and why does it matter for bank accounts?
Section 42 of the Landlord and Tenant Act 1987 requires landlords, managing agents, and RTMs/RMCs to hold service charge contributions and reserve funds on trust for leaseholders. Trust is a legal term that means the money belongs to the leaseholders, not to the company. Directors are fiduciaries; they hold the money for the benefit of the leaseholders. If service charge and company money are commingled, the trust obligation is breached. If funds go missing or are misused, directors can face personal liability for breach of trust, even if the breach was unintentional.
Can the managing agent hold service charge in their own client account?
Only if your lease or managing agent agreement specifically authorises it. Even then, the agent must hold it on trust and must keep clear records showing which balances belong to your block. Many managing agents do hold accounts in their own name but ring-fence the leaseholder funds. However, if the agent is sacked or goes out of business, you may have difficulty recovering the money or proving it was held on trust. Best practice for self-managed blocks is to hold the service charge and reserve fund in the block's own name so there is no ambiguity and you maintain full control.
What happens to interest earned on service charge balances?
Interest belongs to the leaseholders unless your lease says otherwise. Most leases specify that interest accrued on service charge balances is added to the service charge fund. Use a higher-interest savings account for the reserve fund to grow the money while respecting the trust obligation. Even a modest interest rate (1-3% on a dedicated client account) can grow a large reserve fund over time. Check your lease for any specific instruction about interest, and confirm with your bank what interest rate they pay on designated client accounts.
How many signatories should we have, and who?
Minimum: at least two signatories per trust account. Signatories can be two directors, or one director plus the managing agent (if you have one). This provides control and prevents a single person from misusing or misappropriating trust funds. The bank will ask for specimen signatures from each signatory and will require both signatures on every cheque and standing order (or online equivalent). This is inconvenient but essential for protecting leaseholder money. For the operational account, you can follow the same rule (two signatories minimum) or your bank's standard practice for company accounts.
What if our block's accounts have been comingled for years?
Open new trust accounts now and begin separation immediately. This stops the breach going forward. Backfill past statements to identify and move service charge and reserve fund balances into the new trust accounts. If past commingling has occurred and you are concerned about historical liability, consider writing a letter to all leaseholders explaining the change and confirming that no funds have been misused. Some blocks ask their accountant or a solicitor to help reconcile historical balances and provide assurance to leaseholders. The most important step is to stop the breach now and maintain proper separation going forward. Most leaseholders are forgiving about past errors once they see you have fixed the problem and set up controls to prevent it happening again.
Do we need a separate account just for the reserve fund?
Best practice is yes. Service charge (annual contributions for current expenses) and reserve fund (long-term major works) should be held separately so that service charge reconciliation does not disturb reserve fund growth. Some larger blocks split the reserve even further: short-term cash (for major works likely within 1-2 years), medium-term savings (2-5 years), and long-term investments (5+ years, possibly in NS&I or gilts). Separation also makes it transparent to leaseholders that their reserve contributions are being held separately and are not being diverted to cover annual service charge shortfalls. This is especially important if you ever go to tribunal with a leaseholder; clear accounts are your best defence.

Compliance fixed. Personal liability avoided.

Three accounts in three days. Reconcile monthly. Sleep better.

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