Reserve Funds for Blocks of Flats

In short

A reserve fund, or sinking fund, is money collected through the service charge and kept for big, occasional costs such as a roof, redecoration or a lift. There is no legal minimum: the right amount comes from a planned maintenance plan for the next ten years or more. It can only be collected if the lease allows it, it is held on trust for the leaseholders, and a seller does not normally get their share back.

01What it is

A reserve fund, often called a sinking fund, is money collected through the service charge and set aside for large, occasional costs: a new roof, external redecoration, a lift, windows, the car park. Collecting a little every year spreads the cost fairly across the owners over time, instead of landing a bill of thousands on whoever owns a flat in the year the work is done.

02Service charge and reserve fund

The service charge pays for running the building this year: cleaning, insurance, repairs, fire safety and the agent. The reserve fund contribution is usually a line within the same service charge, but the money is kept back for future years. Both are held on trust for the leaseholders, separately from the managing agent's own money.

03How much is enough?

There is no legal minimum and no fixed percentage. The sensible figure comes from a planned maintenance plan: a list of what the building will need over the next ten years or more, roughly when, and roughly what it will cost. Divide that across the years and you have the contribution. A fund that is not linked to any plan is a guess, and a building with a flat roof, a lift or a sea front needs more than one without.

04If the lease does not allow one

A reserve fund can only be collected if the lease allows it. Some older leases do not, and then every large job has to be paid for in the year it happens, usually through a one-off demand after consultation. Leases can be changed to add a reserve fund, by agreement or through the tribunal in some cases, which is worth taking advice on before a big job is due.

05Selling a flat

A seller does not normally get their contributions back. The fund belongs to the building, held on trust, and stays with it; the buyer benefits from it and will usually ask how much is in it. A healthy fund makes a flat easier to sell, and an empty one with a big job coming is a common reason sales stall.

06Spending it

Taking money from the reserve does not remove the need to consult. Works that will cost any one leaseholder more than £250 still need the section 20 consultation first, whether they are paid from the reserve or by a new demand.

07What we do

We plan the reserve against what the building will actually need, so the roof never arrives as a surprise, and the board sees the plan and the figure behind it before the budget is set.

08Questions

How much should be in a sinking fund for a block of flats?

There is no set figure or percentage. The sensible amount comes from a planned maintenance plan listing what the building will need over the next ten years or more and roughly what it will cost; the yearly contribution spreads that cost across the owners.

What is the difference between a service charge and a reserve fund?

The service charge pays this year's running costs. The reserve fund contribution is usually a line within it, but the money is kept back for large future work. Both are held on trust for the leaseholders.

What if my lease has no sinking fund?

Then a reserve cannot be collected, and large works are paid for in the year they happen, usually through a one-off demand after consultation. The lease can be varied to add one, by agreement or in some cases through the tribunal.

Do I get my sinking fund back when I sell my flat?

Not normally. The fund belongs to the building and stays with it, held on trust; the buyer benefits from it. A healthy fund tends to make a flat easier to sell.

Does spending the reserve fund need section 20 consultation?

Yes, if the works are qualifying works. Consultation is needed when any one leaseholder's share will be more than £250, whatever the works are paid from.

The reserve fund